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S&P warns Lightfoot against relying on Springfield

Wednesday, Sep 4, 2019

* Bond Buyer

The municipal bond market has a message for first-year Chicago Mayor Lori Lightfoot: go light on one-time maneuvers, avoid fiscal gimmicks, and move the city toward structural balance. […]

“We are looking for a reliance on structurally balanced measures to close the gap,” said Carol Spain, lead analyst for Chicago at S&P Global Ratings, which rates the city’s general obligation debt BBB-plus.

If the city is using one time sources, S&P would look for “the structural gap to be closed within the near term in the next couple years,” she said. “What we are looking for is a credible plan” that doesn’t solely rely on measures requiring state approval that might not come to pass or that are cyclical or volatile in nature.

* Sun-Times

A major bond rating agency said Tuesday that “any measure that would lower annual contributions into Chicago’s pension systems” would be seen as a negative — potentially jeopardizing the city’s current BBB+ rating. […]

In a three-page report released Tuesday by S&P Global Ratings — titled “How Chicago Closes Its Fiscal 2020 Budget Gap Will Be Pivotal To The Rating” — the agency noted that “outside of a massive property tax increase, [the city] has limited options to raise significant, predictable revenues through a single tax or fee increase without state legislation that would expand the city’s revenue-raising authority.” […]

S&P said it expects that the city “will continue a trend of using surplus tax-increment financing district revenues to plug the budget gap,” but the agency sees that revenue source as “unpredictable and therefore one-time in nature.”

“The city also maintains substantial reserves, which are crucial to the current rating, and we would consider the use of reserves to offset ongoing expenses — rather than for ‘rainy day’ or one-time purposes — negatively,” the agency added. “Given the magnitude of the gap, we expect some use of one-time revenues.”

* Crain’s

On the other hand, the New York firm said, “We would view measures that either trim liabilities through benefit reductions or a dedicated revenue stream toward pensions positively.” S&P didn’t get specific, but officials have talked at reviving what now appear to be moribund plans for a Chicago casino that could help pay pension debt or moving to reduce the 3 percent annual compound COLA that about half of the city’s retirees now are scheduled to receive, perhaps by amending the Illinois Constitution.

Not gonna be a constitutional amendment in the coming years.

* Read every word of today’s Daily Line excerpt

The ratings agency also warned Lightfoot and the City Council not to look to state lawmakers for immediate solutions, including an amended tax structure for a casino as well as the green light to impose higher taxes on the sale of homes worth more than $500,000. Both proposals are not sure bets — and revenues could take years to materialize, if ever.

“In our view, further state aid is unlikely in the near term given the state’s own financial pressures, and legislators may be hesitant to raise widespread taxes while they are also asking voters to consider an income tax increase,” according to the statement. “We are looking to see whether any plan that hinges on legislative support or carries implementation risk is credible, meaning that it is politically feasible, relies on realistic revenue expectations, and can be executed within a reasonable timeline.”

- Posted by Rich Miller        

22 Comments
  1. - Steve - Wednesday, Sep 4, 19 @ 1:07 pm:

    Hopefully this will motivate all elected officials to act on plans for the short run and long run. The pension plans have to be funded. The checks have to go out. Revenue has to come from somewhere right now. Either through cuts, tax increases , or a combination of both.


  2. - Not a Billionaire - Wednesday, Sep 4, 19 @ 1:12 pm:

    Perhaps a constitutional amendment not to pay bonds back.


  3. - Oswego Willy - Wednesday, Sep 4, 19 @ 1:18 pm:

    ===Not gonna be a constitutional amendment in the coming years.===

    Nope. That idea needs to be put to rest. It’s not a reasonable solution.


  4. - Downstate - Wednesday, Sep 4, 19 @ 1:21 pm:

    Bankruptcy?


  5. - Oswego Willy - Wednesday, Sep 4, 19 @ 1:22 pm:

    ===“In our view, further state aid is unlikely in the near term given the state’s own financial pressures, and legislators may be hesitant to raise widespread taxes while they are also asking voters to consider an income tax increase,” according to the statement. “We are looking to see whether any plan that hinges on legislative support or carries implementation risk is credible, meaning that it is politically feasible, relies on realistic revenue expectations, and can be executed within a reasonable timeline.”===

    Dear Lightfoot and Crew,

    Thinking that you can pressure the Governor and the Four Tops, or thinking…

    ===amended tax structure for a casino as well as the green light to impose higher taxes on the sale of homes worth more than $500,000. Both proposals are not sure bets — and revenues could take years to materialize, if ever.===

    … are your best bets, today…

    You will fail.

    You need to privately meet with the leaders, get your own house in order, have actual priorities and plans that are politically possible and structurally sound to the budget… then engage the governor when 60 and 30 are there.

    If all this were easy, it woulda been done already.


  6. - Steve - Wednesday, Sep 4, 19 @ 1:26 pm:

    - Downstate -

    Municipalities with over 25,000 people aren’t allowed to declare bankruptcy in the state of Illinois. I doubt that’s on the agenda to change the law.


  7. - Oswego Willy - Wednesday, Sep 4, 19 @ 1:29 pm:

    ===Municipalities with over 25,000 people aren’t allowed to declare bankruptcy in the state of Illinois.===

    You’re sure?


  8. - mastershake - Wednesday, Sep 4, 19 @ 1:30 pm:

    City of Chicago tax levy is about 6.7b, looks like it needs to go up to 8.7b over the next four years because every other revenue source seems completely tapped out.


  9. - Just Me 2 - Wednesday, Sep 4, 19 @ 1:38 pm:

    When is it ever a good idea to rely on Springfield?


  10. - Donnie Elgin - Wednesday, Sep 4, 19 @ 1:41 pm:

    “What we are looking for is a credible plan”

    Good on the rating agencies bringing the cold hard truth to light. The $838 million budget deficit and under funded pensions needs to be addressed by the city of Chicago not with gimmicks/bailout. In IL you can’t rob Peter to pay Paul as they are both broke. Your move Mayor Lightfoot.


  11. - Skeptic - Wednesday, Sep 4, 19 @ 1:42 pm:

    “Until such time as the State of Illinois legislature provides specific
    authority to units of local government [except the Illinois Power Agency] to petition for municipal bankruptcy,
    no such petition will be permitted.” https://www.chapman.com/media/publication/316_Chapman_Governing_Law_Municipal_Bankruptcy_Illinois_JournalBankruptcyLaw_010114.pdf


  12. - Steve - Wednesday, Sep 4, 19 @ 1:48 pm:

    OW
    Here’s where I got the number…

    https://www.illinoispolicy.org/hog-tied-illinois-state-law-not-equipped-to-address-local-governments-pension-problems/

    Only units of government with populations under 25,000 can take advantage of the Local Government Financial Planning and Supervision Act


  13. - Oswego Willy - Wednesday, Sep 4, 19 @ 1:52 pm:

    - Steve -

    Oh.

    IPI

    Huh. So they can’t petition for bankruptcy at all?


  14. - Steve - Wednesday, Sep 4, 19 @ 1:58 pm:

    OW

    Here’s more. But, not clear at all. But, my understanding is no municipality above 25,000 can file a petition.

    https://secure.heylroyster.com/news2/details.cfm?pageID=7&newsID=146

    The U.S. Bankruptcy Code provides that a municipality may seek to reorganize its debts under Chapter 9 of the Code only if the municipality is specifically authorized to be a debtor by state law, or by a governmental officer or organization empowered by state law to authorize the municipality to be a debtor. In Illinois, there is no such statute that authorizes any municipality to seek protection under Chapter 9, unless it is the Illinois Power Agency.

    Any municipality (with a population under 25,000) that has a “fiscal emergency” might want to seek assistance under the Illinois Local Government Financial Planning and Supervision Act. If relief is not likely under any financial plan, then the municipality should seek the recommendation from the Commission to file a petition under Chapter 9. Whether that recommendation is a prerequisite to filing under Chapter 9 is not clear. What is clear is that, at present, there is no law in the State of Illinois that authorizes any unit of government in Illinois to petition to reorganize under Chapter 9 of the U.S. Bankruptcy Code (again, except for the newly created Illinois Power Agency).


  15. - Oswego Willy - Wednesday, Sep 4, 19 @ 2:03 pm:

    So… i guess if they can’t file… or they need GA approval to do so, and even that’s not clear…

    Why are we discussing possible muni bankruptcy?


  16. - Steve - Wednesday, Sep 4, 19 @ 2:07 pm:

    OW

    Downstate brought the question up.But, it’s not a solution in Illinois.


  17. - Il Bosco - Wednesday, Sep 4, 19 @ 2:17 pm:

    @Steve

    Any municipality should be able to petition the state of Illinois for authority to file for Ch. 9 bankruptcy.

    While this has only been approved by the state for the Illinois Power Agency and granted via statute (20 ILCS 3855/1-20(b)(15)), other municipalities could presumably petition the state for the same type of authority. Whether or not the state would grant is another question.

    The Illinois Local Government and Financial Planning and Supervision Act is its own statute that applies to municipalities 25,000 and under. It provides that a commission could be established to oversee and make recommendations regarding a municipality’s financial planning, including a recommendation that the municipality file for Ch. 9; however, this Act does not grant the municipality itself the authority to file for Ch. 9 bankruptcy.


  18. - Shytown - Wednesday, Sep 4, 19 @ 3:14 pm:

    I hope Team Lightfoot is taking notes and changing up their game plan.


  19. - Downstate - Wednesday, Sep 4, 19 @ 5:02 pm:

    Pretty simple.

    Chicago residents will feel pain with increased taxes or reduced services, or both. The pension monster must be fed.


  20. - Looking down the Road - Wednesday, Sep 4, 19 @ 9:18 pm:

    Springfield doesn’t help Chicago-
    Chicago increases property taxes, significantly-
    Unhappy Chicago voters go to polls-
    Approve more taxes?
    lol


  21. - Stuntman Bob's Brother - Wednesday, Sep 4, 19 @ 10:40 pm:

    Looking at 9:18 PM:
    What’s the alternative?

    Springfield bails out Chicago by raising taxes on the rest of the state
    Unhappy state residents go to polls-
    Approve more taxes?
    lol.

    Chicago is often referred to as “The economic engine of the state” and it’s often stated (paraphrased) “Chicago has the largest influx of wealthy residents in the region”, and “Chicago is a bargain compared to the other large cities, especially those on the coasts”.

    Well, it’s simply going to cost residents more for the privilege of living in Chicago going forward.


  22. - Downstate - Thursday, Sep 5, 19 @ 8:47 am:

    “Well, it’s simply going to cost residents more for the privilege of living in Chicago going forward.”

    My friend, an officer in a Chicago based publicly traded firm, told me last year that numerous homes on their block ($1 million plus) have been for sale for over a year, with no takers.

    Same person informed me this week that they are willing to take a bath on their home to reduce their assets in Illinois and particularly Chicago.

    The Pension Monster is scary and real.


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