Chicago’s $3.9 billion bond plans advance to the City Council

Bonds

A Chicago City Council committee signed off on $3.9 billion of new money, refunding, and scoop-and-toss debt restructuring deals and the finance teams to assemble and sell the bonds.

Mayor Lori Lightfoot is seeking the borrowing authority to plug COVID-19 pandemic holes in the 2020 and 2021 budgets and fund a five-year $3.7 billion capital program.

Mayor Lori Lightfoot is seeking borrowing authority to plug COVID-19 pandemic holes in the 2020 and 2021 budgets and fund a five-year $3.7 billion capital program.

Bloomberg News

The authorization allows for up to $1.92 billion of refunding and restructuring of general obligation and Sales Tax Securitization Corp. debt, with about $1.7 billion of the authorization expected to be tapped. It also includes $430 million of additional refunding room to refund debt for savings or to conduct a tender and $1.6 billion of new money that can be issued under either the GO or STSC credits.

The restructuring adds $1 billion to future debt service but substantial savings on $750 million of refunding bonds produce an overall net present value savings overall of $31 million on the $1.7 billion deal, Chief Financial Officer Jennie Huang Bennett told the committee.

The city is considering using short-term borrowing to cover the $450 million of relief needed for the 2020 budget to provide flexibility should the federal government pass a new relief package to make up for local and state government tax losses.

“We are looking to time the financings both the refinancing and restructuring as well as the new money” once we have a “better understanding of the federal landscape,” Bennett told Finance Committee members Wednesday.

The city’s bond teams all put a minority-owned firm in a senior manager position. Loop Capital Markets and Goldman Sachs will be senior managers on the $1.7 billion refunding and restructuring with Cabrera Capital Markets LLC and Stifel as co-senior managers.

RBC Capital Markets and Cabrera are senior managers and UBS and Siebert Williams Shank & Co. LLC are co-managers on the $520 million 2021 GO capital deal.

Barclays and Loop are senior managers and PNC Capital Markets and Ramirez & Co. are co-seniors on the $520 million 2022 GO deal.

BofA Securities and Cabrera are senior managers on the $520 million 2023 GO sale and Stifel and Rice Financial Products Co. are co-senior managers.

The Lightfoot administration said its previous two deals since taking office in 2019 have seen more than a 50% level, up from a 30% goal of women, and minority-owned participation and Bennett said the administration is committed to getting such designated firms onto the top line.

Finance Committee approval came in a divided vote with little discussion beyond questions about the new capital spending and concerns raised by some aldermen that Lightfoot would make good on alleged threats to favor aldermen who support her budget package.

The budget plan relies on a mix of structural and non-recurring measures. They include a $94 million property hike, other tax increases, efficiencies, freeing up surplus tax-increment financing dollars, $30 million from reserves, and $950 million of debt restructuring of which $450 million will go to help plug an $800 million 2020 gap and $500 million to help close the $1.2 billion 2021 hole. Lightfoot dropped plans to lay off workers and will borrow to cover the $15 million of lost savings.

The 22-10 vote followed similarly divided votes of 21-12 by the committee Wednesday on the $1.63 billion property tax levy and other new revenue. They illustrate the deep divisions over Lightfoot’s package, setting the stage for what’s expected to be a close vote by the full council on Tuesday.

“We believe the current budget proposal is sufficient to cover what we will need for 2021….there is risk in either direction,” Bennett said when asked whether the new surge of COVID-19 pandemic cases and restrictions on some business and retail operations could drive a further hole in the budget.

Lightfoot and her finance team who had previously outlined the capital plan for aldermen formally unveiled it Wednesday ahead of the meeting.

“Our Five-Year Capital Plan is our latest ambitious campaign to invest in Chicago’s residents and businesses, and lays the groundwork for our future as a premier global destination and the best city in the world to call home,” Lightfoot said.

The administration is promoting the program as one that is based on a new needs-based condition assessments and data-driven processes. It previously passed a more limited $100 million plan for this year tapping a credit line as the new plan was assembled.

The package includes money for catching up with deferred maintenance for city buildings, street paving, bridge improvements, fleet upgrades, and sustainability investments to combat greenhouse gas emissions, storm water management and local air quality. Improved bike paths and public transportation access, and improvements to stabilize the eroding Lake Michigan lakefront are also funded.

The package also raises the level of spending to $216 million on projects aldermen prioritize giving each $1.5 million up from $1.32 million. In addition to GO borrowing, the city expects to leverage federal dollars and tax-increment financing.

Some council members raised concerns about the increased new debt needed for the capital program, restructuring and portion of the tax levy that goes to debt. The city’s post-refunding/restructuring debt load covering the GO and STSC credits will total $11 billion, Bennett said.

“My concern is that we are reaching a tipping point where our obligations are more than what we can pay for,” said Alderman Raymond Lopez. “We are borrowing, borrowing, and borrowing some more to try to balance this budget but we are not keeping track of our ability to pay our bills and that very much concerns me…at what point do we run out of borrowing options?”

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