The Chicago City Council has approved a plan to refinance $1.5 billion of the city's debt. The council had postponed action on the refinancing at its Oct. 9 meeting.
The city's finance team expects to issue the bonds in the fourth quarter of 2024. About $850 million of the GO bonds will be callable on Jan. 1, and the city plans to use a tender offer for about $500 million of bonds. It expects to lower the average interest rate on the refinanced debt to 3.75% from 5.62%.
Mayor Brandon Johnson's administration celebrated Tuesday's 35-12 vote in favor, saying the deal, including the tender, will generate $110 million in present value savings.
"This refinancing plan reflects our ongoing commitment to sound financial management," Johnson said in a statement. "With today's approval, we're taking another important step forward to lowering the city's costs and reducing pressures on the city's budget."
The vote Tuesday came after several aldermen
The refinancing "highlights the city's diminished financial flexibility within the current and upcoming budget cycles," Municipal Market Analytics said in comment earlier this month.
"Depending on how the refunding is structured — i.e., just how far current principal payments are delayed — this sale could be another signal that the city's decade-long uptrend in credit quality has come to an end," MMA said.
"I think that that stands," MMA Managing Director Lisa Washburn told The Bond Buyer Wednesday.
"Their days of seeing upward credit momentum could be behind them. It doesn't look like the current trajectory is going to be sustained," she said.
"We really need to see those numbers," Washburn said, referring to specifics on the structuring of the refinancing. "The lack of transparency, and showing the math behind it, is a concern."
During the debate at
"The language has now been amended to ensure that these funds can only be legally used for cost-saving debt refinancing," he said, adding that the fees "are indeed a higher percentage than what the state of Illinois pays, [but] our debt is lower-rated and harder to place than that of the state.
"It is beyond worth it," he said.
Ward 15 Alderman Raymond Lopez, one of the aldermen who moved to defer the ordinance on Oct. 9, said doubts remain.
"If you have the opportunity to claw back even 5% from big banks… why won't we do it? Why would we say no?" he said of earlier moves to amend the ordinance that were tabled.
"We had concerns about spending, about closing loopholes," he added, an apparent reference to claims the bond could be used for operating expenses. "Narrowing and closing are two totally different things... My concern is that this is just going to be one of many more cans that we kick down the road, so that when we are on the way out, the next class and the class after that will have to make that heavy lift."
Lopez also said the city's finance team had never reached out to him or other critics of the deal.
"Our goal with every bond transaction is to be responsible stewards of taxpayer dollars," Chief Financial Officer Jill Jaworski said in a statement. "This refinancing will help us lower debt service costs, reduce the City's overall debt load, and directly reduce the City's budget deficit."
In
Mendoza had urged City Council members to ask to see the math on the $90 million in savings — the estimated savings have since been revised up to $110 million — and to demand an explanation for how exactly the proceeds will be spent.
"It's kind of a sign of disrespect to taxpayers and their hard-earned dollars that there wasn't more transparency," a spokesperson for Mendoza said Wednesday.
Finance Committee Chair Pat Dowell stressed on Tuesday that "we're not extending the terms of the current bond we are refinancing today." She said the refinancing will bring $90 million in savings this year and $35 million in savings in 2025.
"We are saving the taxpayers tens of millions of dollars in expense that we have to pay on bonds we have already issued," she said. "The city of Chicago has improved its financial situation and has enjoyed credit rating increases since these bonds were issued… I think the ordinance is better today than it was when it was introduced."
MMA's Washburn said the focus on the operating expenses language was largely a distraction from questions about the structure of the refinancing.
"Money is kind of fungible, and so this money may not specifically be tagged for operating expenses, but if it frees up other cash for other budgetary priorities, it doesn't really matter," she said. "Saying it's not being used for operating expenses may be more optics."
She noted that as more details on the structure of the deal come out, they will be watching to see if it resembles a
"People often refer to scoop-and-toss when they're talking about the final maturity, but you can still do a scoop-and-toss within the debt structure," she said. "That has been done before."
Even if it's not a scoop-and-toss deal, she said, Chicago is using one-time solutions to plug ongoing budget deficits.
"Sure, it's helpful if you can refinance some debt and get some savings, but that's not a long-term solution," she added. "As long as interest rates continue to go down, maybe you can squeeze a little more out of it… [But] they need recurring solutions or they need decreased spending."
