The Chicago City Council will debate Wednesday whether to require more votes from aldermen to authorize new borrowing.
At a Sept. 14 finance committee meeting, Alderman Marty Quinn introduced
"Considering it passed the finance committee 21 to nine, I anticipate (the ordinance) passing full council," said Alderman Bill Conway, who voted in favor. "If we're going to essentially obligate future generations of Chicago taxpayers and city councils to pay off this debt, there needs to be broad agreement that this debt is necessary."
"In my opinion, the borrowing threshold increase helps the city have a more transparent and open process, devoid of financial gimmicks that we've seen play out," Alderman Scott Waguespack said by email. "Having details, like amortization schedules, in hand before a vote leads to more informed city council members making better choices."
Additional borrowing could pressure the city's credit rating and increase the cost of borrowing, "particularly at a low investment-grade rating," Mohammed Murad, head of municipal credit research at PT Asset Management, said by email.
"Whether the measure passes Wednesday or not, the finance committee's action appears to signal a need for a more meaningful discussion around the city's approach to future borrowing — not necessarily a move to stop spending," Murad said.
The higher vote threshold would be imposed on any city debt issued in a non-conduit capacity, including general obligation bonds, tax increment revenue bonds, special assessment revenue bonds, airport revenue bonds, sales tax revenue bonds, motor fuel tax revenue bonds, water revenue bonds and wastewater transmission revenue bonds, according to the
The inclusion of utility and airport debt is "a little more problematic," said Howard Cure, partner and director of municipal bond research at Evercore Wealth Management.
"Investors are worried about the amount of debt for the airport, but I don't think you want the city council slowing down an approved capital plan for the airport," he said, noting the water and sewer systems face federal mandates.
As for aldermen's concern about open debt authorizations piling up, Cure said investors are less worried about the amount of debt Chicago has than the structure and uses of proceeds of that debt.
"I think the financial community views debt as significant for the city but not overwhelming," Cure said. "The financial community is more concerned about other aspects of the debt, like how it's structured. Or using debt for operating expenses, like prior contract payments" or police misconduct settlements.
"Going back several administrations, the city of Chicago has done a terrible job at structuring debt," Conway said. "Last year, we authorized an $830 million issuance that is horribly backloaded and will require $2 billion-plus of payments to pay it off and [it] won't amortize for 20 years.
"Debt has become a silent killer in our budgets. This year, we're going to spend $2 billion on debt payments, to include both amortization and interest," he added. "Our city only has a $16 billion budget. I mean, $2 billion is what we spend on the Chicago Police Department."
Cure raised the prospect of the mayor's team "opt(ing) for some kind of lease debt … if the mayor doesn't think he can get approval from the city council" for other types of debt.
"They have capital needs, so you don't want to detract from that or slow it down, as long as it's prioritized correctly," he said.
If the ordinance passes the full council, Cure said, it may raise investor concerns about upcoming budget negotiations.
The council is "asserting their independence more," he said. "It's not necessarily a good signal. Does this augur a rough budget negotiation season?"
But he said, Mayor Brandon Johnson has a capable team that may be able to work with the city council more productively this time around. "I have a lot of confidence in (Chief Financial Officer) Ashlee (Gabrysch), and I wish her luck," Cure said.
"Certainly this year's city budget is going to be a difficult one," Conway said. "At some point, we're going to have to look at revenue opportunities as well.
"And I know people don't want to hear that, and I don't want to do that, either," he said. "But that is something that we're going to have to do down the road. I think it's important that we prove that we're efficient stewards of taxpayer dollars before we go asking taxpayers for more."
If the mayor vetoes the borrowing threshold ordinance, aldermen would need to muster a two-thirds majority, or 34 votes, to override it.
Chicago's general obligation bonds are rated BBB-plus by Fitch Ratings, BBB-plus by KBRA and BBB by S&P Global Ratings, with negative outlooks, and Baa3 with a stable outlook by Moody's Ratings.
