RAHM’S $ 3B REFINANCING PLAN OK’D BY COMMITTEE
Chicago will refinance $ 3 billion in debt in a way that could dramatically reduce borrowing costs, under a mayoral plan advanced Thursday to create a “special purpose corporation legally independent” from the City Council.
During a nearly threehour hearing that preceded the Finance Committee vote, the elephant in the room was the widely despised 2008 parking meter deal negotiated by former Mayor Richard M. Daley.
Because aldermen got burned by asking too few questions about that deal that ended up a lemon for the city, they were determined to ask plenty of questions this time around.
Mayor Rahm Emanuel plans to place $ 661 million in state sales tax revenue into the “special purpose corporation” and use that vehicle to refinance $ 3 billion in ex- isting debt and possibly future debt for infrastructure projects.
The so- called “securitization” structure is expected to dramatically reduce borrowing costs because bondholders would get paid first, even if the worst happens and the city goes bankrupt.
Only after debt service is paid would sales tax revenue start to flow back to the city.
“What are the protections that money over and above what covers debt service will come back to the city whole, or will the corporation take initiative to do other things with it?” said Ald. John Arena ( 45th), who cast one of only two dissenting votes.
Ald. Scott Waguespack ( 32nd), chairman of the City Council’s Progressive Caucus, added: “There’s a better way to scrutinize these deals. ... Perhaps that goes back to the process of the parking meter deal. But it’s an improvement for the Council to ask very tough questions.”
Chief Financial Officer Carole Brown insisted the goal of the new corporation “is not to, in any way, usurp the oversight or authority of the City Council.”
Brown said her hope is to refinance debt at a rate at least 2 full percentage points below the 6.25 percent attached to the last general obligation bond issue because the city’s bond rating remains “below investment grade.”
Chicago’s junk bond rating has already saddled taxpayers with tens of millions of dollars in penalties and added borrowing costs.
Brown said the new financing scheme could ultimately pave the way for the city to raise a bond rating that now ranges from BBBplus to junk with Moody’s Investors.