Chicago City Council delays $1.5 billion refunding

Chicago's City Council deferred a vote on a $1.5 billion refunding bond measure.

The deal, which includes a planned tender offer, drew opposition from some aldermen and Illinois Comptroller Susana Mendoza and triggered a credit recommendation from Municipal Market Analytics, which said on Tuesday that "this sale could be another signal that the city's decade-long uptrend in credit quality has come to an end."

Ward 15 Alderman Raymond Lopez and Ward 23 Alderwoman Silvana Tabares moved to defer and publish the item ? effectively, a delaying maneuver ? at Wednesday's City Council meeting.

In addition to Lopez, Ward 32 Alderman Scott Waguespack, Ward 9 Alderman Anthony Beale and Ward 31 Alderman Felix Cardona, Jr., voted no on the bond measure, Finance Committee Chair Pat Dowell noted, although the committee voted on Oct. 2 to recommend the deal.

Lopez thanked Dowell for deleting language in the ordinance authorizing the bonds that would have allowed the bonds to fund operating expenses. But, he said, the city needs to "not get continually hosed" by those loaning it money "in our time of need."

Lopez moved to amend the ordinance by changing the purchase price from 85% to 90% of the principal amount of the bonds being sold, but Dowell tabled this motion.

Waguespack told Mayor Brandon Johnson, who was presiding over the meeting, that the mayor's finance team had told aldermen on Aug. 21 there was no reason to refinance debt. Aldermen had been given little to no information necessary to make good judgments, he said, and "this is going to be a more costly, more damaging deal."

"The lack of transparency and timing on this deal, coupled with the state of the budget, [will] cost us," Waguespack said. "We have lost the 10 years of increasing ratings that until this point, put us on a strong footing ? The rating agencies expect the city to have a strong budget."

Mendoza told The Bond Buyer the "just trust us" approach to the deal was troubling, and noted she had called in a Friday op-ed for the administration to "show their math" to aldermen before the vote.

The op-ed pointed to a clause in the bond deal's master indenture that would allow the mayor and the city's chief financial officer, under certain conditions, to use some proceeds for operating expenses.

"I was really stunned [at the results] when Alderman Lopez made a motion to make an amendment that would bring down the cost of the deal," she told The Bond Buyer. "How anyone could vote against a better deal for taxpayers ? it is absurd and it is shameful that the city would vote against getting a better deal on the fee structure of those bonds."

She argued "the administration cannot balance its budget" and is "hoping to trick" the City Council into letting it borrow more money "just to pay the bills."

"This is not a small deal," Mendoza said. "I think they risk a credit downgrade. ? They'll end up having to pay more when they legitimately have to go to the market in the future."

City Chief Financial Officer Jill Jaworski responded to Mendoza's arguments in a Tuesday op-ed, saying the ordinance specifically requires the transaction be used only for cost-saving refinancing, with any other use of proceeds requiring City Council approval.

"City debt policy states that a bond refinancing is a 'good deal' if the present value savings generated by refinancing are greater than 3% of the principal being refinanced," Jaworski wrote. "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 insisted the city's finance team has responded in writing to questions from aldermen and has a fiduciary responsibility to make the best deal for the city.

"What this bond deal does not do is 1) irresponsibly take on an additional half-a-billion dollars of debt to cover operating expenses; 2) use bond proceeds for operating expenses, like putting your groceries on your credit card; or 3) invite a bond-rating downgrade," she wrote.

"I just think that the markets are not going to look on this favorably," Mendoza said. "It's very concerning to me because of all the work that we've done to stabilize the state's finances, recognizing that Chicago is the economic engine of the state. It is something that could absolutely hurt our state, as well."