* 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.
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.”
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.”