Federal guidelines may prevent Lightfoot from using relief money to pay down city debt

The U.S. Treasury Department may have thrown a monkey wrench into Mayor Lori Lightfoot’s plan to use more than half of the $1.9 billion avalanche of federal relief funds on the way to Chicago to retire $465 million in scoop-and-toss borrowing and cancel plans to borrow $500 million more.

Interim rules released this week identify several “ineligible uses” for the $350 billion being doled out to state and local governments.

They include tax cuts, pension funds, “funding debt services, legal settlements or judgments and deposits to rainy day funds or financial reserves.”

General infrastructure spending is not covered either, with the exception of “water, sewer and broadband investments or above allocated under the revenue loss provision.”

“While the program offers broad flexibility to recipients to address local conditions, these restrictions will help ensure that funds are used to augment existing activities and pressing needs,” the guidelines state.

Lightfoot balanced her 2021 budget by refinancing $1.7 billion in general obligation and sales tax securitization bonds and claiming $949 million in savings in the first two years.

That approach extended the debt for eight years and returned Chicago to the bad borrowing days former Mayor Rahm Emanuel had ended.

The mayor’s financial team had told aldermen that more than half of the $1.9 billion avalanche of federal relief funds on the way to Chicago would be gobbled up by retiring $965 million in scoop-and-toss borrowing used to eliminate the pandemic-induced shortfall.

Lightfoot reiterated that promise to investors last week — amid heavy resistance from a City Council hell bent on using that money to address poverty, homelessness, mental health and economic disinvestment.

“First and foremost, we need to make sure that we address our structural deficit. We had to do some one-timers to close the budget gap for 2021 because we didn’t know whether there would actually be any other monies available. I’m looking to eliminate some of those one-timers and use some of the [relief] money to do that,” she said.

On Wednesday, the mayor’s budget office was asked how the mayor can still deliver on her promise to investors without violating Treasury Department guidelines.

“The Treasury guidance represents interim rules that have been put out for comment, and the City plans to seek clarification on the guidance as well as provide comment,” a spokesperson for the city’s Office of Budget and Management wrote in a terse emailed statement that hinted at an appeal.

If there is an appeal, the mayor is expected to argue the massive scoop-and-toss borrowing would not have been necessary if not for a precipitous drop in revenue directly tied to the stay-at-home shutdown triggered by the coronavirus.

Civic Federation President Laurence Msall has urged the mayor to eliminate scoop-and-toss and move toward eliminating Chicago’s structural deficit.

After reading the federal guidelines, Msall said it was “fortunate that the city has not yet issued the scoop-and-toss borrowing they had planned as a back-up” for the 2021 budget.

“It remains to be seen whether the interim Treasury guidance will completely prohibit the city from re-paying short-term borrowing it did in December,” Msall wrote in a text message to the Sun-Times.

“But, the fact remains that city leaders must use this reprieve wisely and come up with a long-term plan for how they will address their structural deficit and other budget stressors that will remain after the [stimulus] funding is gone.”

If the city’s expected appeal is not successful, Lightfoot would at least face less resistance from aldermen with their own wish lists, who must approve stimulus spending.

Ald. Gilbert Villegas (36th), Lightfoot’s former City Council floor leader, has introduced an ordinance calling for using $30 million of the new federal money to bankroll a guaranteed income pilot.

Ald. Jason Ervin (28th), chairman of the Black Caucus, has argued it would be a “slap in the face” to African Americans who have “suffered great atrocities over time in this country” to talk about giving 5,000 of Chicago’s neediest families guaranteed monthly payments when aldermen have just begun talking about paying reparations to Chicagoans whose ancestors were enslaved.

“It’s tantamount to being pushed to the back of the line again. African Americans — not only in the city, but in this state and in this country — have always been at the back of the line when it came time for resources,” Ervin told the Sun-Times last month.

“Resources for the descendants of slaves should take front-and-center if we’re gonna start giving money out to anybody. When you look at the atrocities that our community has endured over the years, it’s just appropriate that some level of understanding and remuneration be granted for such. This is not a new idea. This is not foreign.”