Chicago's City Council on Wednesday approved the issuance of $830 million of general obligation bonds that Mayor Brandon Johnson's administration says will fund infrastructure projects in the capital improvement program.
"I made a promise to invest in people and this bond takes us another step forward," Johnson said in a statement after the vote. "We need to put our people to work rebuilding our city. Today, the City Council voted for critical investment into our communities that will be felt for generations to come. We will always prioritize the needs of everyday Chicagoans over politics."
Johnson cast the tiebreaking vote on a motion that stopped postponement of the final vote until early May, which would have given alderpeople time to reexamine the structure of the debt, including the payment schedule. That vote defeated an effort by critics to
"This is another very close vote," noted Howard Cure, partner and director of municipal bond research at Evercore Wealth Management. "You usually have a lot more support for things like a capital improvement plan. It's going to be interesting to see if the City Council is going to be asserting more pressure on the mayor. You've already had two very close votes, and I'm not sure what that portends, but it's something worth monitoring."
Critics had warned that with no interest payments on the debt in the first two years, and no principal payments for 20 years, the debt is back-loaded and leaves future generations with a hefty bill.
"Nobody has ever said we don't want an infrastructure bond," Ward 9 Alderman Anthony Beale said during the debate Wednesday. "But what we want is a bond that is responsible and feasible. We're not paying principal for 20 years and having a huge balloon payment. … When we have all the financial people telling us, this is a bad deal, that's a problem."
But Ward 27 Alderman Walter Burnett, Jr., argued delaying the bond measure "will only cost more in the long term.
"It is much more fiscally responsible to address the problem now," he said. "Washington, D.C., is threatening to take money from us right now. We need to become self-sufficient."
Ward 15 Alderman Raymond Lopez questioned whether the Johnson administration would pay for this debt equitably. Arguing that Chicago is on the brink of insolvency, Lopez said the city has a spending problem.
"And what should really concern all of us right now is … not one banker is here to see what the outcome is," he added, gesturing toward the audience. "Usually this whole section is filled. They're not here today. The outcome isn't even in question. That is the business as usual that has to come to an end."
Finance Committee Chair Pat Dowell halted the initial vote amid protests from alderpeople that there had been no debate. After debate, the bond measure passed 26 to 23.
"Would there have been some downsides to waiting two months? No," said Civic Federation of Chicago President Joe Ferguson in an interview. "Everyone has a vested interest in infrastructure. The question is, how much and on what terms?"
During the City Council debate, Ward 34 Alderman William Conway said he sent out $108 million and $400 million bond proposals Tuesday that would have saved taxpayers over $1 billion in debt service. And he pointed out that under the current payment schedule, more than $820 million of debt service will be due between 2050 and 2055 alone.
"[Our children] won't be able to spend that money on safety, they won't be able to spend it on schools," he said.
"That is a valid concern," Ferguson said. "The city already spends 40% of its net operating budget on the combination of pension obligations and debt … And this will certainly add to that.
"The folks who were saying this is not the right structure were absolutely right," added Ferguson, noting the proposal as originally introduced allowed for spending bond proceeds on things other than infrastructure.
There were concerns that proceeds could go toward operating expenses for Chicago Public Schools, including covering a portion of the long-disputed Municipal Employees' Annuity and Benefit Fund payment. That loophole was closed at the last minute, Ferguson noted, but the administration did not address calls for a specific list of infrastructure projects that would be legally binding.
During debate, Beale said if CPS doesn't give Chicago an outstanding $175 million payment by March 30, the city will have "an invalid budget."
"The city has now acknowledged publicly that it does not have the money as budgeted for FY2024 to close the books … unless it draws on reserves, because it hasn't received that MEABF [Municipal Employees' Annuity and Benefit Fund of Chicago] pension payment from CPS," Ferguson said. "The city budgeted for revenue from CPS that CPS has no legal obligation to provide."
Cure also voiced concern about CPS "as it gets further away from the city as far as governance goes, and what that is going to mean for things like the pension payments." He questioned whether CPS has the authority to put additional burdens on property taxpayers separately from the city, and whether that will constrain the city's ability to raise revenues.
The scrutiny of Chicago now may be due in part to past decisions, Cure said, a point also made by Ward 11 Alderwoman Nicole Lee during Wednesday's debate.
"It's just bad debt practice," Cure said of the new GOs. "You want to start amortizing the principal with the interest to meet the average life of whatever project or equipment you're funding. Delaying it adds interest costs to the bond debt, because you're not reducing the principal amount."
Some issuers, he said, like to wrap their debt so the overall debt service on bonds is level, and backload some of the debt for new projects. "But in Chicago's case, you have a city with a history of using debt to alleviate short-term budgetary practices," he said. "I think people are just more suspicious of Chicago.
"Other places put out long-dated debt, but they're stronger credits," Cure said.
While this is unlikely to trigger another downgrade, he said, it also doesn't do anything to improve Chicago's credit profile.
Kroll Bond Rating Agency downgraded Chicago to A-minus from A in January. The outlook is negative. S&P Global Ratings downgraded Chicago last month, as well, pushing it to BBB from BBB-plus. The outlook is stable.
Fitch Ratings assigns Chicago's GOs an A-minus rating with a stable outlook after a July upgrade. It affirmed that rating — and the AAA rating on the city's Sales Tax Securitization Corp. bonds — in November.
Moody's Ratings said in December that the city's 2025 budget is credit neutral. It rates Chicago Baa3 with a positive outlook.
"The one good thing that could be said about this is that the City Council and the public are becoming far more engaged and knowledgeable about the bad practices of the past, the magnitude of the problems of the present and the need to go about things differently," Ferguson said.
