City budget chief: Chicago’s debt led to creation of Infrastructure Trust fund
BY FRAN SPIELMAN City Hall Reporter firstname.lastname@example.org April 4, 2012 4:36PM
City Budget Director Alex Holt and Mayor Rahm Emanuel. | Sun-Times file photo
Updated: April 4, 2012 4:40PM
A top mayoral aide on Wednesday offered a compelling reason why five financing giants are being asked to put up $1.7 billion to rebuild Chicago’s crumbling infrastructure: The city is drowning in debt.
In the ten years ending in 2010, the city’s direct debt rose by a staggering 96.9 percent — to $7.3 billion. That’s $2,719 for every person living in Chicago. The mountain of debt rises to $13.5 billion when pension and lease obligations, claims and judgments and pollution remediation are factored in.
Debt service appropriations account for 22.9 percent of the city’s $6.3 billion 2012 budget. Wall Street rating agencies consider a debt burden high if it falls within the 15 percent to 20 percent range, according to the Civic Federation.
After a luncheon address Wednesday to the City Club of Chicago, Budget Director Alex Holt was asked how Mayor Rahm Emanuel’s $1.7 billion “Infrastructure Trust” differed from the widely-despised deal that privatized Chicago parking meters and locked in a steep schedule of rate hikes.
Holt answered by talking about the choking amount of city debt.
“Typically, the city finances its infrastructure, its capital through property taxes, right? We go out, we levy property taxes. We issue debt against it,” the budget director said.
“The city has a sizable … debt service load and one that we’ve been talking about how we handle on a going-forward basis. What we’re talking about with the Infrastructure Trust is to look at other mechanisms for financing — and ones that don’t tie directly to our property tax levy and the usual G.O. [general obligation] bonds that we might issue.”
Ald. Joe Moore (49th), who was seated in the City Club audience, got the message loud and clear.
“We borrowed heavily during the Daley administration and we’ve really reached our limit under the current property tax level. So, we either have to raise property taxes to cover financing additional bonds or look at other creative ways of financing,” he said.
Moore said it’s obvious that more debt is out of the question and that Emanuel needs to “find ways to encourage private investors” to bankroll projects.
But, he said, “They’re not gonna do it out of the goodness of their heart. They want a return. Where does that come from and what are the long-term consequences for the city and its taxpayers?”
The Chicago Sun-Times reported this week that the proposed Infrastructure Trust is running into opposition from aldermen concerned about “hidden fees,” long-term leasing of city assets, minority participation and the selection of city projects by a five-member board that includes no aldermanic representation.
On Wednesday, Holt stuck to the script by highlighting the $225 million in energy efficiency projects for government buildings expected to launch the trust and generate $20 million in energy savings that will be used to repay investors.
She would not discuss what other projects might be financed or what, if any, user fees would have to be imposed to make certain investors get their money back with interest.
It’s not the first time the red flag has been raised about the city’s debt load.
In a budget analysis last fall, the Civic Federation wrote, “The sharp upward trend in debt-per-capita threatens to further reduce the city’s credit rating, making borrowing more expensive and, possibly, limiting available capacity for additional borrowing.”
In other budget news during Wednesday’s speech, Holt disclosed that the state owes the city three income tax payments totaling $50 million dating back to October.
“In all fairness to the state, they’ve got their own fiscal issues. But, there certainly are some slow pay situations for us. As long as we ultimately get the money, we’ll be fine,” she said.
“It’s less of a cash-flow issue for us than it is a budget issue. We just need to make sure that, by the time we get to the end of the year, that we’re made whole.”