Aldermen scale back Emanuel borrowing plan — for now

Aldermen scale back Emanuel borrowing plan — for now


City Council endorses $2.65 billion in new borrowing in the coming years

Aldermen on Monday scaled back Mayor Rahm Emanuel‘s push to borrow $2.65 billion, saying top administration finance officials did not provide enough details about how the city would spend the money and the amount of interest taxpayers would have to cover.

Removed — for the time being — was a plan to borrow $650 million for construction projects and legal settlements yet to be detailed. And, in a change of procedure, the committee also required Chief Financial Officer Carole Brown to report back to the council after some of the bond issues that were authorized go to market.

The changes were a sign of aldermen’s dissatisfaction with the information Brown provided them and an indication of the council’s restiveness in the wake of the release of the Laquan McDonald police shooting video that has put Emanuel in a defensive stance, aldermen said.

Brown asked for one-time authorization for a series of city bond issues in the coming years before aldermen knew the full spending plan and interest rates. The bond issuance requests are usually made at separate meetings, but Brown said she was presenting them all at once so the Emanuel administration would be able to quickly borrow money when rates were at their lowest.

“We need some proof … and that’s what makes me worry and gives me reservation about this much, all at once,” Ald. John Arena, 45th, told Brown. “As a general policy, the administration has come to us more and more, saying, ‘Trust us.’ And I’m sorry, that doesn’t fly. I’m sure that’s what the last administration said, and look how that worked out.”

Arena was making reference to former Mayor Richard M. Daley, Emanuel’s predecessor, whose last budgets saw spending exceed revenues. Daley closed the gap through expensive borrowing practices and one-time fixes, such as leasing out the city’s parking meters for a one-time $1.15 billion windfall.

Ald. Scott Waguespack, 32nd, said the administration’s willingness to scale back the borrowing plan was a new development in the relationship between the mayor and council. The measure is the first major approval Emanuel is seeking from the City Council since the court-ordered release of the McDonald video, which shows a white police officer pumping 16 bullets into the body of a black teen. The video’s release nearly 13 months after the shooting has led to allegations of a cover-up, which the mayor has denied.

“A lot more aldermen are asking questions, and I think that’s a good thing,” said Waguespack, who added that in the past the mayor would “probably not” have agreed to modify the request. “This is a broader issue of people looking at this administration and saying, ‘You need to start answering more questions across the board on every issue.'”

In another sign aldermen are restive, they delayed consideration of waiving $2.6 million in city fees related to construction of a hotel and events center near McCormick Place. They also delayed consideration of providing $2 million in special taxing district funds for a public park near the hotel.

The original borrowing plan would have given Emanuel authority to issue a series of bonds for up to $2.65 billion to keep the city financially afloat, pay for construction projects and further cull risky variable rate borrowing deals from the city’s loan portfolio.

But at least until Brown provides more details, aldermen scaled back the authorization for property tax-backed debt by $650 million — leaving out money for new projects and legal settlements. That brought the overall level of borrowing the council will consider Wednesday down to $2 billion.

The package still includes about $335 million in controversial scoop-and-toss borrowing over the next three years. The proceeds would be used to pay off old loans coming due with money from new borrowing — a technique that lowers annual city spending in the short run but costs the city and taxpayers more over the long haul. The amount of scoop-and-toss is lower than in previous years, and Emanuel has said the last bonds of that type will be issued in 2018.

City officials also planned to use some of the borrowed money to pay tens of millions of dollars in legal settlements, which like scoop-and-toss has been criticized by bond rating agencies and financial analysts. Budget Director Alexandra Holt said the city is paying more settlement costs with the money that comes in each year and, like scoop-and-toss, working to eliminate the practice.

Both the scoop-and-toss and legal settlement borrowing would have been part of $1.25 billion in bond issues that would be paid off with future property tax collections — a type of debt that financial analysts keep their eye on to gauge a city’s financial health. At the end of 2016, the city’s overall level of that debt would have increased slightly, by $250 million, administration officials said before the proposal was scaled back.

An additional $200 million in proposed borrowing would be paid off with sales taxes. Of that, about $70 million would be used to pay for so-called menu construction projects approved by each of the city’s 50 aldermen — a program some have criticized but the bulk of aldermen are loathe to surrender. The rest would be borrowed to refund old debt to save money.

Brown said the city was moving to sales tax-backed debt for the first time to diversify its borrowing portfolio, as bond rating agencies that in some cases have lowered the city’s rating to junk status, and investors have suggested. Holt said the city expects to get a slightly lower interest rate on the sales tax debt.

The rest of the borrowing would be paid back with dedicated revenue from water and sewer bill payments and Midway Airport, or to convert risk variable-rate debt to fixed-rate debt.

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