CHICAGO — The Chicago Park District will enter the market this week with about $178 million of general obligation bonds to raise new money for its annual capital program and to refund debt.
The district will use savings from the refunding to offset pressure on its property tax levy to support borrowing in the coming years.
The district will take retail orders on Tuesday before opening the deal up to institutional buyers on Wednesday. William Blair & Co. is the senior manager and Morgan Stanley is co-senior. Public Finance Advisors LLC is advising the district and Chapman and Cutler LLP and Charity & Associates PC are co-bond counsel.
The transaction, which includes a mix of limited and unlimited tax bonds, will generate about $37 million in new-money proceeds to fund the agency’s five-year rolling capital program, with the remainder current refunding outstanding bonds for net present-value savings of around 10%. The district will trade interest rates in the 4% range for ones under 2%, said David Abel, public finance banker at William Blair. “They are fairly short maturities so the district can take advantage of where the yield curve is most favorable,” he said.
The district will use the savings to ease pressure on its property tax levy in the coming years. “We will be able to continue to issue bonds of about $35 million annually to support the capital program without going above our self-imposed cap” on the tax levy, said district treasurer Melinda Molloy.
Chicago Mayor Rahm Emanuel “has asked us to hold the line on property taxes,” added the district’s chief financial officer, Stephen Hughes. The district must adhere to state-imposed property tax caps, but it is allowed limited increases. The district has opted to stick with its original capped amount of $42 million and has not raised its levy for seven years.
Emanuel, who took office in May, has said he won’t raise the city’s levy to help address a deficit in the 2012 budget of more than $600 million while the Chicago Public Schools are seeking a maximum increase to help reduce red ink.
Ahead of the sale, all three rating agencies affirmed the district’s ratings. Fitch Ratings assigns the district a AAA, Moody’s Investors Service rates it Aa2, and Standard & Poor’s rates it AA-plus. The district has $930 million of limited and unlimited tax GOs.
The rating reflects a substantial and diverse tax base, coterminous with the city of Chicago, prudently managed financial operations, and a moderate direct debt burden, Moody’s wrote. The district’s challenges include modest taxable valuation declines and a trend of declining pension funding. The pension plan was only 62.3% funded in fiscal 2010.
The district has increased fees and permits and cut spending to keep its budgets balanced. Fiscal 2010 ended with an operating surplus of $7.5 million, bolstering the general fund balance to $7.6 million or 18.8% of general fund revenues. The district anticipates a positive balance this year. It froze administrative hiring and slowed general hiring to offset losses associated with its takeover of the city’s annual Taste of Chicago festival this summer, Hughes said.
The district will propose a roughly $400 million 2012 budget next month that is expected to represent a 3% increase over this year, with increases in user fees, new revenue sources, one-time funding sources, and spending cuts. It benefits from a long-term reserve that eases the need for cash-flow borrowing. It put $120 million from the $348 million it received from its 2006 privatization of park district and city-owned downtown garages in a reserve. It has drawn that reserve down to $96 but had adopted a policy to keep it above $85 million.
The district will participate in a city-sponsored investor conference next month as part of an investor outreach campaign. Borrowers here have faced an interest rate penalty due to the state’s liquidity and budget woes.