CHICAGO (Reuters) - Chicago would refund $1.3 billion of outstanding debt to produce a one-time, $200 million savings to help plug a big hole in its upcoming budget, city officials said on Monday
The bond plan is the biggest piece of a budget-balancing puzzle that Mayor Lori Lightfoot has announced so far as she prepares to unveil a fiscal 2020 budget on Wednesday for the nation’s third-largest city.
Just months after taking office, the mayor in late August warned of “hard choices” to deal with an $838 million deficit, the biggest since at least 2001 due to growing costs for personnel, pensions and debt.
A chronic budget deficit and big unfunded pension liability have weighed on the city’s credit ratings, leading to high borrowing costs.
Jennie Huang Bennett, Chicago’s chief financial officer, told reporters that about 40% of the mayor’s budget fix will be one-time measures like the bond refunding savings, while the remaining 60% will be structural solutions.
“Given the magnitude of the budget, I don’t think anyone really expected that we were going to address the entire gap with all 100% structural solutions,” she said.
Lightfoot’s bond plan, which is subject to city council approval, seeks to take advantage of current lower interest rates to decrease borrowing costs for existing, callable general obligation (GO) and motor fuel tax bonds without extending their maturities, Bennett said.
The plan would also involve new subordinate lien bonds under Chicago’s Sales Tax Securitization Corporation, she added. Previous bonds issued through the corporation, which was created by former Mayor Rahm Emanuel, have earned higher credit ratings by giving investors a statutory lien on the city’s share of state sales taxes.
Other initiatives announced ahead of Lightfoot’s budget address included a proposed doubling of the restaurant tax to raise $20 million and the termination of $1.4 billion of short-term lines of credit to save about $22 million.
The mayor also proposed a new traffic congestion tax on ride-hailing companies to generate $40 million, with some of the new revenue allocated to mass transit. She outlined an effort to step up collections of unpaid taxes and licensing fees from city vendors to gain up to $25 million and is seeking state legislative approval for a graduated real estate transfer tax that would raise more money from higher-priced homes.
Results of an online survey released by the mayor’s office indicated strong resistance to hiking property taxes for the budget.
Reporting by Karen Pierog in Chicago; Editing by Matthew Lewis