The Free Press, Mankato, MN

State, national news

November 6, 2013

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


Refunding lets officials put off that expensive due date — sometimes for decades. To achieve that, the city issues yet more bonds, then sets aside some of the proceeds in a fund that gradually pays off the old bondholders, effectively scooping up the debt and tossing it into the future.

Cities and states typically refund bonds only if they can save money, usually by lowering interest rates. Illinois lawmakers halted the state’s ability to scoop and toss nearly a decade ago.

But those constraints don’t apply in Chicago.

Since 2000, the city has used $3.6 billion in bond money to refund old debt as principal payments came due. Of that amount, half will end up costing taxpayers more money in the long run, a Tribune analysis found.

Even as interest rates fell to historic lows after the financial crisis, the city didn’t benefit much. Since 2008, the city has refunded bonds eight times but realized savings only once, the Tribune found.

A bond deal inked by the Emanuel administration last year is among the most extreme examples of scoop and toss, and it reflects the city’s eroding financial position.

Twelve older bonds — 10 of them tax-exempt — had principal payments coming due within three years. To refund them, the mayor’s team issued $144 million in taxable bonds with higher interest rates than all but two of the old bonds.

What set the deal apart, however, wasn’t the scoop but the toss. The first principal payment on the new bonds won’t hit the city’s books until 2039.

“That’s really dramatic,” said Kathleen Hagerty, chairwoman of the finance department at Northwestern University’s Kellogg School of Management. “They are paying this huge price to push these things out. It suggests the noose is tightening.”

Officials acknowledge that the deal was intended to lower the city’s annual debt payments.

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