In 2013, Chicago bond rating suffered twin blows when two major Wall Street credit rating agencies downgraded the city’s ratings.
Now, the city will find out just how much those downgrades will cost taxpayers in future borrowing costs.
On Monday, the City Council Finance Committee authorized new borrowings to the tune of $1.9 billion. Of that amount, $1 billion is earmarked for Midway Airport, and $900 million issue will to help refinance old debt and cover $100 million in legal settlements.
In November, Fitch Ratings downgraded Chicago’s bond rating by an unprecedented three notches, citing the city’s unfunded pension liability and a “sluggish” economy.
In July, Moody’s Investors Service also downgraded the city’s bond ratings, for much the same reasons.
The latest borrowing schedule will provide new information as to how investors are likely to view Chicago’s request to take on more debt, as well as the amount of higher borrowing costs the downgrades may have created.
Chief Financial Officer Lois Scott was asked Monday how much the downgrade would add to the city’s borrowing costs when it comes time to issue the general obligation bonds in two installments, the first $450 million in March, the rest during the second-quarter.
“We haven’t issued debt since then. So, we have no way of knowing,” Scott said before hustling out of the City Council chambers.
Last fall, Scott was quite specific about the cost. She warned aldermen that the unprecedented downgrade would cost taxpayers $1 million a year for every $100 million borrowed and severely limit the city’s “financial flexibility” going forward.
This month, a report by Chicago-based research firm Morningstar showed that the amount of unfunded liability for the city’s pension fund per person came to more than $18,000 in 2012.
In addition to Chicago’s structural problems with pensions, the city has been heavily criticized for what many observers see as a policy of pushing debt onto future generations.
At issue is a controversial technique known as “scoop and toss,” which is designed to delay covering debt financing costs for future years. In 2013, a Chicago Tribune analysis showed that in $9.8 billion in proceeds from general obligation bonds issued from 2000 to 2012, nearly half of the money went to paper over growing budget problems. in part using the controvesial technique.
The Finance Committee also agreed to expand the city’s short-term borrowing, or “commercial paper” program to help cover an expected tens of millions of dollars in back pay as the city negotiates new contracts for police, firefighters and other city unions.