* Press release…

Mayor Lori E. Lightfoot today announced the City’s plans to refinance existing debt, which are expected to generate $200 million in savings, representing nearly 25 percent of the $838 million Fiscal Year (FY) 2020 gap. The City will issue General Obligation (GO) and Sales Tax Securitization Corporation (STSC) bonds to refinance $1.3 billion in outstanding callable City GO and Motor Fuel Tax (MFT) bonds for savings.

To address the City’s growing cost of debt and other liabilities, the FY 2020 budget proposal, presented later this week, will prioritize sustainable solutions for the long-term. Importantly, the budget will not include any of the following one-time solutions: borrowing for settlements and judgments, scoop and toss restructuring, a significant draw down of reserves, or pension obligation bonds.

OK, but as Greg Hinz points out, this refinancing thing is itself a one-time savings with all of the proceeds booked in the first year…

The old debt will be replaced with new bonds that carry a lower interest rate and with new sales-tax-securitization bonds, in which the city pledges motor fuel tax receipts to this purpose and this purpose only. The city says it will not be extending the maturity dates of the new debt beyond those specified in the old bonds.

Such a securitization was first begun by former Mayor Rahm Emanuel but is somewhat controversial because the funds involved will not be available for other use in the event of a recession or other unexpected development.

By booking all of the projected savings now, Lightfoot will be making up almost a quarter of the projected $838 million gap in her next budget. General interest rates have been running at near-record lows, even with the city’s so-so overall credit rating.

Not to say this is necessarily a bad idea. But this is a one-off dealio. Most of that $200 million in patched deficit will be back again next fiscal year. This just puts off the inevitable. As I’ve been saying, kicking the can is our official state pastime.

The plan will also divert motor fuel tax proceeds to bond payments. The bonded MFT revenue cannot then be used to fix roads and bridges or for new projects until those bonds are paid off.

*** UPDATE *** OK, maybe this is actually a bad idea. Greg updates…

$200 million is the entire projected savings over the next two decades—the difference in debt service between the roughly 4.9 percent the city is paying on the current bonds that expire in 2040 and the 3 to 3.5 percent it hopes to pay by refinancing that debt, city Chief Financial Officer Jennie Huang Bennett said in a phone call.

But instead of taking those savings each year, as annual debt service comes due, the city will book the entire $200 million in projected savings in 2020, reducing the budget hole from $838 million to $638 million. That means debt service will rise in 2021 and thereafter, since the $200 million has already been “spent.”

Emphasis added. He also compares this to Rod Blagojevich booking his pension bond savings up front.