scoop-and-toss

The Civic Federation Analyzes Chicago’s FY2015 Budget

The last time I talked about The Civic Federation (an independent, non-partisan government research organization that provides analysis and recommendations on government finance issues for the Chicago region and State of Illinois) was back on March 4, when they proposed a five-year plan to balance the Illinois state budget, eliminate its huge bill backlog, and reduce income tax rates. But yesterday, the group released a new report on the City of Chicago’s proposed budget for fiscal year 2015. From their press release Monday:

Civic Federation Supports FY2015 Chicago Budget

Recent Progress Threatened by Pension Funding Crisis, Borrowing for Operations

In a report released today, the Civic Federation announced its support for the City of Chicago’s proposed FY2015 operating budget of $7.3 billion but expressed deep concern for how the City will manage rising pension costs and debt service payments in future years. The full 101-page analysis is available here.

The FY2015 budget closes a $297.3 million deficit with reasonable structural changes including targeted tax and fee increases, vacancy eliminations and other operational efficiencies. The budget also reflects significant actions toward long-term stability including the 2014 pension reform law for the City’s Municipal and Laborers’ pension funds and the continued phase out of the City’s retiree health care subsidy and planned transition of most retirees to coverage under the federal Affordable Care Act.

“Mayor Emanuel and his team are continuing to make the reasonable changes and bold decisions necessary to stabilize Chicago’s finances,” said Laurence Msall, president of the Civic Federation. “Two issues, however, threaten to erase all recent progress: the pension funding crisis and the administration’s continued use of borrowing for operations through the issuance of refunding bonds.”

Landmark pension reforms were enacted in June 2014, but only for two of the City’s four pension funds. The City’s Police and Fire pension funds remain dangerously close to running out of funds with market value funded ratios of only 27.0% and 31.7% respectively in FY2013. The Illinois General Assembly passed legislation in 2010 that mandates a sharp $550 million increase in contributions to the Police and Fire funds. This change, even without considering increased contributions to the City’s Municipal and Laborers’ funds, would require a significant increase in the City’s property tax levy, crippling cuts to City services, or both. The Mayor, City Council and State legislators must work together to create a reform framework for the Police and Fire funds that will stabilize the funds at an affordable cost to taxpayers. The Civic Federation also recommends that the City study ways to consolidate its pension funds, including the possibility of merging its Police and Fire funds with suburban and downstate public safety funds.

Over the last three fiscal years, the City of Chicago reduced its annual debt service payments by refunding bonds that are due to mature and extending the life of these bonds for an additional 30 years, a practice referred to as “scoop and toss.” This practice dramatically increases the cost of providing government services. It also could threaten the City’s ability to issue future debt by filling the out years of the City’s debt service schedule with previously issued bonds. The Civic Federation urges the City to develop a strategy for ending this costly and unsustainable practice.

The Federation’s full report also discusses the creation of the City Council Office of Financial Analysis in 2013. The office was intended to give aldermen access to the independent information and analysis they need to be effective stewards of the City’s finances. A delay in fully implementing the office means aldermen will not have access to this resource before they vote on the FY2015 budget.

You can read the 101-page report entitled City of Chicago FY2015 Proposed Budget: Analysis and Recommendations on The Civic Federation’s website here.

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

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Tuesday, November 4th, 2014 Bonds, Borrowing, Fiscal Policy, Government No Comments

Chicago Borrows $1.9 Billion, Piling On More Debt ‘For The Children’

“Mayor Rahm Emanuel closed the books on 2011 with $310 million in cash on hand, $167 million more than the year before, but added $465 million to the mountain of debt piled on Chicago taxpayers, year-end audits show…

The new round of borrowing brings Chicago’s total long-term debt to just over $27 billion. That’s $10,000 for every one of the city’s nearly 2.7 million residents. More than a decade ago, the debt load was $9.6 billion or $3,338-per-resident.”

Chicago Sun-Times website, July 22, 2012

“Mayor Rahm Emanuel closed the books on 2012 with $33.4 million in unallocated cash on hand — down from $167 million the year before — while adding to the mountain of debt piled on Chicago taxpayers, year-end audits show…

The new round of borrowing brings Chicago’s total long-term debt to nearly $29 billion. That’s $10,780 for every one of the city’s nearly 2.69 million residents.”

Chicago Sun-Times website, July 26, 2013

Chicago keeps piling on massive amounts of debt. From Fran Spielman yesterday on the Chicago Sun-Times website:

Chicago will test the bond market for the first time since its bond rating dropped three notches, thanks to $1.9 billion in borrowings added Monday to the mountain of debt piled on Chicago taxpayers.

The City Council’s Finance Committee authorized two massive borrowings: a $900 million general obligation bond issue to refinance old debt, pay for equipment and capital projects and bankroll $100 million for legal settlements incurred last year and a $1 billion borrowing for Midway Airport.

The Finance Committee also agreed to double — from $500 million to $1 billion — a so-called “commercial paper” program used to cover short-term borrowing between bond deals.

The general obligation bond issue includes $200 million in debt refinancing and $130 million in debt restructuring to “better align revenues with our obligations,” as [Chief Financial Officer Lois] Scott put it.

The so-called “scoop-and-toss” technique will stave off even higher taxes and fees, but it will saddle Chicagoans with another decade of debt that should be paid off today

(Editor’s note: Italics added for emphasis)

Mayor Rahm Emanuel’s worn-out line “it’s for the children” comes to mind here.

As well as that saying “you can pay now or pay later.”

Which is what Chicagoans will eventually be forced to do when the city’s “financial reckoning day” arrives.

The Chicago Tribune did a pretty good job illustrating just how serious the city’s debt crisis is becoming. Hal Dardick, Heather Gillers, and Jason Grotto reported on the Tribune website yesterday:

In a move that will add to the city’s mountain of debt, Mayor Rahm Emanuel won support Monday from the City Council’s Finance Committee to issue up to $900 million in bonds backed by property taxes.

It’s the largest request put forth during Emanuel’s tenure and comes at a time when Chicago already has about $7 billion in outstanding general obligation debt, more per capita than bankrupt Detroit or any of the 10 biggest U.S. cities except New York

Monday, aldermen asked few questions about the borrowing as the ordinance authorizing the debt sailed through the committee with virtually no debate.

“It raises questions of how much City Council members understand the financial condition of the city and what the plan going forward will be to meet the debt,” said Laurence Msall, president of the nonpartisan Civic Federation budget watchdog group…

The amount of borrowing sought by Emanuel suggests his administration continues to need huge loans to run the city

(Editor’s note: Italics added for emphasis)

I can’t begin to tell you how depressing it is watching “The Machine” steadily bring the “City of Broad Shoulders” down to its knees. But what does City Hall care? More than likely they’ll have moved on to comfortable retirements or “bigger and better things” by the time the city implodes as a result of “scooping and tossing.”

Ubi Est Mea? (Pulitzer prize-winning newspaper columnist Mike Royko’s suggested Chicago city motto of “Where’s Mine?”)

How about “Not On My Watch,” all things considered?

By Christopher E. Hill
Survival And Prosperity (survivalandprosperity.com)

Sources:

Spielman, Fran. “City to borrow $1.9 billion in first test since rating downgrade.” Chicago Sun-Times. 3 Feb. 2014. (http://www.suntimes.com/news/metro/25360629-418/city-to-borrow-19-billion-in-first-test-since-rating-downgrade.html). 4 Feb. 2014.

Dardick, Hal, Gillers, Heather, and Grotto, Jason. “Mayor seeks to borrow up to $900 million more.” Chicago Tribune. 3 Feb. 2014. (http://articles.chicagotribune.com/2014-02-03/news/ct-met-bonds-new-chicago-borrowing-20140204_1_tax-increases-city-leaders-finance-committee). 4 Feb. 2014.

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