As interest rates are quite low, the city can refinance or restructure about $1.7 Billion in existing debt for savings or to stretch out the payments. Refunding for savings is simply swapping one loan for another at a lower interest rate, like refinancing your mortgage.
Restructuring is dicier. This practice has become known as "scoop" and "toss" -- scooping up a bunch of loans and tossing their due dates farther out into the future to lower the annual cost, but paying out much more cash over the long haul. "Scoop and toss" apparently was a routine undisclosed practice during the Daley years. After a
Chicago Tribune expose in 2013, Mayor
Emanuel promised to end the practice, which he did, in his last budget.
When the city issues these new bonds, the cash it receives will be used to help close the budget gaps: $450 million for 2020, and about $500 million for 2021.
My skepticism was somewhat relieved by witnessing how frank the administration has been in proposing these proposed transactions. Here is a
chart explaining how they work and showing the stream of payments into the future.
There is risk in the restructurings - interest rates may be less favorable. But even the conservative
Civic Federation concluded that "the city does not have a lot of good options," so long as the transactions are conducted transparently.
Should we borrow $100 million more to avoid a direct property tax increase? I believe the answer should be no. Frankly, I wish we could borrow less. The administration has said that should federal relief arrive with few restrictions, they will cut back the restructurings as much as possible. I support this borrowing based on that representation.
Property Tax Increase - $77.9 million
Which leads us to the proposed property tax increase, the last resort of any budget. I have voted against property tax increases when I've not been convinced they were absolutely necessary and pledged not to support them.
But these are extraordinary times. No one could have predicted that COVID would upend our lives, decimate our economy, and threaten to seriously damage the viability of this city.
As we analyzed the budget, and aldermen questioned department heads, we learned that the cost of cutting our budget another $100 million was very high. To save $100 million would involve laying off 1400 people: perhaps 840 employees from public safety and the rest from every other department. Do we want that to reduce our police presence and city services that much more?
As we consider our choices, let's examine exactly what is on the table:
Property taxpayers (homeowners and commercial properties) would be paying a total of $77.9 million comprised of 1) an increase of $35.4 million based on the 2019 Consumer Price Index rate of 2.3%; and 2) $42.5 million in “loss in collections."
The "loss in collections" is required because the Chicago must make the entire actuarial contribution for pensions, even if the city does not collect 100% of the levy. In general, the city collects 96% of its levy, and then it has to pursue people who don't or can't pay. The prior administration did not make the full payments, which led to the state withholding the funds from state grants.
Sixteen million dollars of the increase is attributable to the expansion of our tax base from new development and expiring TIF districts, and would not apply to existing property owners. These three elements comprise a total $93.9 million increase in the tax levy.
According to the city, this property tax increase, which would be billed for the first time in 2022, would equal 1.3% of our current tax bills. Please review the
City's calculations and an explanation of how property taxes
are imposed in the documents found at these links.
If we simply borrowed more money, that cost would also fall on property taxpayers and in fact, the increase would, in the long run cost us more. By not borrowing money and simply paying directly for our bills, we also avoid interest costs.
As I have said, until we can conquer pension reform, "we face an important quality of life issue: do we simply cut back our government so that we can't have basic constituent service or police? Or do we find ways to fund the government we want and plan for a recovery from this pandemic?" This is why, after much deliberation, in the face of an extraordinary time, I will support this budget.
Finally, many of you have heard in the news that the city has agreed to borrow more, $25 million to avoid 350 layoffs. This would not have been my first choice. However, we also learned that when the pandemic hit, hundreds of city workers changed their assignments to work at scheduling tests, setting up facilities, getting food to the homeless and seniors, and setting up the myriad of things needed to combat the pandemic, while others continued to pick up the trash, repair streets and sewers, all while the pandemic was uncertain and scary. During the unrest in our city, many Water Department and Streets and Sanitation workers were pressed into service to man trucks blocking intersections during protests, and later looting.
As stewards of this community, and with love and care towards this city and its residents, I believe it is our duty to come together and weigh the impact of this tax increase against the degradation of our quality of life in this city if we don't.
