Not paying principal on a loan for 20 years while interest costs pile up? Is this the best the mayor and City Council can do to get Chicago on a firmer financial footing?
Mayor Brandon Johnson wants to issue $830 million in bonds for infrastructure projects and take 30 years to repay the bonds, when the total cost would soar to more than $2 billion. The cost would be so high because the city wouldn’t start repaying principal until 2045. For those final years, the city would have to pay $821 million.
We can hear future city leaders — amid their own struggles to balance a budget — saying, “Thanks a lot.”
Today’s officeholders apparently aren’t all that sympathetic. As Steve Goodman used to sing, “It ain’t hard to get along with somebody else’s troubles.”
The general obligation bond sale proposal really ought to go back to the Finance Committee, where all the details can thoroughly be discussed, as Ald. Bill Conway (34th) asked before the Council turned him down.
Alderpersons who favor the bond sale say starting to pay down principal right away would mean the city would have to dig around for new revenue. You know, more tax money of some kind. And, sure, no one likes that.
But what do they think the mayor and City Council of 2045 will have to do? They also would have to find additional revenue, just a lot more of it than would be needed today. Meanwhile, what about those police cars that are part of the infrastructure package? By the time the future mayor and Council would be just starting to paying the principal on those cars, they would already be out of service.
Stop kicking can down the road
As Conway told the City Council, the proposed bond sale would be like taking out a mortgage and watching the interest accumulate for a couple of decades, a point at which the city would owe a bunch more than it originally borrowed.
Granted, the arithmetic is daunting for anyone trying to run the city. Shoring up severely underfunded pensions takes a lot of money off the top that could instead go to just the type of infrastructure improvements the mayor and Council want. Today’s officeholders would be grateful now — and the city wouldn’t be in such a financial bind — had the leaders of the past ensured the pensions were properly funded right along.
That’s all the more reason, though, the city should handle its borrowing in the most prudent way possible. Backloading bond repayments does not count as prudent. There’s little reason to think the city will have a windfall in the future that will make it easier to repay money, especially with unmistakable signs coming out of the Trump administration that there will be less federal money for cities in coming years.
Moreover, some alderpersons felt the bond sale was not presented in a transparent manner. Instead, the critical information making it clear that repaying the principal would not start until 2045 was buried in an easy-to-miss document. It’s up to the mayor to make sure alderpersons are in the loop on critical points — and this certainly counts as one — from the start.
Borrowing money is not the problem. That’s what municipalities do to pay for necessary capital projects. But repaying money should be done in a responsible way, which, in fact, the city has actually been better at in recent years. It’s not time to start backsliding. If the city can’t afford to make principal payments more quickly, maybe the mayor and Council should see how they can trim the amount of the bond sale to make it more affordable.
Rating agencies last month downgraded Chicago’s bonds to just above “junk status.” The lower the bond rating, the higher the cost to taxpayers when the city borrows money.
The rating agencies did not downgrade Chicago because they thought its finances are being managed wisely. A backloaded bond sale could well dig the city deeper into the ratings hole. Ratings agencies prefer stability and predictability.
Kicking the can down the road is not new for Chicago’s leaders. But as Conway told us, “We can’t keep kicking the can until it hits a brick wall and then hoping the wall will magically disappear.”
The mayor and the City Council must take the time and fix this.
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