City claims it now has more magic money
Wednesday, Jan 22, 2020 - Posted by Rich Miller
* Greg Hinz…
Due to some highly advantageous market conditions, a big refinancing of $1.5 billion in city debt last week will end up saving the city an extra $100 million in finance costs in coming years, according to Chief Financial Officer Jeannie Huang Bennett.
All the savings on debt that in some cases will extend for decades will be booked in 2021, Bennett said.
Though some would prefer that income be spread over the term of the debt rather than taken in a lump sum upfront, there’s no question the windfall will give Mayor Lori Lightfoot’s administration a big leg up when it moves late this year to fill what undoubtedly will be large pension-related holes in the mayor’s 2021 budget.
- Rufus - Wednesday, Jan 22, 20 @ 11:42 am:
The Queen of Debt strikes again!
- Fav human - Wednesday, Jan 22, 20 @ 11:44 am:
Like it will be used mostly for pensions….
- City Zen - Wednesday, Jan 22, 20 @ 11:48 am:
I’m reminded of The Simpsons Lionel Hutz when he suddenly changed his business card from “Works on Contingency No Money Down” to “Works on Contingency? No, Money Down”
- Upon Further Review - Wednesday, Jan 22, 20 @ 12:02 pm:
Magic money is an accurate characterization. Booking all of the savings in 2021 that take decades to accrue is government think at its’ most questionable. . . . .
- Rich Hill - Wednesday, Jan 22, 20 @ 12:26 pm:
Nick Madrigal’s impending arrival at Comiskey is bringing magic everywhere.
- Father Ted - Wednesday, Jan 22, 20 @ 12:28 pm:
I might be missing something, but it seems interesting that the city financed its debt- thereby costing more- yet when the debt is affected by fortunate external conditions, it’s characterized as a windfall.
- JP Altgeld - Wednesday, Jan 22, 20 @ 12:33 pm:
These announcements always confuse me. Just take the money and be quiet about it. Hard to cry poor later when these types of announcements get made now. People stop trusting the validity of all of it.
- West Side the Best Side - Wednesday, Jan 22, 20 @ 1:19 pm:
Magic Money usually appears for such things as 606 Trail, River Walk, planters in the middle of streets, never for such mundane things as pensions.
- low level - Wednesday, Jan 22, 20 @ 1:43 pm:
Its not “magic” at all. Its real savings from lower rates.
- Rich Miller - Wednesday, Jan 22, 20 @ 2:26 pm:
===Its real savings===
Spread out over decades, but claimed up front.
- Upon Further Review - Wednesday, Jan 22, 20 @ 2:37 pm:
Rich is right here . . . . .spending “savings” up front in their entirety is spending dollars you do not have available.
Leading to what? Borrowing money to pay the debt service on money that you “saved” but spent prematurely.
Can Dilbert be far behind?
- Anonanonsir - Wednesday, Jan 22, 20 @ 2:53 pm:
==some would prefer that income be spread over the term of the debt rather than taken in a lump sum upfront==
Makes sense. That could be, say, $5 million a year over 20 years instead of $100 million now. Tough choice.
Of course, Lightfoot might say that we made the deal so we get the credit.
- Da Big Bad Wolf - Wednesday, Jan 22, 20 @ 3:03 pm:
== That could be, say, $5 million a year over 20 years instead of $100 million now. Tough choice.==
Not so tough really. 20 years from now that 5 million will be worth less than it is now. Whether invested or paying off debts, interest rates make the money more valuable now.
- DarkDante - Wednesday, Jan 22, 20 @ 3:42 pm:
==I might be missing something…==
The city saves money by refinancing its debt at a lower interest rate, effectively generating “revenue” but reducing interest expense in a kind of interest rate arbitrage. The city got more than it was expecting b/c of the “hot market” for high yielding municipal bonds.