CHICAGO - Chicago is readying up to $1 billion of water and sewer revenue bonds to fund work on the aging systems, buoyed with a funding boost from steep rate increases.
The city intends to sell in the coming months about $475 million in new money water revenue bonds and another $100 million in refunding bonds for savings. It also will sell in a separate transaction about $325 million of sewer revenue bonds with an additional $100 million refunding piece. The refunding components are dependent on interest rates.
The city's finance department introduced ordinances at a City Council meeting this week authorizing the issuance. The Finance Committee is expected to review the ordinances later this month. The full council must approve them. The city has not yet announced the financing teams.
"Over the past few years, we've made significant progress upgrading and improving our aging water infrastructure to protect the water from Lake Michigan, which is our most precious natural resource," Emanuel said in a statement. "These bonds will continue to help the city maintain and improve our water and sewer systems, some of which date back more than 100 years."
Proceeds would finance various improvements and extensions of the water system, including its purification plants; grid mains; meters; and pumping stations, flood abatement; and sewer upgrades.
The city issues water and sewer debt backed by system revenues bi-annually and has been accelerating projects in recent years with a boost in revenue from a series of rate increases. The city is phasing in between 2012 and 2015 a cumulative rate hike of nearly 90% from 2011 levels. Annual inflationary adjustments then begin in 2016.
The system's 2013-2017 capital improvement budget of $2 billion rose last year by 20%. The adopted rate package is allowing for about 40% of the program to be paid with cash.
The bonds carry a range of ratings depending on their lien and the rating agency. Fitch Ratings assigns ratings of AA and AA-plus while Standard & Poor's assigns ratings of AA-minus and AA.
The systems' ratings took a recent cut from Moody's Investors Service over their city link. Moody's lowered $1.9 billion of water bonds and $1.3 billion of sewer bonds by one level after it dropped Chicago's general obligation rating down to Baa1 over its pension woes. The senior lien bonds are now rated A2 and the second lien bonds A3 with a negative outlook.
The ratings "reflect the interconnectedness of the two enterprises with the city's general operations," Moody's wrote.
The the potential burden the financially struggling city could place on its fee- and rate-supported enterprise systems was illustrated in Emanuel's new proposal to stabilize two of the city's four pension funds.
The city would cover about 30% of its increased costs for stabilizing the pension funds by dipping into aviation and water enterprise funds. The city would allocate the increased costs to those enterprise systems based on their share of employees instead of relying more heavily on property tax rolls.
"The ratings remain above those of the city's GO due to healthy credit fundamentals and the expectation that any potential increase in the utilities' share of annual pension payments would have a modest impact on the systems' overall financial operations," Moody's said in its most recent report of the potential burden.
Republicans during legislative hearings this week on the pension legislation raised concerns that the move could prompt the city to raise rates paid by suburbs for Lake Michigan drinking water.
"What assurance do the suburbs have you won't raise water rates or aviation fees that'll impact people outside the city?" Senate Minority Leader Christine Radogno, R-Lemont, asked city officials. The city said it had no plans to raise rates.