Chicago’s City Council on Friday approved the issuance of $1.25 billion of bonds to fund affordable housing and economic development programs after debating the measure for the past month.
Rather than raising property taxes, the city will let about 45 tax increment financing districts expire and, once the tax revenue from those districts returns to the city’s corporate fund, will use that to fund debt service.
The bonds can be issued either as general obligation debt or through the city’s higher-rated Sales Tax Securitization Corporation. Up to 35% of the issuance will be taxable, to utilize revolving loans and other non-capital expenses.
Bloomberg News
The bonds
Whether the city issues GO or STSC bonds, or both, will depend upon market conditions at the time of sale, as well as the use of proceeds for each tranche, Chief Financial Officer Jill Jaworski and team said by email. The city’s finance department does not expect tax-exempt STSC bonds to be issued.
Chicago GOs carry underlying ratings of BBB-plus from Fitch Ratings, A from Kroll Bond Rating Agency, Baa3 from Moody’s Ratings and BBB-plus from S&P Global Ratings.
The
The bonds will be issued in five tranches of $250 million over five years. The finance department team said they are aiming to issue the first tranche of bonds in the second half of 2024.
The 32-17 City Council vote followed a heated debate in which multiple alderpeople argued that their proposed reforms around transparency had been ignored. The finance committee did allow time to air concerns — including in an April 11 subject matter hearing after a substitute ordinance had been prepared that took some concerns into consideration, such as four recommendations by the City Council Office of Financial Analysis.
The changes in the substitute ordinance included a requirement that the Department of Housing and the Department of Planning and Development publish selection criteria for projects funded by the bonds.
On top of annual reports from the city’s CFO, it added the requirement that DOH and DPD provide quarterly reports. The annual reports are to include updated projections of revenue from expiring TIF districts and bond debt service to inform votes on TIF extensions or additional debt sales.
All bond-funded projects must also be published on an expanded TIF portal. And, in the substitute ordinance, projects of $5 million or more will be subject to council approval.
That last provision proved a major sticking point for some alderpeople.
“The only reason that I’m not supporting it is that we could not make one small amendment,” namely reducing the threshold from $5 million to $1 million, said Ward 9 Alderman Anthony Beale. “I support the concept. I support the mission. I just don’t support the threshold.”
“We all know our city is in perilous financial shape, and taking out a billion-dollar loan… is a huge obligation,” said Ward 34 Alderman William Conway. “We need to do this right, not just fast.” He called on his colleagues to “keep this to three years” and change the total authorization to $750 million.
“We just don’t know what we’re buying,” argued Ward 39 Alderman Samantha Nugent, who added she had asked how the funds from TIF districts allowed to expire would be replaced for the wards hosting those districts. “I have been met with silence on this issue… I do not believe that simply putting projects on a webpage is transparency.”
But Ward 1 Alderman Daniel La Spata successfully tabled every motion the critics put forth.
The DOH and DPD planned capital expenditures over a longer period because of the size and complexity of multifamily affordable construction and rehab, Jaworski and team said: “A five-year bond allows for planning on a timeline that reflects the reality of multifamily affordable construction.”
They added that the three-year proposal did not have broad support and did not reflect the needs of the program.
“Those areas that don’t have TIFs, this bond is going to help those areas. Which is not my ward. I’m blessed: 75% of my ward is in a TIF right now,” said Ward 27 Alderman Walter Burnett, Jr. “Let’s stop playing… We have three years, guys… I do a lot of development in my ward. I do a groundbreaking; it takes about another three years before there’s a ribbon-cutting… [Development] is slowing down because of the banks and the interest rates. A lot of projects are on hold… If I was you, I wouldn’t want to be on the other side of this bond deal.”
He added: “We need to spread this tax base across this city; we cannot keep taking money from the central area… This is an opportunity to lever some funds that are going to go to the general fund, anyway.”
The mayor’s funding proposal was endorsed by the City Council Office of Financial Analysis, the Civic Federation of Chicago, the Metropolitan Planning Council and the Chicago Community Loan Fund, among others. It was most vocally opposed by about five members of City Council.
Some skeptics of tax increment financing say it has morphed from its original purpose of spurring development in blighted areas to rewarding development that was likely to happen anyway in wards that are already prosperous.
In a
“Ultimately, any funds raised by the bond issue will be targeted to [certain] areas,” said David Merriman, James J. Stukel presidential professor of public policy at the University of Illinois-Chicago. “I like the idea of removing the restriction, imposed by TIF, that funds must be used in the same geographic area that generates them. In that sense, the new policy allows for more equitable allocation of funds raised through tax dollars.”
Merriman said Nugent’s question about what will replace the expiring TIF funds in her district is a valid one that the mayor should be able to answer. But he also noted that TIF often falls short for the neighborhoods most in need of help.
“It is typically easier for TIF districts to generate revenue in areas that are vibrant and growing,” he said. “Thus, TIF is often insufficient to generate economic development in severely depressed areas. TIF can sometimes be part of a larger package to help such areas.”
At the April 11 finance committee hearing, COFA Acting Director Janice Oda-Gray tempered concerns with an endorsement of the bond proposal as it stood with the introduction of the substitute ordinance.
Oda-Gray said COFA’s concerns centered around the framework for deciding which TIF districts should remain or be extended. The office also voiced concern about the council’s involvement in project selection.
“Despite assurances from the CFO, there are concerns about significant funding for existing programs that may not necessitate council approval if under an existing program,” she said. “Additionally, the council is apprehensive about the $81 million allocation toward debt services, especially considering rising pension costs and operational obligations. COFA shares these worries, particularly about the impact of the proposal on the city’s bond rating and expected returns.”
She added that “COFA remains cautious and emphasizes the need for expanded revenue sources.”
In his testimony at the hearing, Civic Federation President Joe Ferguson said the nonpartisan government research organization “views this proposal as a sensible means of resetting the city’s overuse of TIF.” He argued that TIF is in need of reform, and noted that the city is facing a “TIF cliff” or a pending reduction in TIF revenue. Ferguson also noted that the city will be issuing the debt incrementally.
“Overall, the Federation is encouraged by this proposal,” he said. “We do have some concerns, particularly about the lack of planning in key respects… The absence of comprehensive planning in key areas perpetuates the hyper-transactional nature of development that has stymied growth for decades.”
Ferguson added that the spending plan is not tied to the capital improvement plan or a citywide housing plan. And he called for data from the upcoming reassessment of Chicago property to be included “given the volatile state of the real estate market.”
Still, he said, “We’re encouraged by the inclusion of added guardrails in the substitute ordinance.”
On Friday, Finance Committee Chair Pat Dowell closed out the debate by stressing that they had made some of the changes requested and that in terms of projects, “what we already approve is an average of $10 million — that’s what we see… [the] $5 million [threshold] is reasonable.”
The city plans to use certain bond funds to support large-scale projects over $5 million, Jaworski and team said. “It’s important to note that nearly all of the city’s existing housing and development programs already require multiple approvals through City Council, including zoning rights and financial assistance packages, which is a key reason why the $5 million threshold was implemented by city administration,” they added.
Dowell noted that there are already “over 140 applications for the bond financing that are just sitting there” in the Department of Planning.
“This is not a blank check,” she said. “If we don’t like what we see as we move forward, we can amend and tweak the ordinance.”