CHICAGO - Cook County, Ill., may consider cutting its fiscal 2009 budget as an alternative to a $740 million borrowing plan that continues to attract opposition from county commissioners.
The possible budget cuts come as county President Todd Stroger's administration prepared to seek board approval for the finance teams selected to manage two of three bond deals that are included in the overall $740 million proposed debt plan.
While the 17-member county board approved the bond proposals in September, lingering opposition to the borrowing, as well as fresh opposition to some members of the finance team, has prompted the county fiscal leaders to consider alternative funding plans.
For the second time over the last month, members of the two finance teams selected by the county yesterday appeared at the board meeting only to leave hours later without the board voting on the controversial measure. Stroger first sought approval for the teams at a meeting last month but the board deferred action.
"I would say the chances of this [bond measure passing] are dim, so I would suggest that the budget department draw up serious cuts," Commissioner John Daley, chairman of the finance committee, said at the meeting. "We're looking for any ideas."
At issue is the county's plan to sell three separate new-money bond issues as well as a plan to refund up to $3.1 billion, the county's entire debt portfolio. Under the measure approved in September, the new-money issue would consist of $104 million of taxable pension obligation bonds, $260 million of self-insurance bonds, and $375.9 million for capital improvement projects.
But critics on the board remain opposed to borrowing for operational costs, and have apparently garnered enough votes to defeat the measure approving the proposed finance teams.
"We need to get out of the bad habit of borrowing to pay for day-to-day bills," Commissioner Forrest Claypool, one of the Stroger administration's top critics, said as commissioners debated alternative methods of paying for the pension obligations and self-insurance claims and settlements. "It seems like we should use operating expenses to pay operating costs."
If the county cannot borrow the $740 million, it would be forced to implement 27% across-the-board cuts beginning in fiscal 2009, warned chief financial officer Donna Dunnings. If the board approves the $376 million of capital improvement bonds, but rejects the pension and self-insurance bonds, the cuts would total roughly 19% over the course of four years, she said.
At the center of the debate was a recent 1% sales tax increase that is currently expected to raise around $380 million in additional revenue a year. The sales tax, implemented in July, was originally expected to bring in around $426 million annually, but officials adjusted the figure based on the economic downturn.
Dunnings told commissioners that the revenue was already obligated to other sources. Part of the money is dedicated to repaying a $145 million sales tax anticipation note issue the county sold last summer.
"The other obligations are things the board has already committed to," she said.
One commissioner suggested tapping into the county's line of credit to fund the expenses. The idea fizzled after Dunnings said the county's line of credit totaled only $200 million, and that the county would likely have to pay up to 9% interest based on the current market environment.
It's unclear when or if the county plans to vote on the deal teams. The pension payment is due by Nov. 30, and Stroger also plans to introduce a fiscal 2009 budget by the end of the month.
On the $104 million pension obligation bond issue, the county selected Public Financial Management Inc. as its lead financial adviser, with A.C. Advisory Inc. as co-financial adviser. Banc of America Securities LLC would act as senior manager, with Cabrera Capital Markets LLC as co-senior manager and Gardner Rich LLC and Northern Trust Co. as co-managers. Perkins Coie LLP would be bond counsel with Burke, Burns & Pinellis Ltd. as underwriter's counsel.
On the $260 million self-insurance bond issue, county leaders tapped Mesirow Financial Inc. as financial adviser, with Gardner, Underwood and Bacon LLC as co-financial adviser. Loop Capital Markets LLC would be senior manager, with Samuel R. Ramirez & Co. as co-senior manager and JPMorgan, George K. Baum & Co., Goldman, Sachs & Co., and Grigsby & Associates Inc. as co-managers. Chapman and Cutler LLP would serve as bond counsel with Greene and Letts acting as underwriter's counsel.
