CHICAGO - The Cook County, Ill., Board of Commissioners this week approved a controversial measure authorizing the county to issue $740 million of new money and the ability to refund its entire $3.1 billion general obligation debt portfolio.
The approval came after a days-long debate sparked by some commissioners who warned the debt could push the county into a fiscal crisis similar to those in Jefferson County, Ala., or Vallejo, Calif., and that the borrowing plan as originally worded handed too much power to county board President Todd Stroger and chief financial officer Donna Dunnings, who is Stroger's cousin.
In passing the ordinance in a 12-to-4 vote with one member absent, the board stripped some of the county executive's power, including the ability to push out debt maturities, enter into swaps, and limited the use of proceeds. Commissioners also added the requirement that board approval be sought for the finance teams selected for any bond deals related to the $3.75 billion authorization.
The ordinance had already raised eyebrows among some local public finance professionals as the original documents appeared to indicate that the county would drop Fitch Ratings on the heels of Fitch's move last July revising the county's outlook to negative from stable. In recent interviews, Dunnings denied that the county planned to drop Fitch.
The borrowing, which would likely come in several issues, would be the county's first new-money sale since 2004 and the first large bond issuance under Stroger's administration. The ordinance allows the county to issue up to $740 million of new-money bonds and refinance its entire debt portfolio if it achieves 3% in net present value savings.
The borrowing comes three months after the county implemented a 1% sales tax hike that pushed Chicago's sale tax to 10.25%, the highest in the nation.
"This is unprecedented, and it's a fiscal abuse adding to the debt burden of the county," said Commissioner Forrest Claypool at a press conference called before the county board meeting Wednesday. "It's outrageous that Todd Stroger would raise taxes by $426 million then turn around and borrow hundreds of millions to pay for operating costs."
County officials dismissed the criticism as political maneuvering as board members are up for re-election in 2010. "This is a boilerplate ordinance that addresses the expiration of the 2002 ordinance," Dunnings said. "This money is to fund projects that those commissioners approved in the '07 and '08 budgets."
The 2002 ordinance, passed under previous county CFO Thomas Glaser, authorized $600 million of new-money bonds. The ordinance expired Nov. 30, 2007.
The county expects to enter the market in the next few months. Of the $740 million in new money, about $376 million would finance capital improvement projects and $260 million would cover self-insurance claims.
Another $104 million would cover a 2007 pension payment. That payment is due to the pension board by Nov. 30, so the county would likely enter the market soon with that issue, Dunnings said. The pension obligation bonds would be taxable, according to Pat Curtner with Chapman and Cutler LLP, the county's bond counsel.
The county has not yet selected its financial team, Dunnings said.
The board implemented a series of amendments intended to blunt the administration's ability to go to market without board input.
Commissioners vetoed the county's ability to push bond maturities out to 40 year on existing 20-year or 25-year debt in an effort to achieve savings. Commissioners prohibited finance officials from entering into any interest-rate swaps without board approval, and prohibited the county from putting any bond proceeds into a working cash fund as planned under the original ordinance.
Commissioners also voted to require board approval on all members of the final finance team prior to the county entering the market, similar to the Chicago City Council.
"We need to make sure we're not exposing ourselves to liability with schlocky underwriters," Claypool said.
Commissioners questioned Curtner about the board's personal legal liability on the county's debt transactions, a question Curtner said was "very timely" as the Securities and Exchange Commission scrutinizes the municipal market. "We advise our clients in these times to make sure that you are working with professionals you trust," she said.
Despite the amendments, four of the 17 commissioners voted against the bond ordinance, warning the county would come to regret the borrowing.
"I don't know that we've ever lived in a time of such uncertainty," said Commissioner Mike Quigley. "Our nation's financial crisis is based on the fact that we forgot we had to manage debt. If Wall Street giants fall, there's no reason why a county as large as Cook can't fall as well."
The county last entered the market in July with $150 million of sales tax anticipation notes. At that time, Standard & Poor's affirmed its AA rating on the county and Moody's Investors Service affirmed its Aa2 rating. Fitch affirmed its AA rating and revised its outlook to negative from stable, citing some of the county's fiscal pressures.
Fitch's negative outlook prompted warnings from the county's finance team - which included four underwriters and four advisory firms - that the county would drop the rating agency from upcoming deals, according to several sources. The reports seemed to be confirmed by the bond ordinance, which listed only Standard & Poor's and Moody's as rating agencies. Fitch has rated Cook since 1996, and was included on earlier ordinances.
But Dunnings earlier this week hotly denied that was the case, saying she was not aware of threats to drop Fitch and that she had "no intention" of doing so. She added, however, that it was too early to say with certainty whether the county would hire Fitch, as she would not make any final hiring decisions until after gaining board approval.