City Council OKs going $1.9 billion deeper into debt
BY FRAN SPIELMAN City Hall Reporter February 5, 2014 11:02AM
Chief Financial Officer Lois Scott talks to Ald. Ricardo Munoz (22nd) before Wednesday's vote to increase the city's already massive debt load. | Fran Spielman/Sun-Times Media
Updated: March 7, 2014 1:29PM
Without a word of debate, the City Council on Wednesday blindly added $1.9 billion to Chicago’s mountain of debt even though aldermen have no idea how the money will be spent.
The vote was 43-to-4. “No” votes were cast by Aldermen Bob Fioretti (2nd), Scott Waguespack (32nd), Brendan Reilly (42nd) and John Arena (45th).
“Chicago needs to tackle these difficult fiscal issues now rather than push them off into the future,” Reilly said after the vote.
“And I don’t believe we were given the level of detail we need to provide the administration with that kind of borrowing authority.”
Waguespack said his specific questions about how and when the money would be spent were answered with a list of pinstripe patronage tied to the two massive borrowings.
“We do have a piling up debt problem. But we also have a spending problem. You can’t separate the two. We have to start looking at these big projects and saying, `Maybe, we have to scale back a little bit,’ ” the alderman said.
The $900 million in general obligation debt backed by property taxes and $1 billion in bonds for Midway Airport put Mayor Rahm Emanuel on the defensive.
He was asked about taking Chicago down the same road that led Detroit into bankruptcy.
He was forced to explain why he’s continuing the borrowing binge — and doubling to $1 billion a “commercial paper” program used to tide the city over between bond issues — when Chicago’s disturbing level of debt has already contributed to a triple-drop in the city’s bond rating.
“A little over half of this is about modernizing Midway. And we did it because I totally rejected the idea of privatizing it,” the mayor said.
Emanuel said “every city does general obligation bonds” to bankroll neighborhood infrastructure projects and Chicago is no different.
But he was forced to explain why Chicago’s version includes $200 million in debt refinancing and $130 million in “restructuring” that will saddle Chicagoans with another decade of debt that should be paid off today.
“A lot of families refinance their homes. A portion of this is just like that,” the mayor said.
“We took that out from an operating standpoint. That’s for long-term. I don’t do that practice anymore. We’ve changed that” controversial tactic known as “scoop-and-toss.”
As for the Detroit comparison, the mayor said, “I totally reject that, as have others. Detroit is totally dependent on the auto industry. We have an extremely diverse economy where no one sector is more than 13 percent of the employment…The comparison is wrong for a whole host of economic strengths even Moody’s has cited.”
He added, “This problem wasn’t created overnight. It’s inherited from a set of practices years [in the] making. You cannot just change that in two years without affecting the well-being of an economy that’s just now finally emerging. If you do something so dramatic, you’ll actually throw the economy into a recession.”
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 Emanuel.
The G.O. bonds will be sold in two installments, the first $450 million in March, the second half during the second-quarter.
Chief Financial Officer Lois Scott has 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.
The city’s 2012 audits cited a new round of borrowing that brought Chicago’s total long-term debt to nearly $29 billion. That’s $10,780 for every one of the city’s nearly 2.69 million residents. More than a decade before, the debt load was $9.6 billion or $3,338 per resident.
The added $900 million in general obligation debt will bring the level of debt backed by property taxes to nearly $8 billion.