Today’s number: $2 billion
Wednesday, Feb 19, 2025 - Posted by Rich Miller
* Fran Spielman…
Mayor Brandon Johnson’s “exaggeratedly back-loaded” schedule for repaying $830 million in general obligation bonds could saddle Chicago taxpayers with $2 billion in additional costs by 2055, municipal finance experts warned Tuesday. […]
[Municipal Markets Analytics partner Matt Fabian] argued Johnson’s plan is a “more extreme version” of that dubious structure. It calls for the city to make “capitalized interest” payments only — using borrowed money — for the first two years and make interest-only payments until 2045.
“Future taxpayers will be paying for improvements that current taxpayers benefit from. … It leaves future taxpayers to address the city’s current management failure to address its budget in a sustainable manner,” Fabian said. […]
The city’s annual payments will, in contrast, balloon — from $47.6 million in 2028 to $136.9 million in 2050, remaining there until the bonds are fully retired in 2055.
- Juice - Wednesday, Feb 19, 25 @ 10:37 am:
For as much as this crew likes to rail against “Wall Street” and “LaSalle Street”, they sure do love handing over large sacks of cash to them unnecessarily.
- Donnie Elgin - Wednesday, Feb 19, 25 @ 10:45 am:
=Chicago taxpayers with $2 billion in additional costs by 2055=
Foolishly pushing high-interest current expenses into the future. This, of course, assumes that Chicago doesn’t have any unexpected or higher than usual costs related to future operations ( magic beans thinking), and with ancient infrastructure particularly in water and gas lines, and a hungry CTU that is rather laughable but good luck
- Here - Wednesday, Feb 19, 25 @ 10:48 am:
Not helping the blue team with this look. Blue city mayors need to do better.
- Three Dimensional Checkers - Wednesday, Feb 19, 25 @ 10:54 am:
Absurd. Interest only mortgages lead to the 2008 financial crisis. This is like an interest only mortgage on a 20-year bender.
- ChicagoBars - Wednesday, Feb 19, 25 @ 11:00 am:
I urge a no vote.
Now excuse me while I go fume in a corner about whoever at City Hall structured this deal being heck bent on repeating the fiscal sins of the past.
- Moe Berg - Wednesday, Feb 19, 25 @ 11:08 am:
The Dem legislative leadership, city members (like the new chief House budgeteers Kam Buckner, Eva-Dina Delgado and Will Guzzardi - all Chicago folk, btw), and the governor need to add their voice to Comptroller Mendoza, who seems to be a soloist when we need a choir.
The mayor, who couldn’t even stay current on his home water bills and can’t properly manage his campaign finance reports, will say they need a state bailout, of course. But, the city has more fiscally responsible ways to address this crisis via revenue raising options that are available to it, like property taxes. Try again or start cutting.
On a day when we are going to see a lot of - justified - Trump bashing, we need Dems to call out Dems who are behaving recklessly and sabotaging our future, too.
- DuPage Saint - Wednesday, Feb 19, 25 @ 11:14 am:
Maybe they could stretch payments out until the parking meter deal expires and then resell the meters for money
- Steve - Wednesday, Feb 19, 25 @ 11:14 am:
Sadly, I don’t think the SEC has the power to prevent this. But, if this was an S&P 500 cpmpany I don’t know if this would be allowed to go through. Standards really are lower in the public sector. This is a great example. Chicago voters did vote for the Aldermen who are going to vote yes on this.
- NotRich - Wednesday, Feb 19, 25 @ 11:23 am:
Another great city bites the dust from leftie progressive leadership.. it took Brandon less than 2 years to turn Chicago into San Francisco
- ChicagoBars - Wednesday, Feb 19, 25 @ 11:26 am:
The ISFA bonds to rebuild Soldier Field and upgrade Sox Park are going to end in a couple years (2032-2033) which are going to create a major City Hall payment headache due to a backloaded payment structure that wasn’t nearly as bad as what they are going to vote on today.
Don’t send nobody nobody who knows City fiscal history I guess.
But if you’re curious about the backloaded ISFA bonds…
https://www.cdfa.net/cdfa/cdfaweb.nsf/0/B75DCA0D5C40E2AE88258A22004EFC7F/%24file/Bond%20Buyer.pdf
- Excessively Rabid - Wednesday, Feb 19, 25 @ 11:38 am:
I was reading about how the governor of New York can fire the mayor of New York City. That’s beginning to sound pretty good.
- low level - Wednesday, Feb 19, 25 @ 11:43 am:
==Another great city bites the dust from leftie progressive leadership.. it took Brandon less than 2 years to turn Chicago into San Francisco==
Lol. Not even close. This deal may be bad but Chicago is in much better shape than SF.
- lake county democrat - Wednesday, Feb 19, 25 @ 11:49 am:
Remind me again, what was so terrible about this? https://digitaledition.chicagotribune.com/tribune/article_popover.aspx?guid=9d1de715-c1de-47f8-8ec0-6cce3acf9eb6
- P. - Wednesday, Feb 19, 25 @ 11:58 am:
This is how big capital projects are funded without cash on hand. The Mayor hasn’t done himself or any of us any favors with the trust factor and messaging but this isn’t uncommon. If there is no appetite for these projects at this cost, just as there was no appetite for revenue increases, so be it, but also don’t expect to see improvements from a broke City that won’t or can’t borrow. The feds sure as hell aren’t coming to help and we need to start figuring out how we may have to function with significantly less federal money soon. No money and no raising taxes, something has to give.
- TheInvisibleMan - Wednesday, Feb 19, 25 @ 12:05 pm:
“Interest only mortgages lead to the 2008 financial crisis.”
And that buildup was happening 20 years ago. Just imagine what new tools exist now to do the same thing.
It’s the mortgage modification program, which has led to the greatly increased use of 40-yr mortgage notes. Part of the process in curing delinquent loans to avoid foreclosure also rolls in the unpaid balance into a new 40-yr loan term. Many people have done a wash-rinse-repeat through this process three or even four times. This lack of foreclosures on the market is also a contributing factor to higher home prices overall.
As strange as it is to say this - what BJ is proposing is less ridiculous than what is currently going on in the housing market.
Right now, I know of many properties bought in 2011, with a far higher principal today than the original loan value, and a new 40-yr loan term that now runs through 2065. It’s even worse than an interest-only loan. In my one county, there were many hundreds of these modifications done last quarter of 2024.
Kicking the can works great as long as home values/economy goes up forever, just like it worked great right up until the end of 2007. It’s going to be so much worse when it tips over this time.
A lot of people learned nothing from 2008.
I learned to make sure I have plenty of free capital to buy up assets for pennies on the dollar, from people who didn’t learn anything from 2008.
- ChicagoBars - Wednesday, Feb 19, 25 @ 12:17 pm:
“This is how big capital projects are funded without cash on hand.”
By kicking the first few repayments entirely down the road and going interest only payments for a few years after that? I just really doubt that is the structure most municipal governments fund capital projects with but certainly open to evidence that “Kick the can” borrowing is the US municipal finance standard operating procedure.
- Three Dimensional Checkers - Wednesday, Feb 19, 25 @ 12:40 pm:
===going interest only payments for a few years after that?===
According to the reporting, it is capitalized interest for two years, then interest only until 2045, almost 20 years. I would be surprised too if this was the industry standard.
- Two Left Feet - Wednesday, Feb 19, 25 @ 1:13 pm:
So payments start for the next Mayor.
- NH - Wednesday, Feb 19, 25 @ 1:18 pm:
So I am a bond guy, but admittedly not a muni guy, so take this with a grain of salt. The capitalized interest does not seem standard, and that should be the focus. But paying off principal starting in 2045 just sounds like a sinking fund, which is pretty standard for munis. I went to munios.com and in the last week Decatur, TX issued a 2055 bond with principal payments starting in 2036 and Lake Wales, FL issued a 2054 which starts paying off in 2046, just picking a couple at random.
- Three Dimensional Checkers - Wednesday, Feb 19, 25 @ 1:54 pm:
Thanks, NH. But do other munis make a plan to pay into a sinking fund for these debts? I have not seen any reporting that Chicago would be coming up with a way to have the money for the balloon payments in 2045 and beyond.
- NH - Wednesday, Feb 19, 25 @ 2:26 pm:
For a GO bond, you don’t have a specific set of revenue set aside to pay off the bond, so the payments would just come out of the general fund. You don’t see sinks like this often in corporates or Treasuries where they just pay the full principal at maturity. Even without a dedicated revenue stream, this would still need to be accounted for in the budgets for 2045 and on. But that’s the point of having a sinking fund, instead of having to redeem 2bn all in the 2055 budget, spread the 2bn out over 2045-2055.
- Three Dimensional Checkers - Wednesday, Feb 19, 25 @ 3:37 pm:
Thanks, you learn something new every day.
- Juice - Wednesday, Feb 19, 25 @ 4:22 pm:
I also think the City would argue that the funds that would be used are based off of when existing bonds mature, thus freeing up revenues to make these principal payments. I still think its a pretty bad idea for a fairly run-of-the-mill bond issuance. I wouldn’t expect the City to go with the State’s approach and require level principal payments, but there is a wide range of financing options between that and this.