In a move that’s catching at least some aldermen by surprise, Mayor Lori Lightfoot’s financial team is adding a twist to her just-passed city budget: hundreds of millions of dollars of short-term borrowing.
According to a spokeswoman for the city budget office, the borrowing will buy the city time to wait for Congress to approve a new COVID-relief bill, something under active discussion but far from assured.
If Congress comes through, the city could drop or reduce a planned restructuring of long-term debt that was included in the new budget and that Lightfoot is counting on to fill a $450 million hole this year and a $500 million deficit in 2021, the spokeswoman said. If not, the long-term restructuring would proceed.
“The city will not issue the long-term debt restructuring until we know where the status of federal funding is,” the spokeswoman said in an email. “In order to achieve this for FY2020, we will issue short-term financing to cover the $450 million in 2020 COVID-related revenue losses until the federal picture becomes clear. This short-term financing can be repaid from federal funding, or if federal funding does not come through, the debt restructuring.”
The council authorized the short-term borrowing when it approved the long-term restructuring plan, the spokeswoman says.
Though the move may make fiscal sense, it comes with at least a little fiscal risk. And aldermen say they’ve received only limited information about the major move into the short-term debt market.
“There was some general discussion of looking to see if attractive (short-term) rates might be available,” City Council Budget Committee Chairwoman Pat Dowell, 3rd, said in a phone interview. City financial officials “didn’t get into the details."
Dowell said she was trying to find out more but termed the move “not a switcheroo.”
Much more critical was Ald. Brian Hopkins, 2nd.
“They should have disclosed this,” Hopkins said. “I have a lot of confidence in the financial team. They’re qualified. But it’s unconscionable they’ve kept us in the dark on this.”
Laurence Msall, president of the watchdog Civic Federation, said the move was news to him, too, and said it is “not without risk.” For instance, the city has no guarantee that currently record-low interest rates will still be available if a restructuring is pushed off several months into the future, he said.
I learned of the short-term borrowing when I asked when the city planned to go to market with the long-term restructuring, and was told not until later, likely sometime in the first quarter of 2021. When I asked about how the city then would finance the $450 million hole in this year’s budget, the budget spokeswoman brought up short-term borrowing.
City officials have argued that the restructuring of long-term debt makes fiscal sense, since the borrowing will be repaid with dollars of lesser value in coming decades. But the plan clearly amounts to “scoop and toss” financing, in which the city is getting cash for current needs by borrowing and further deferring debt into the future.
Overall, according to city documents, the long-term plan will increase city debt service and costs to taxpayers by more than $2 billion cumulatively between now and 2050.
The spokeswoman said she could not immediately provide details on the length or cost of the short-term borrowing.
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