Mayoral foes delay debt refinancing plan

Mayor Brandon Johnson’s plan to refinance $1.5 billion in city debt to chip away at a massive budget shortfall this year and next was temporarily derailed Wednesday in the latest show of defiance by an emboldened City Council.

Ald. Ray Lopez (15th) and Silvana Tabares (23rd) used a parliamentary maneuver to postpone consideration of the refinancing for at least one meeting. The maneuver, known as “defer and publish,” is available to any two members. They need not explain why.

The motive this time is concern about the wisdom of the refinancing, doubts about the projected $110 million savings and the risk that increasing the overall amount — from $980 million to $1.5 billion — could jeopardize the city’s bond rating.

Lopez delayed the refinancing after trying and failing to reduce fees associated with the refinancing to prevent Chicago taxpayers from being, as he put it, “continuously hosed.”

During a Finance Committee meeting earlier this week, skeptical alderpersons demanded and received written assurance that the projected $110 million worth of one-time savings will not be used for operating expenses.

But State Comptroller Susana Mendoza has characterized that amendment as “like Swiss cheese — full of holes.”

In a telephone interview shortly before Wednesday’s Council meeting, Mendoza urged the Council to wait until the Johnson administration demonstrates in writing how the $1.5 billion refinancing will generate the promised $110 million savings — and how that money will be spent.

In fact, she urged alderpersons to limit the refinancing to the “original $980 million” included in Johnson’s 2024 budget and borrow “not a penny more,” warning that the additional $520 million “could lead to a credit downgrade.”

Johnson balanced his first budget with one-time revenues, including a record $434 million tax increment financing surplus and $70 million in anticipated savings by refinancing city debt at reduced interest rates. Those financial gimmicks helped the new mayor keep his campaign promise to hold the line on property tax increases.

The refinancing sets the stage for Johnson to postpone the financial day of reckoning once again, the state comptroller said.

“If you were to borrow $500 million to pay for operating expenses I’m telling you. I promise you this is what the city intends to use this money for — it’s to avoid a property tax increase. They’re not gonna tell people they’re gonna borrow it right now. But, that’s the intention,” Mendoza told the Sun-Times.

“Borrowing the money to pay operating expenses would be the equivalent of like a person taking out a second mortgage on their home to buy beer and cigarettes. That’s how irresponsible that action is. They’re not being honest with the public. They’re essentially trying to trick the public into believing that this is good for them when, in fact, it adds a significant amount of debt that people will be on the hook for. … Rather than make the hard and important decisions, the city is hoping to trick people into letting it borrow more just to pay the bills and leave the problem to someone else.”

Chief Financial Officer Jill Jaworski has accused Mendoza of making “patently false claims” and “regrettable errors” in a fear-mongering campaign of her own.

Jaworski has argued the refinancing is a “good deal,” as defined by the city’s own debt policy. That policy recommends refinancing when the anticipated savings is “greater than 3 percent of the principal being refinanced.”

“Under current market conditions, the refinancing will significantly exceed that target and generate approximately $110 million in present value savings with considerable additional upside depending on the response to our offer to tender bonds,” Jaworski wrote this week in a opinion piece that served as a written rebuttal to the one Mendoza wrote in Crain’s.

By replacing outstanding debt that carries an average interest rate of 5.62% with a new borrowing “with a much lower cost in the range of 3.75%,” Jaworski said the new deal “lowers our debt service costs, reduces our total debt load and helps us responsibly manager our cots.” She called it a “no-brainer.”

“What this bond deal does not do is irresponsibly take on an additional half billion dollars of debt to cover operating expenses; use bond proceeds for operating expenses like putting your groceries on your credit card or invite a bond-rating downgrade,” Jaworski wrote.

Municipal finance experts are not so sure.

In a credit recommendation released earlier this week, Municipal Market Analytics warned the now-stalled, $1.5 billion refinancing “highlights the city’s diminished financial flexibility” at a time when Johnson is struggling to close a $223 million shortfall in this year’s budget and a nearly $1 billion gap next year.

Depending on how the refinancing is structured and how far “current principal payments are delayed,” Municipal Market Analytics warned the refinancing “could be another signal” that Chicago’s “decade-long uptrend in credit quality has come to an end.”

If the city cannot find new revenues, make meaningful spending cuts or win additional state funding, “Chicago’s credit profile and perhaps ratings may have begun to shift downward,” the firm said.

The Council will almost certainly end up approving the massive refinancing amid warnings that failing to do so would make the 2024 shortfall even worse.

But Wednesday’s roadblock is yet another sign that alderpersons angered by Johnson’s school board takeover and by the mayor’s decision to cancel ShotSpotter has strained the relationship between Chicago’s executive and legislative branches to the brink.

Mendoza finished third in a 2019 mayoral race won by Lori Lightfoot and dominated by the corruption scandal that culminated in the conviction of former Ald. Edward Burke (14th).

Asked Wednesday whether she was positioning herself to challenge Johnson in 2027, Mendoza said only she is "horrified by what's happening in the city" under the rookie mayor's leadership.

In an even bolder show of defiance, Ald. Anthony Beale (9th) moved to defer all of the legislation that Johnson introduced at Wednesday’s meeting to the Rules Committee. That would slow everything down by adding another step to the process.

Beale wanted to get even with Johnson for canceling the ShotSpotter contract and defying two City Council votes aimed at compelling the mayor to reverse that decision and keep the gunshot-detection technology.

Johnson fought back by using his own parliamentary maneuver to overrule Beale’s attempted legislative detour.

An exasperated Beale once again accused Johnson of making up the parliamentary rules as he goes along.

If Roberts Rules of Order are not followed, Beale asked, “What are we doing here? You may not like it. You think I like deferring this stuff? But you know what I don’t like [more]? Canceling ShotSpotter when people are dying on the damn streets.”

After another vote, Beale won the skirmish. The mayor’s introductions remain in the Rules Committee.