Mayor Brandon Johnson’s plan to issue $830 million worth of general obligation bonds to bankroll a year’s worth of capital projects cleared a City Council committee Monday amid questions about borrowing that much money when federal funding is at risk and the impact of the city’s recently reduced-bond rating.
Last month, Chicago suffered the borrowing consequences of a marathon budget stalemate that ended with no property tax increase and a tension-filled 27-to-25 vote to pass Johnson’s $17.1 billion spending plan.
Standard & Poor’s followed through on its threat to drop the all-important bond rating that determines Chicago’s borrowing costs. It went down from BBB+ to BBB, just two notches above “junk bond” status.
The move is expected to cost Chicago taxpayers tens of millions of dollars over the next 40 years. The bond issue approved Monday by the Finance Committee will be the first major test.
Higher borrowing costs were just one of the concerns raised by Finance Committee Vice-Chair Bill Conway (34th). Conway noted “a lot of things have happened since budget season — the downgrade and the threat we face from the federal government among them.”
Among the reasons Standard & Poor’s cited for the downgrade was “excessive debt liabilities .. the largest of any major U.S. city,” Conway noted.
“We see some troubling times ahead. … We, as a committee, really need to be asking, ‘How much do we need of this now?’ “ he said.
“The fact that we’re gonna do an $830 million debt authorization without any kind of spending plan whatsoever seems like we are shooting ourselves in the foot vis-à-vis the rating agencies and the people who send us here. … I hope we can find a way to be responsible and judicious with taxpayer dollars in a very difficult time.”
Chief Financial Officer Jill Jaworski said the liabilities S&P cited include Chicago’s $37 billion pension crisis.
“The amount of pension liability we have is extremely out-sized. And it’s actually larger than most states. It is the biggest financial challenge that the city has,” she said.
Wall Street rating agencies were given a borrowing forecast with the $830 million bond issue “baked in” and that anticipated level of new debt was “not cited as part of the reason” for reducing the city’s bond rating, Jaworski said.
“The rating agencies do expect that we will continue to be making a high-level investment in the infrastructure in the city. And that is included in our rating and it is not something that is specifically a negative,” she said.
Downtown Ald. Brendan Reilly (42nd) was not appeased by the argument made by top mayoral aides that general obligation bond issues are “routine,” the only difference being this year’s version will bankroll just one year’s worth of projects.
“I would argue that our `routine’ in this building is why our city budget is a disaster and the bond rating agencies are constantly hovering over the city of Chicago, threatening more downgrades,” Reilly said.
“Routine doesn’t necessarily make this OK. So, it’s good that my colleagues are asking questions about this. We should. Had we not asked the number of questions we did about the budget during that process, we’d probably be looking at a $300 million property tax increase right now.”
Johnson’s original plan would have allowed some of the borrowed money to be spent on the avalanche of settlements and judgments against the city, many triggered by allegations of police wrongdoing. That language was stricken to avoid a return to a treacherous practice eliminated by former Mayor Rahm Emanuel.
Among the projects funded by the borrowing plan nitpicked during Monday’s hours-long debate:
• $108 million for the aldermanic menu program, including $1.5 million for each of the 50 wards and $33 million for “supplemental support work” for local projects Council members choose to fund from their piece of that pie.
• $68.1 million for bridge replacement, $30 million for “critical repairs” to other bridges and $825,000 to rehab two underpasses.
• $157.5 million for street projects, including $35 million for safety improvements at up to 150 intersections in “high-crash corridors” near schools and parks; $115.5 million for new streetscapes; $7 million for pavement markings.
• $73.8 million to renovate police and fire stations and other city buildings.
• $64.9 million for fleet replacement, including 382 new police vehicles; 41 fire rigs and 138 other vehicles; $10.6 million for Chicago firefighter bunker gear; and $7 million for public safety cameras.
• $102 million for street resurfacing and $78 million for street light replacement and traffic signal improvement.
• $100 million to replace lead service lines — a paltry amount, said Ald. Gilbert Villegas (36th), given the fact that Chicago is “on the clock” to remove lead service lines in 20 years.
• $19 million for repairs to sidewalks and pedestrian rights-of-way.