Chicago Committee Passes Controversial $1.5 Billion Refinancing
(Bloomberg) -- The Chicago City Council Finance Committee passed a $1.5 billion bond proposal to refinance debt as part of Mayor Brandon Johnson’s efforts to close back-to-back deficits for the third-largest US city.
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Johnson, in mid-September, proposed an ordinance to refinance bonds to glean savings that would help close this year’s budget gap. The measure will now move to the full city council for a vote, even after some members raised questions about the details of borrowing.
The proposal includes the refinancing of $980 million in debt with a mix of general obligation and sales-tax backed bonds, according to a presentation at the committee’s meeting on Wednesday. The city also intends to use a tender, a process of buying back bonds at a slight premium that still yields savings for the issuer, for up to $500 million. The tender would also include an additional mix of general obligation and sales-tax bonds.
While the administration had previously projected that the refinancing would generate $70 million in savings, that may grow to $90 million this year and an additional $35 million next year, given market changes, according to a presentation from the finance department.
Chicago’s use of debt — as well as its other long-term liabilities such as underfunded pensions — has historically weighed on the city’s budget and its credit ratings. While Chicago has enjoyed a string of rating upgrades and also shed its lone junk rating, concerns about the city’s outlook have flared as revenue has slowed and federal pandemic aid ends.
Some aldermen expressed concern about the $1.5 billion bond refunding proposal. Alderman Matt O’Shea had asked for additional time to review the details of the bond proposal given the city has several moving parts in trying to close its back-to-back deficits. Alderman Raymond Lopez also questioned how the administration included savings into its 2024 budget projections before the city council took a vote on the refinancing ordinance.
Even state officials weighed in. In a post on X, Illinois Comptroller Susana Mendoza said the transaction was a “bad deal” for the city and called for the deal to be “scrapped.”
Alderman Bill Conway, finance committee vice chairman, said during the meeting he supported the refinancing ordinance after Chairwoman Pat Dowell and the administration agreed to amend the ordinance so proceeds could not be used for operating expenses and cash flow for the city.
If approved by the full council, the city plans to issue the bonds before the presidential election in November.
The finance committee also approved a $200 million second lien wastewater transmission revenue bonds as part of a separate proposal.
(Updates with details on the pushback the refinancing deal received.)
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