Civic Engagement Should Not Be Outsourced To Elected Officials
Our own Stuart Loren dug into a bond proposal presented to City Council's Committee on Finance last week, and more on the school board turmoil.
Last Wednesday, City Council's Committee on Finance voted to advance a $1.5b bond proposal for a broader authorizing vote this week in City Council. The city intends for this new issuance to refinance higher yielding outstanding debt, and anticipates the refinancing to save at least $90m in interest expenses. On the surface, this appears non-controversial. Behind the scenes, however, it was anything but that.
The initial terms of this borrowing proposal were purposefully vague and provided the mayor a quiet means to help close next year's projected $982m budget deficit. Moreover, as of August 29, the city's CFO had dismissed the prospects of a refinancing deal in remarks to the Tribune:
“In the past, the city had a habit of refunding its debt and pushing it out to later maturities,” Chief Financial Officer Jill Jaworski said. “The old scoop and toss, that’s something that was phased out in 2019, and we have continued to make sure that that practice does not occur so we’re actively paying down our long term debt.”
This incongruent background, coupled with the Johnson administration's failure to provide Committee on Finance members with sufficient details or time to make an informed decision on the borrowing proposal gave one particular committee member pause. This member just so happened to reach out to our very own Stuart Loren seeking his analysis of the deal terms.
While you can read his full analysis here, the main points were that:
(1) the city was not transparent
(2) the offering materials lacked sufficient details to support claims on refinancing savings
(3) credit market indicators are not favorable for Chicago right now
(4) most critically, there was nothing in the terms to prevent the city from using the non-refinancing portion of the borrowing (which was some $520m) to help plug next year's budget deficit.
With the additional public scrutiny Stuart provided and his advice to key members of the Committee, the outcome was that the Committee (1) pushed the Johnson administration for more detail (which they failed to adequately provide) and (2) changed the terms of the offering to restrict proceeds solely for refinancing.
Chicago is already a BBB-rated credit (the worst of any major city); taking on long-term debt to finance short-term deficits is a reckless idea that could lead to a credit downgrade and higher taxpayer expenses in the near future. While the terms of this borrowing have improved from the outset, we would prefer to see stronger safeguards against the city using proceeds for operating expenses and question why the borrowing authorization should be in excess of the proposed refinancing amount of $980m.
Finally, although the refinancing may result in interest expense savings, it does not change the health of the city's balance sheet. Any debt issuance crowds out potential future borrowing or spending. And a debt issuance solely for the purpose of extending the city's debt profile (albeit at potentially lower rates) is not qualitatively the same as borrowing to make meaningful investments that drive future growth.
IL Comptroller Susana Mendoza made similar arguments in a Friday op-ed in Crain's Chicago Business, where she was also kind enough to tip her cap to Stuart’s work on this.
We believe that the only practical way to solve our city's fiscal issues is to start instituting policies that facilitate economic growth. More borrowing or taxing is not a sustainable solution.
We encourage everyone to ask their alderperson whether he or she intends to support this bond offering and, if so, on what specific grounds. Remember, the liabilities of the city are ultimately all of our liabilities.
Latest on the School Board Turmoil:
As we mentioned over the weekend, at 10:30am today, the mayor plans to announce his seven new appointed Board of Education members who will serve in a transition period between November and January 2025, when the newly elected board (ten elected and eleven appointees) take their seats.
41 Alders signed a letter demanding a hearing in the wake of the resignations. We’ll save you the long list and just share the 9 who didn’t sign:
Lamont Robinson, William Hall, Chris Taliaferro, Walter Burnett, Jason Ervin, Rossana Rodriguez-Sanchez, Byron Sigcho-Lopez, Carlos Ramirez-Rosa, and Jessie Fuentes
Also, some non-financial demands to be aware of in the new Chicago Teacher’s Union contract:
If approved, all teachers will have academic freedom. Which means, they don’t have to follow the curriculum their principals want them to.
The potential consequences are that teachers won’t adopt the rigorous curriculum the district has worked for years to implement.
Teachers will continue to get the extra sick days for the public health emergency, even though the Governor’s public health emergency declaration ended 18 months ago.
Union delegates would get 3 periods a month off to conduct union business.
The list continues. These are just some examples on top of the $300 million dollar payday loan the mayor wants to push through. We encourage you to ask candidates you may be meeting how they plan to address the above. Where are we putting our kids first?
ICYMI:
The School Board Voter Education Initiative is a group of parent, educator, and community organizations committed to increasing voter awareness of the upcoming school board election and sharing unbiased information about the candidates on their ballot.
25th Ward Alderman Byron Sigcho Lopez posted a video over the weekend complaining about progressives and others using the language “fiscally responsible.” I suppose we dodged a bullet not appointing him Zoning Chair.
X Space:
We’ll be joining an X Space at 8pm Central on Tuesday, 10/8 to discuss the school board election. Join us.
Finally, on the one-year anniversary of October 7th, we mourn the lives lost and continue to pray for the safe return of the hostages.