The Free Press, Mankato, MN

State, national news

November 6, 2013

Spending in Chicago marked by desperation, political expediency, little oversight


Chicago leaders even used bond proceeds to make interest payments on the bonds themselves, a practice finance experts say is usually reserved for projects that generate revenue, such as a stadium. Interest paid with borrowed money — known as capitalized interest — helps cover debt payments during construction until money from the project starts to flow.

But in Chicago, officials have borrowed more than $450 million since 2000 to make interest payments on projects that generate little or no income. Instead they’ve used capitalized interest to kick costs down the road.


During the past 13 years, city officials have done more than use bond money imprudently. A review of tax documents and interviews with city officials suggest that common borrowing and spending practices during the Daley years are questionable under the federal tax code.

When Chicago issues tax-exempt bonds, it benefits from low interest rates that amount to a federal subsidy. That’s because the U.S. government loses out on the taxes that investors who buy the bonds otherwise would pay on their returns.

City officials vow to follow arcane and often convoluted IRS rules on how bond money can be spent. If violations are ever found, the IRS can require the city to pay significant penalties and interest.

Those rules generally prohibit spending proceeds on day-to-day expenses. Yet a review of expenditures under Daley shows that tax-exempt bond money covered more than $37 million in maintenance costs. The largest was in 2004, when the Daley administration spent nearly $7 million on landscaping maintenance for street medians.

The city used an additional $110 million in tax-exempt bond proceeds to pay off short-term bank loans in 2005, 2008 and 2009. Those loans provided cash for immediate needs, including retroactive pension contributions that normally come from operating revenue.

Using tax-exempt bonds that way is so problematic that Emanuel administration officials say they don’t do it. To avoid IRS scrutiny, they said, the city borrows for operating expenses through taxable bonds, which have no restrictions.

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