October 31, 2018
The research organization notes many looming financial challenges
(CHICAGO) – In a report released today, the Civic Federation announced its support for the City of Chicago’s proposed $8.9 billion FY2019 budget. The proposal is a reasonable one-year financial plan that does not include any new taxes or fees, makes important public safety investments and funds the increased 2019 pension contribution of $32 million to the police and fire pension funds without a property tax increase. The full analysis is available here.
“This budget continues to incorporate many of prudent financial practices prioritized by Mayor Emanuel and the City Council in recent years,” said Civic Federation President Laurence Msall. “However, there remains an enormous elephant in the room—a projected doubling in required pension contributions over the next five years—that the next administration and City Council must tackle.”
With the FY2019 budget recommendation, Mayor Emanuel continues to propose reforms and efficiencies aimed at improving city operations and reducing growing expenditures. The budget also prepares for impending risks and expenses by increasing contributions to the rainy day fund, increasing operating funding for settlements and judgements and including a one-year funding plan for the draft police consent decree.
Although the Federation is encouraged by these sound budgeting practices, severe challenges are on the City’s horizon, including the aforementioned increase in required pension contributions, a high and growing debt burden and projected increases to the Corporate Fund budget shortfall in 2020 and beyond.
Further, the Federation is concerned about an additional $1.3 billion in debt the City plans to issue to refund existing General Obligation bonds through the Sales Tax Securitization Corporation (STSC). The STSC is a special purpose entity that lockboxes sales tax revenue to protect bondholders in the event of a bankruptcy and therefore carries a lower interest rate than the City’s General Obligation debt. The Federation is supportive of the STSC and encouraged that the City has found a creative way to manage the cost of its high debt burden and low credit rating. However, the outstanding General Obligation debt refunded by the proposed transaction would have matured no later than 2044 and the new proposal appears to include more than $1 billion of debt maturing between 2044 and 2053. This new debt, which is solely for refunding existing debt, would impact the City’s capacity to issue debt for capital projects during the 2040s and 2050s. The Federation is concerned the City continues to rely on transactions that extend the maturity of debt to achieve short-term budgetary relief.
“While the STSC itself was an innovative initiative, the use of it to push debt further down the road is short-sighted, will burden future generations of taxpayers and erodes the savings from the new credit,” said Msall.
Among other recommendations, the Civic Federation urges the City to improve the transparency and safeguards of the STSC, focus on sustainable collective bargaining agreements, re-evaluate the use of TIF funds, implement long-term financial plans for City operations and pensions and increase the accessibility, transparency and accountability of various City Hall proceedings.