Chicago Group Blasts Cook County's Plan to Balance Budget With Bonds

CHICAGO - Cook County, Ill.'s controversial plan to borrow up to $740 million to balance its nearly $3 billion 2009 budget is "reckless and irresponsible," a fiscal watchdog group warnedin a recent report.

The Civic Federation of Chicago's report comes as county commissioners remain locked in debate over whether to issue the new-money bonds, a key piece of board President Todd Stroger's $2.94 billion 2009 budget introduced in late November.

Opponents say a recent tax increase that boosted Chicago's sales tax to the highest in the nation should render any new-money borrowing unnecessary and that the county shouldn't finance operating costs with bond proceeds.

In response, the Stroger administration countered that the weak economy will take a big bite out of the amount of new sales tax revenue Cook County can rely on for fiscal 2009, and that without the debt issue, the county would be forced to implement draconian across-the-board cuts.

The issue remains stalled as the board considers Stroger's spending plan. The board has until Feb. 28 to approve a final budget.

In a report released Friday, the Civic Federation blasted the bond plan as an "unstable foundation" for the budget and said it could end up costing taxpayers up to $1 billion in interest costs over 20 years.

"President Stroger and the Board of Commissioners are in such a precarious budgetary position because they approved $410 million in personnel spending commitments before confirming, or even considering, whether the county had revenues sufficient to pay for them," the federation said in its report. "This is a stunning failure that highlights the resistance of county government to performing even basic planning to guide its operations."

Under Stroger's proposed $2.9 billion spending plan, Cook County would issue $740 million of new-money bonds. Of that, about $364 million would cover operating expenses - roughly $104 million for pension payments and $260 million for self-insurance costs. The county would also use about $380 million to finance a series of already-approved capital projects. A separate authorization allows the county to refund up to $3 billion, its entire debt portfolio, if it can achieve a threshold of 3% present-value savings.

The 17-member county board approved the debt issuance in September, but since then has blocked the administration from going to market by refusing to sign off on the finance team put together for the transactions. Stroger has said the 1% sales tax increase is currently expected to bring in about $380 million in 2009, down from the $426 million originally projected when the increase was approved early in 2008.

If Cook moves ahead with the borrowing, the federation estimated it could cost taxpayers between $500 million and $1 billion in interest costs. The $1 billion figure is based on 20-year,double-A rated bonds with a 5.56% interest rate.

Cook County is currently rated AA by Standard & Poor's and Fitch Ratings, and Aa2 by Moody's Investors Service. Fitch revised its outlook to negative from stable in July when the county entered the market with $150 million of sales tax anticipation notes.

Separate from the borrowing plan, the federation criticized the county's lack of a long-term fiscal plan or any reserve account.

"This is a government that is ill-prepared for the economic storm ahead," federation president Laurence Msall said in a statement released with the report. "Cook County is set to continue its history of stumbling from one fiscal crisis to the next."

A bright spot is the county's step to reform its massive and fiscally troubled hospital and health system, the reportsaid. The administration earlier this year set up an independent board to oversee the system, which accounts for about one-third of the county's total $3 billion budget.

However, while the Stroger administration promoted the sales tax increase as necessary to fund the ailing health care system, under the current budget it's expected to receive only $46 million of the $380 million in new revenue the tax generates, the federation noted.

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