Confusion over the Emanuel administration’s plan to create a separate agency to borrow on the city’s behalf forced the Council’s Finance Committee to recess the meeting to Friday morning, after having only approved three of the 16 items on the agenda.
Though several attempts were made to table the ordinance to create a new corporate authority, it eventually passed by voice vote two hours into the meeting. Ald. Scott Waguespack (32) and Ald. John Arena (45) were the sole no votes.
Even Finance Chair Ed Burke (14) had to call an impromptu recess early in the meeting when aldermen complained they didn’t know which version of the ordinance was being considered. Was it the one Mayor Rahm Emanuel introduced at the September City Council meeting, the substitute ordinance aldermen received in briefings, or the revised substitute aldermen said they received late Wednesday night?
Ordinances are regularly substituted in committee. Sometimes the changes are substantial, other times minor language errors, or “scrivener’s errors”, as Burke calls them.
But when Burke asked the city’s Deputy Corporation Counsel James McDonald to detail the changes, McDonald’s response compounded the confusion. “There is a revised version of the substitute ordinance that has been distributed,” he responded to Burke. “Are you asking for the changes in the revised ordinance?”
McDonald explained, “We have made some technical clarifications to language that when we looked at it again, we were concerned was potentially ambiguous.”
Those changes, which can be seen in this markup document, consist of:
- It clarifies the city’s right to receive the remaining sales tax revenues after the corporation has applied the revenues needed to pay debt service on the corporate bonds. Since the city’s local sales tax revenue and the proportionate share of state sales tax revenue it receives will be directly funneled to the new borrowing agency, the city wanted to ensure it had the right to receive the residual sales tax revenues after the debt service has been paid off for the year.
- It clarifies sales tax revenue used to secure the bonds includes investment earnings. Under the state tax code, all local sales taxes under home rule authority are collected by the state treasurer who invests the money before remitting it to municipalities. Currently, remittances are sent to a city trustee who puts it in the city’s general fund. Under this ordinance, remittances will go directly to the corporate authority.
- It clarifies the new corporate agency would be subject to oversight by the city’s Inspector General and the bonds issued are subject to the Debt Transparency Ordinance. Both of those changes were requested by aldermen during prior briefings on the plan.
“I don’t know how anyone can be intelligent on this stuff if you just got it last night,” Burke retorted at one point, visibly annoyed. He then called a ten minute recess to make sure everyone had the same copy and had CFO Carole Brown take over the explanation.
The city is using a separate agency to borrow on its behalf because its outstanding debt load, mostly long-term general obligation bonds, has made the city a risky investment. Having the tax status of an Illinois non-profit, the corporation will be able to issue tax-free debt at a much lower interest rate.
“The refinancing is expected to save the city millions of dollars per year in debt service costs, and help to alleviate the city’s general obligation debt burden. Over the long term, it is expected that the presence of this structure may result in ratings upgrades on the city’s GO debt,” said Brown.
The actual rate on the revenue bonds won’t be known until they go to market, scheduled for later this year. Brown said the city made clear to the underwriters to aim for below the city’s rate, adding, “they will try everything to beat that.”
The city’s local sales tax revenue and its proportionate share from state collections will secure the bonds. Usually, that money is deposited in the general fund which pays for general operations. In the past few years the city has used general fund revenues to pay off its growing debt payments. The tool, in theory, will lead to savings by allowing the city to borrow at a lower rate. It is likewise expected to prop up the city’s credit rating by paying off its debt sooner.
The corporate authority will have the ability to borrow up to $3 billion in one or more issuances. A spokesperson for the city’s Budget Office wouldn’t say whether more borrowing is planned for FY2018 , but that the budget hasn’t even been released and there could be other capital costs to consider.
Other Items approved
- A redevelopment agreement to sell several city-owned parcels in East Garfield park for a new food incubator in East Garfield Park. The parcels, valued at $150,000 will be sold for $1 to a joint venture of Accion Chicago, the Kinzie Development Corporation, and IFF Hatchery. The development team is in the process of acquiring surrounding, privately owned property valued at about $1.4 million. This was the first item approved, with Chairman Ed Burke abstaining under provisions of Rule 14. (O2017-6801) Costing, plan details and the timeline are provided in this staff report from the city’s Community Development Commission.
- An amendment of loan agreement with Illinois Environmental Protection Agency regarding sewer improvements. O2017-6756