CHICAGO — The steady annual climb in the collective long-term, tax-supported debt of Chicago, Cook County, and the city's sister agencies reversed course in 2013.
That course change, however, did little to dent a debt tally in excess of $20 billion that is up almost 60% over 10 years, according to a new
The local government research organization's review delves into the direct, tax-supported long-term debt of Chicago, the Chicago Public Schools, Cook County, the Chicago Transit Authority, Cook County Forest Preserve District, City Colleges of Chicago, the Chicago Park District, and the Metropolitan Water Reclamation District.
Chicago, its school district, and the CTA accounted for most of the decade's rapid growth.
The governments' debt rose steadily until 2013 when it dipped slightly to $20.4 billion from a peak of $21 billion. The same held true for the debt per capita figure, which dropped slightly in 2013 to $7,514 from a peak of $7,760.
Even after the one-year drop in 2013, the long-term debt for all eight entities was up 59.2% from $12.8 billion in 2004, with long-term debt per capita rising at an even more rapid clip of 66.8% to $7,514 from $4,504.
"The slight drop is a welcome pause but it does not appear to be an indication that these governments' finances are stabilizing," said Civic Federation president Laurence Msall. "The rise over the decade in the debt and the debt per capita is troubling because it not only reflects the rising debt obligations of the governments but also a loss of population to repay the debt."
Large increases in direct debt per capita can be a cause for concern for a government's financial condition if it lacks adequate fiscal capacity, and increased borrowing expenses can crowd out spending for other public priorities and/or limit the available capacity for future borrowing, the report warned.
The period reviewed covered fiscal 2004 through fiscal 2013, the most recent year that offers data from audited financial statements.
The sizeable debt load on an overlapping property tax base contributes to the fiscal woes of the local governments covered by the analysis, most of which are also are challenged by pension funding troubles.
Many have suffered from credit-rating deterioration due to those fiscal strains and their reliance on the same property tax base.
Msall said the decade-long trend is all the more worrisome when the state's debt burden is added to the totals, particularly given the added fiscal challenges that local governments may face as new Gov. Bruce Rauner seeks to balance the state budget.
The local governments' tax-supported debt was issued primarily in the form of general obligation bonds for capital improvements, with some exceptions such as the CTA's $1.9 billion pension obligation issue for current and future retirement related operating expenses.
In 2013, Chicago and its school district's combined $13.9 billion of tax-supported debt represented nearly 68% of the collective total for all the governments reviewed. Chicago's debt reached $7.7 billion while CPS carried $6.2 billion.
The CTA carried $2.7 billion of debt, Cook County $1.7 billion, MWRD $1.2 billion, the park district $866 million, City Colleges $250 million following its inaugural issue last year, and the forest preserve district carried $86.1 million, the lowest debt level.
The CTA took on debt more rapidly than all the others, recording a more than 800% increase that added $2.4 billion to its books, driven by its 2008 pension issue. Its debt load hit a high in 2011 and has tapered slightly since.
Chicago followed, recording a rise of 50%, or $2.6 billion, over the 10-year period. The total hit a high of nearly $8 billion in 2012 before dipping slightly in 2013.
Chicago Public Schools' long-term debt rose 39.2%, adding $1.7 billion to debt rolls, and dropped slightly in 2013 after hitting a high in 2012.
Cook County and the water district's debt totals steadily rose over the decade but at a more gradual pace also and the park district's debt levels have held steady.
While 2013 offered some positives, the high debt levels of some of the governments weigh on their credit profiles as does the "overlapping" reliance on the same tax base, a factor referenced a series of downgrades Moody's Investors Service has issued to the city, county, schools, parks, and water district.
The weight has been felt most notably by Chicago and the school system, both saddled with severe unfunded pension obligations.
"Direct and overall debt and pension burdens are well above average and growing; the substantial funding needs of overlapping governments exacerbate the practical limitations of generating new revenue from a shared tax base," Moody's warned in its downgrade of Chicago's rating last year. It rates the city Baa1, as it does the school district.
"The Baa1 rating reflects CPS's close governance ties to the city of Chicago and a highly leveraged tax base resulting from significant debt and pension obligations of overlapping governmental entities, particularly the city of Chicago," said a Moody's report on the school system.
Chicago's tax-supported debt is just part of overall bond obligations that totaled $21 billion in 2013, according to city data. Its annual debt service has almost doubled from $793 million in 2004 to $1.56 billion in 2014 and is projected to rise to $1.7 billion in 2017.
The bulk of the debt financed capital projects, but the city has also used debt to cover working capital expenses such as equipment, union settlements, and judgments, and it has restructured debt service schedules to smoothing out debt service for near-term budget relief.
Mayor Rahm Emanuel's administration said it has made strides in reducing borrowing for such expenses and has trimmed borrowing, but he's come under criticism for continuing some of the questionable practices inherited from predecessor Richard Daley, providing fodder for Emanuel's opponents in the mayoral election set for later this month. The city is also strained by slow amortization as its delays principal repayment.
In addition to its Baa1 Moody's rating, Chicago is rated A-minus by Fitch Ratings, with a negative outlook, and A-plus with a negative outlook by Standard & Poor's.
The Chicago Board of Education has a Standard & Poor's rating of A-plus with stable outlook, and Fitch assigns an A-minus with a negative outlook.
The school district's heavy reliance on one-time budget measures like debt restructuring, dipping into reserves, and rescheduling the time it counts some property tax collections, as well as its pension woes and significant debt load, has driven its credit deterioration.
The long-term, tax-supported debt obligations of the eight are in addition to their unfunded pension obligations.
The unfunded liabilities for eight funds operated for employees of Chicago, the schools, park district, transit agency, and water district totaled $32.5 billion at the close of fiscal 2013 for a collective funded ratio of 41.9%. The figures from a state report didn't include Cook County's funds. Chicago accounts for $20 billion of the tab and the schools for $6.8 billion.
