Standard & Poor’s a mis Chicago sur une «montre de crédit», ce qui pourrait augmenter le taux d’intérêt que la ville paie d’environ un quart de point de pourcentage. Et avec la ville qui prévoit de refinancer 1,5 milliard de dollars d’obligations, même ce taux légèrement plus élevé pourrait coûter aux contribuables 4 millions de dollars par an sur 40 ans.
The bond rating that determines city borrowing costs stands a “one-in two-chance” of being lowered in the next 90 days because of Chicago’s “heavy reliance on one-time” revenues and a “politically charged stand-off” between Mayor Brandon Johnson and the City Council, a Wall Street rating agency warned this week.
Standard & Poor’s decision to place the city on what it calls “CreditWatch” — even while reaffirming the city’s BBB+ rating — could raise the interest rate by roughly one-quarter of one percentage point. And while the market will “assume” the city’s rating has been lowered even before that actually happens, a municipal bond expert said, the impact will be relatively negligible on $110.5 million in general obligation bonds.
The increased borrowing cost on the city’s upcoming plan to refinance $1.5 billion in bonds could be substantial, however. That small percentage increase could cost Chicago taxpayers $160 million in the long run — $4 million a year over 40 years.
Standard & Poors is sounding an “alarm bell that the City Council needs to hear,” said Matt Fabian, a partner in Municipal Market Analytics, an independent research group on municipal bonds.
“Municipal bond interests are screaming to Chicago to balance its budget in a responsible way and not rely on gimmicks and one-shots — like the [refinancing] and the plan to put all [$110 million] of the savings into the first two years,” Fabian told the Sun-Times.
“The city needs more recurring revenue. … Not raising property taxes is a mistake. Property tax increases need to happen…With the new administration, times will not get easier. The city needs more money now and will need more in the future.”
Standard & Poor’s Global Ratings analyst Scott Nees said the placing Chicago on CreditWatch “reflects our view that there is at least a one-in-two chance of a lower rating in the next 90 days, pending the passage of the city’s fiscal 2025 budget and our assessment of whether its credit quality has deteriorated due to heavy reliance on one-time budget-balancing measures, perpetuating a large out-year structural imbalance.”
S&P’s broader report cited the “politically charged standoff” between the mayor and Council after last week’s unanimous vote rejecting Johnson’s proposed, $300 million property tax increase.
That blew a giant hole in a $17.3 billion budget “already tenuously balanced through one-time revenues” the report noted, citing the use of $367.6 millon of prior year reserves, proceeds from debt refinancing and declaring a record-setting tax increment financing surplus of $570 million.
Jill Jaworski, the city’s chief financial officer, could not be reached for comment. Jaworski and Johnson have used a similar argument — biting the bullet now to avoid higher costs later — in warning the Council not to touch a $272 million pension advance. That is in addition to the city’s state-mandated contribution to four city employee pension funds.
Stung by last week’s unanimous vote, Johnson already has agreed to cut the property tax increase in half — to $150 million — primarily by raising taxes on cloud computing and streaming services.
Johnson continues to negotiate with recalcitrant alderpersons demanding both deeper cuts and an even smaller property tax increase — or none at all.
“I would have kept the whole property tax hike. The best course for the city would have been to keep the whole thing. If only half is left, keep as much as you can,” Fabian said.
Wall Street’s warning didn’t to convince some influential alderpersons to support even a $150 million property tax increase or an re-imposing the automatic annual increase tied to the cost of living.
Ald. Scott Waguespack (32nd), the Finance Committee chair dsunder Lori Lightfoot before being deposed by Johnson, said his constituents are demanding that cost-cutting come first, or at least at the same time, “and they’re not seeing that” from Johnson.
“I would support a comprehensive plan that would probably include” the automatic escalator, Waguespack told the Sun-Times. “But I have to see these other things done first.”
Waguespack pointed to youth and violence interruption programs. Johnson wants to “double” them without auditing either program. He also shined the light on administrative hearing officers who allow debts to be settled for far less than is owed.
“Some of these people have been writing off” nearly all the amount owed. “So, we have foregone probably tens of millions in fines that should have been kept,” Waguespack said.
Ald. Brian Hopkins (2nd), whose ward includes Lincoln Park and the Gold Coast, said he hears Wall Street’s message: Chicago is “proceeding down an unsustainable path that will lead to fiscal disaster.”
It only makes him “focus harder” on returning to pre-pandemic spending levels.
“There’s at least $200 million in new spending and new programs that have been added in the last five years,” calling some of them “luxuries — not necessities.”
“Chicago was surviving quite nicely in 2019,” Hopkins said. “I can’t support a property tax increase. I represent one of the top property tax-generating wards. The people I represent are doing way more than their fair share already.”
Civic Federation President Joe Ferguson, the city’s longtime inspector general, has agreed a property tax increase of any size should be a “last option.”
French