Chicago's Chief Financial Officer Carole Brown laid out the city's general obligation borrowing plans for the City Council's Finance Committee.

CHICAGO – Chicago is moving to finalize approval for the new money piece of an up to $1.25 billion general obligation bond sale.

Mayor Rahm Emanuel's chief financial officer, Carole Brown acknowledged the status of the city's ratings and size of its yield penalties created by its pension ills remain uncertain during a hearing Monday on the Finance Department's request for up to $600 million of new money GO borrowing authority. The Finance Committee advanced the ordinance to the full council, which is expected to vote on it Wednesday.

"There is some news that the market is awaiting," Brown said, and the pricing will depend on "where the market is based on what clarity we have around, not only Senate Bill 777 but also around our plan for our other pension funds," Brown said.

SB 777 would re-amortize the schedule for Chicago's rising police and firefighter contributions, trimming $220 million off the $550 million more that's owed this year. A record property tax hike approved last year will cover the other $330 million.

The bill was sent to Gov. Bruce Rauner in late March and he has 60 days to act. The governor criticized the plan but said he could go along with it if Emanuel supports his policy and governance proposals, which have driven an 11-month-old budget impasse. The city has tapped credit lines to put the $220 million at issue into an escrow should the legislation fall by the wayside.

"If Senate Bill 777 becomes law, then we have budgeted the appropriate amount for it," Brown said.

If the bill doesn't become law then "the market is going to want to know what our plan is to fund the higher amount … and they're going to assess whether or not that plan is a credible plan. We will see our borrowing rate reflected on how they view that, and we will see possibly our ratings reflected in how they view that."

The city is also in negotiations with unions about its municipal employees' and laborers' pension funds and will lay out in the coming weeks an alternative to the reform plan shot down in March by the Illinois Supreme Court.

Rating agencies have warned the city faces further downgrades and investors have said spreads will widen if the Chicago doesn't stabilize its pension funding situation. The four city pension funds carry $20 billion of unfunded liabilities.

Brown highlighted the results of the water revenue bond sale last week in which the city was able to trim spread penalties from a similarly rated wastewater borrowing last fall. The strides were due to overall market demand for municipals, especially higher-yielding paper, and the city's resolution of its potential $2.2 billion liquidity crisis due to downgrade driven defaults on bank contracts.

The GO credit presents a different story. The city is rated between junk-bond Ba1 by Moody's Investors Service to a high of BBB-plus by Kroll Bond Rating Agency and S&P Global Ratings. Fitch Ratings has the city at the lowest investment grade level of BBB-minus.

The city pared down a nearly 300 basis point spread to the Municipal Market Data's top-rated benchmark by nearly 100 basis points last year after the council a $543 million annual property tax hike, but the spread has risen again to about 280 basis points.

The council previously authorized $650 million of refunding and restructuring bonding but put off the vote on the new money as they sought more detail on how the city would spend the proceeds. The administration is seeking up to $600 million of authority but may not tap the full amount.

About $170 million of proceeds would finance capital projects in 2016 and 2017, including $70 million for the so called aldermanic menu of projects in 2017. The 2016 menu will be funded from an upcoming sales tax backed issue. Another $150 million would fund equipment purchases. Another $50 million would go to cover judgments and settlements this year and another $50 million in 2017.

Emanuel has pledged to halt by 2019 putting routine settlements and judgments on the city's debt load, although budget director Alexandra Holt said Monday that the city may still borrow to cover larger burdens "because of their size." The $50 million of borrowing for this year and again next year is down from $62 million last year, $158 million in 2014, and $138 million in 2013.

The committee revised the ordinance to lower a maximum interest rate of 18% to 10%. The state caps interest rate at 9% but Chicago has leeway due to its home rule status.

In addition to reducing the use of debt to cover judgments, Emanuel last year announced the phasing out by 2019 of scoop-and-toss debt restructuring for budget relief. The upcoming sale incorporates $335 million of restructurings through 2018 after which the practice would end, the administration said. The up to $1.25 billion authorization also includes room for refunding for traditional present value savings.

Goldman Sachs is the senior manager with Estrada Hinojosa & Co. Inc. and Mesirow Financial Inc. as co-seniors. Another eight firms round out the syndicate for 42% minority and women-owned participation. Five law firms are serving in the role of bond counsel, disclosure counsel, and pension disclosure counsel. Public Financial Management Inc. and Public Alternative Financial Advisors are advising the city.

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