Chicago weighs unfunded infrastructure and water line replacement needs

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Chicago needs $2.7 billion to fully fund its five-year infrastructure maintenance needs and may need another $8 billion to $10 billion to replace the water enterprise system’s lead service pipes, city officials said.

Capital planning continues as the city’s finance team works to plug a $700 million budget gap this year due to the COVID-19 pandemic. A 2021 budget forecast due later this month that is expected to warn of a more than billion dollar gap.

Chicago will lay out a plan in the coming weeks to replace lead-based service lines that provide treated Lake Michigan water to homes.

The city is working to revamp how neighborhood spending is allocated and separately will lay out in the “coming weeks” a massive water service pipe replacement blueprint.

No details on how the city would pay for a multi-year water pipe replacement of service lines from street mains were provided.

“There’s a few ideas that are out there” but the city is still working on the packaging of a plan and reviewing what other municipalities have done, Water Department Commissioner Randy Conner told a virtual meeting of the City Council Committee on Economic, Capital, and Technology Development.

Conner put an $8 billion to $10 billion price tag on the plan when pressed during the hearing and city Budget Director Susie Park said officials were exploring a “multitude of funding sources” including state and federal support.

The city has long taken the position that service lines are safe based on treatment mechanisms despite various environmental studies and local investigations that have shown elevated levels of lead in some homes, especially after the installation of water meters, posing health risks.

During her 2019 mayoral campaign, Lightfoot was critical of the city’s lack of planning to replace lead service lines and after taking office put water meter installation on hold.

Park and Conner testified along with officials from the Department of Transportation and Department of Assets, Information and Services at the hearing on city infrastructure.

The tab for maintenance and replacement needs on street resurfacing, lighting, bridges, traffic signals waterways, facilities, and fleet funding over five year totals $4.4 billion with only about $1.7 billion in identified funding available.

With a capital planning revamp in the works, the city is seeking to shed the perception that some capital dollars go toward mayoral and aldermanic pet projects.

“We’re looking to develop a multi-year, needs-based capital plan that prioritizes safety, equity and project continuity to maximize investments and improve efficiencies,” Budget Director Susie Park told the Council’s Economic, Capital & Technology Development.

One-third of city facilities are at least 75 years old with more than two dozen more than 100 years old, officials told the committee. Viaduct and bridge spending is backlogged. “It’s probably our most underfunded category,” Department of Transportation Commissioner Gia Biagi told the committee.

The city’s larger five-year capital improvement program that includes airports, new development, and water and sewer projects totals $8.5 billion. Funding comes from general obligation borrowing, water and sewer revenue-backed bonding, tax increment financing and state and federal transportation funding with some coming from private sources such as the shared cost sidewalk program.

The City Council in May $100 million of spending on a short-term capital program to tackle immediate capital needs and capitalize on the summer construction season as discussions continued on a capital planning rework. The city is tapping a credit line to fund the projects and will eventually roll that borrowing into a general obligation bond sale.

The city’s ability to pile much more debt on its tab is limited without a property tax hike or additional water and sewer rate hikes, which would be difficult to swallow as the city’s economy has been walloped by the pandemic. Lightfoot has called a property tax hike a last resort to deal with the budget blows.

Whether Congress will act on a new relief package that provides aid to local governments to cover tax losses is the big question. Current talks have stalled amid Senate GOP opposition and local and state governments warn of dire cuts without relief.

“If we don’t get help from the federal government, we have nothing but bad choices, including looking at layoffs and looking at furloughs,” Lightfoot said this week during a virtual panel discussion on the pandemic and economy at the Democratic National Convention. The administration has previously warned that the city faces a deficit of at least $1 billion in 2021.

The city has $7 billion of GO debt and has issued about $3.7 billion of senior and junior lien Sales Tax Securitization Corp. bonds that refunded outstanding GO and revenue debt. The city GOs are rated BBB-minus by Fitch Ratings, A by Kroll Bond Rating Agency, and speculative-grade Ba1 by Moody’s Investors Service. All but S&P assign stable outlooks. S&P this spring moved the outlook to negative.

The city has about $2 billion of second lien water bonds outstanding. They carry ratings in the single-A to double-A category Fitch Ratings, S&P Global ratings, and Kroll Bond Rating Agency depending on the lien status although the city has little senior lien debt left. Fitch downgraded the second lien rating to A-minus from AA-minus this summer as part of criteria changes linking the rating off the GO.

Lightfoot’s predecessor, Rahm Emanuel, won phased in, double-digit water and sewer rate increases to accelerate capital spending soon after taking office in 2011 and since 2016 rate hikes are tied to the consumer price index.

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