Mayor ekes out win on Chicago debt vote

Chicago’s city council on Wednesday failed to override Mayor Brandon Johnson’s veto of plans to increase the number of votes needed to authorize borrowing, removing an extra barrier to Chicago’s debt management strategy at a time when market conditions have proved less than favorable.

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The vote comes a week after a Sales Tax Securitization Corp. refinancing brought the city $36 million in savings, about half of what was projected to help close an $85 million budget gap.

Aldermen voted last month to require a two-thirds majority to approve borrowing, raising the threshold to 30 votes from 26. 

But the measure failed to secure a veto-proof majority, and after Johnson vetoed it on Oct. 9, the aldermen fell short in a bid to override.

“You don’t want to have too many restrictions on issuing debt because it affects more than just the city of Chicago,” said Howard Cure, partner and director of municipal bond research at Evercore Wealth Management, listing airport, utility and wastewater bonds as examples. 

“If it would prevent bad debt practices like the scoop-and-toss — or just essentially using all the savings up front for a refinancing, to help balance their budget — then I’d say, okay, restrictions on that are fine. I just don’t know if that would have happened,” Cure said.

But Cure raised the prospect that the mayor’s razor-thin margin of victory foreshadows tough budget negotiations. “I won’t call it an uprising, but they’re really asserting their independence more and more,” he said of the council.

“There’s no secret that there are a number of members of city council that are still adjusting to a bold, progressive agenda,” Johnson said in a press conference after the vote. “Last I checked, 26 votes is the majority, and that still exists. … If you’re going to be upset, or even disappointed, in particular policy points, then let’s just discuss those disagreements on merit and not on emotions.”

The city council debate featured heated remarks from the mayor’s critics — including accusations that some colleagues ducked out of last month’s meeting to avoid casting a tough vote — as well as mayoral allies, who portrayed the rule change as a setback to racial equality in the city.

Alderman Andre Vasquez, Jr., said during Wednesday’s meeting that he had been in conversations with the mayor’s team to find other pathways for reform, but “we have not found agreement.” He supported the veto override because borrowing is “the easiest way to get out of” the fiscal bind that the council inherited, and “we all know that’s the problem,” he said.

“Property tax or corporate head tax? Make a decision and figure it out, rather than borrow and take the way out the back door,” Vasquez said.

This is “not an issue with this particular mayor. … It’s supposed to be a weak mayor, strong council,” he added.

Alderman Bill Conway noted, “we at this moment in time have billions of dollars of unused (bond) authorization,” and urged his colleagues to learn from the mistakes of past councils.

Conway mentioned by way of example the STSC bonds issued last week, which he said the council authorized a long time ago.

That deal fell far short of projections and left a $49.1 million budget gap, WTTW reported.

“Even in one of the most challenging markets in recent memory, investor interest in the city remains high,” city CFO Ashlee Gabrysch said in a statement. “During the order period, the transaction generated over $1.8 billion in orders from nearly 40 unique investors and the strength of the order book allowed the city to reduce yields during the pricing process by up to 9 basis points in certain maturities.”

A spokesperson for the mayor’s office said the refinancing did not raise debt service costs or extend the maturities of the bonds, and noted a scoop-and-toss would have generated $80 million in savings. 

“I think the timing to market may potentially be a factor with the sticky yield widening we have seen over the last two weeks,” Mohammed Murad, head of municipal credit research at PT Asset Management, said by email. 

“There were deals that had to be shelved or could not get done entirely without some help from investors,” he added. “This higher cost of borrowing layered into what may be perceived as a lower-quality credit as the city seeks to close its budget gap may have taken a piece away of the potential savings from this refunding.”

Cure said bankers at The Bond Buyer’s California Public Finance Conference are saying refinancings are currently “not getting the savings because interest rates are high.” 

“You want to refinance in a lower interest rate environment than when you started, so the savings have been cut in a lot of these refinancings, and it’s just generally … going to have an impact on issuance,” he said.

Murad said while refundings can be useful — for example, to boost cash flow, build balance sheets or reduce leverage — when an issuer becomes partially reliant on refunding “as a strategic piece to right the financial course,” it creates the perception that “other options are limited.” 

The vote Wednesday means the Johnson administration will have a lower bar to clear in continuing to rely on debt.

“I wince when I see headlines that say the mayor won,” said Joe Ferguson, president of the Civic Federation, a Chicago-based fiscal watchdog group. “The mayor retained traditional power in the realm by the skin of his teeth. … (but there is) an increasing coalescing of the spirit and the dynamics of collective action by a city council that has long been less cohesive.”

Ferguson said a three-fifths council majority or a public vote to authorize borrowing is the norm in large cities, and non-home rule jurisdictions in Illinois require a referendum to authorize major borrowing. 

The borrowing vote threshold fight “is a politicized battle over whether we’re going to implement a good government norm … at a moment when we need to demonstrate our probity and our prudence and our responsibility, and also an acknowledgement and sensitivity to the magnitude of the challenges that we face,” he said. “What (the veto) signals is, the mayor is still not on the right page.”

Some of the mayor’s allies warned during the debate that even though they backed Johnson on this vote, the aldermen show broad interest in reform.

“There’s feedback in the critiques. There’s valuable information in the criticisms sometimes,” said Alderman Maria Hadden, noting that while the veto override seemed “pretty unnecessary” unless “you’re just trying to give the mayor a black eye,” room remains for improved relations between the council and the mayor’s office.

“We can come up with our own reforms … to address the concerns,” she said. “You can’t toss out all of the feedback.”

Hadden said she is interested in the moves to institute a city charter, an effort that gained steam this week as state Rep. Kam Buckner, D-Chicago, convened subject matter hearings in Springfield.

“It is drawing interest from across the political spectrum. In the hearing yesterday … we had Republicans and Democrats alike, asking the same forms of questions, wanting to understand, but generally from a place of sympathy for what the objectives are here,” said Ferguson, noting that Buckner is partnering with a state Senate colleague, Sen. Celina Villanueva, a very progressive legislator.

“This isn’t an ideological thing,” he said.