Chicago aldermen pushed back Monday against Mayor Lori Lightfoot’s plan to get around the Treasury Department’s ban on using federal COVID-19 relief funds to retire debt.
Lightfoot’s original plan called for using more than half of the $1.9 billion in federal relief funds headed to Chicago to retire $465 million in scoop-and-toss borrowing and cancel plans to borrow $500 million more.
But when the Treasury Department guideline nixed that idea, the mayor’s financial team devised an end-run.
Instead, the mayor plans to use $782 million in relief funds to replace revenues lost to the pandemic in 2020 and 2021. That will free up corporate fund revenues to retire the refinanced debt, often called “scoop-and-toss” because it scoops up existing debt and by stretching out the payments, tosses that obligation further into the future.
That’s in addition to Lightfoot’s plan to refinance $1 billion in debt at reduced interest rates during the fourth quarter of this year and use the $250 million in savings to pay for retroactive pay raises for Chicago police officers.
But, during a subject matter hearing Monday on city finances, some aldermen essentially said, “Not so fast.”
Ald. Sophia King (4th), chairman of the City Council’s Progressive Caucus, asked the mayor’s financial team what would happen if the Council decides to refinance, but “over a number of years.”
That would free up federal money to confront what King views as pressing social needs laid bare by the pandemic.
“There are certain things that, if we don’t get to and address right now, could cause longer-term problems that may be financially burdensome,” King said.
“Obviously, you guys are presenting a budget that takes care of the scoop-and-toss first. …Have you looked at and weighed … those options of looking at some of the other really large issues that have come to light over COVID vs. paying scoop-and-toss immediately and different versions of that? Have you weighed the cost of doing that?”
Chief Financial Officer Jennie Huang Bennett said she’s working on a “sizable investment package.” The “exact dollar amount” won’t be known until the mayor introduces her 2022 budget in mid-September.
“We’ve heard a lot of need, for example, in mental health and affordable housing, in anti-violence and a number of different initiatives. And then, in addition to that, weighed that vs. the repayment of what, in essence, is scoop-and-toss, which also has very negative ramifications,” Bennett said.
“We are working towards a proposal that’ll balance both. Understanding the importance of investments that there are significant needs. But also understanding that we need to find a financially responsible path forward.”
King asked whether Lightfoot has considered returning to Springfield to resurrect her failed plan to raise the real estate transfer tax on high-end home sales.
Transaction taxes are currently running 21.4% above budgeted expectations, thanks to the booming housing market.
“We would probably get a lot of money — to the tune of hundreds of millions — from that,” King said.
“The housing market is doing quite well. Adding a little resources for the city while that boom is happening is a good thing. I don’t think it would slow it down. I really want to encourage us to look at that — especially because it's long-term. It’s structural. And it’s a lot of money and we have a lot of issues to deal with. … We could bring in more money and not rob Peter to pay Paul.”
Bennett said the push for “additional revenue streams” continues even though the crush of issues that dominated the spring session “made it difficult for all of our issues to be heard.”
“We’re also cognizant of the fact that, in the midst of what is a very difficult economic circumstance, increasing taxes can be counter-stimulative to that economic recovery,” Bennett said.
Ald. Mike Rodriguez (22nd) also zeroed in on Lightfoot’s, still-unfulfilled campaign promise to use an increase in that transfer tax to create a dedicated revenue stream to confront Chicago’s affordable housing crisis.
He asked Bennett whether properties that sold for over $1 million had driven the surge in transaction tax revenues.
“It’s really across the board. We’ve seen home sales across all different price ranges be at historic highs by way of price and volume,” the CFO said.