City to borrow $1.9 billion in first test since rating downgrade
BY FRAN SPIELMAN City Hall Reporter February 3, 2014 2:35PM
Mayor Rahm Emanuel presiding over the City Council meeting. Wednesday, May 8, 2013 | Brian Jackson~Sun-Times
Updated: March 5, 2014 6:17AM
Chicago will test the bond market for the first time since its bond rating dropped three notches, thanks to $1.9 billion in borrowings added Monday to the mountain of debt piled on Chicago taxpayers.
The City Council’s Finance Committee authorized two massive borrowings: a $900 million general obligation bond issue to refinance old debt, pay for equipment and capital projects and bankroll $100 million for legal settlements incurred last year and a $1 billion borrowing for Midway Airport.
The Finance Committee also agreed to double — from $500 million to $1 billion — a so-called “commercial paper” program used to cover short-term borrowing between bond deals.
The borrowings will be the first for the city since mid-July, when Moody’s Investors ordered an unprecedented triple-drop in Chicago’s bond rating, citing the city’s “very large and growing” pension liabilities, “significant” debt service payments, “unrelenting public-safety demands” and historic reluctance to raise local taxes that has continued under Mayor Rahm Emanuel.
Chief Financial Officer Lois Scott was asked Monday how much the downgrade would add to the city’s borrowing costs when it comes time to issue the general obligation bonds in two installments, the first $450 million in March, the rest during the second-quarter.
“We haven’t issued debt since then. So, we have no way of knowing,” Scott said before hustling out of the City Council chambers.
Last fall, Scott was quite specific about the cost. She warned aldermen that the unprecedented downgrade would cost taxpayers $1 million a year for every $100 million borrowed and severely limit the city’s “financial flexibility” going forward.
“It is much more expensive for us to keep the city operating financially, and it limits our accessibility. ... Our opportunities to maneuver have become much more restrictive,” Scott said then.
The general obligation bond issue includes $200 million in debt refinancing and $130 million in debt restructuring to “better align revenues with our obligations,” as Scott put it.
The so-called “scoop-and-toss” technique will stave off even higher taxes and fees, but it will saddle Chicagoans with another decade of debt that should be paid off today.
“We have a debt service curve that drops down. So, we’re trying to take advantage of the future window that’s been created and take debt now, where it’s high, and move it into a time-frame where it’s not as high as it is today,” Scott said.
The “commercial paper” program “will ensure the city has liquidity for unseen needs such as retroactive salary payments and judgments,” she said.
Contracts with Chicago Police officers, firefighters and other city unions expired on June 30, 2012. When new agreements are reached — either at the bargaining table or by an arbitrator — the city will almost certainly be forced to pay tens of millions of dollars in back pay.
During Monday’s Finance Committee meeting, aldermen spent more time talking about the gravy train of pinstripe patronage tied to the deal than they did about how the money was being spent.
That’s what bothered Ald. Scott Waguespack (32nd), one of the mayor’s harshest critics.
“Kicking the can down the road. That is really what worries us — that our kids are going to be paying a higher bill because he doesn’t want to take responsibility for these things now,” he said.
Ald. Bob Fioretti (2nd) homed in on borrowing in 2014 to pay for $100 million in legal judgments incurred a year ago.
“Those should have been budgeted. To take a loan out to pay for our legal settlements is giving unfettered discretion to the corporate authorities to allow for any type of settlement,” Fioretti said.