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**February 03, 2014|By Jason Grotto, Hal Dardick and Heather Gillers, Tribune reporters
In a move that will add to the city's mountain of debt, Mayor Rahm Emanuel won support Monday from the City Council's Finance Committee to issue up to $900 million in bonds backed by property taxes.
It's the largest request put forth during Emanuel's tenure and comes at a time when Chicago already has about $7 billion in outstanding general obligation debt, more per capita than bankrupt Detroit or any of the 10 biggest U.S. cities except New York.
In testimony before the committee, Chief Financial Officer Lois Scott provided a broad outline of how the bond proceeds would be spent, saying it would be consistent with previous years.
Last year, the Tribune's "Broken Bonds" series revealed how city leaders have used long-term borrowing to paper over budget shortfalls and push current costs onto future generations — all with little input from taxpayers or oversight from aldermen.
Monday, aldermen asked few questions about the borrowing as the ordinance authorizing the debt sailed through the committee with virtually no debate.
"It raises questions of how much City Council members understand the financial condition of the city and what the plan going forward will be to meet the debt," said Laurence Msall, president of the nonpartisan Civic Federation budget watchdog group.
Also Monday, Emanuel's finance team won tentative permission to vastly expand the amount of short-term bank loans officials can tap to infuse city coffers with much-needed cash. Known as "commercial paper," the loans have been used in the past to cover a wide array of city expenses.
Chicago currently has about $425 million in commercial paper loans outstanding, an amount that has increased dramatically in recent years. Under the ordinance, the limit would be increased from $500 million to $1 billion.
Taken together, the amount of borrowing sought by Emanuel suggests his administration continues to need huge loans to run the city.
Scott declined through a spokeswoman to be interviewed for this story. She told committee members that her department planned to issue $400 million to $450 million in general obligation bonds in March and the balance of the $900 million during the second quarter of 2014.
She said $130 million would go toward pushing upcoming debt payments into the future, a practice known as "scoop and toss." It saves the city money in the short term but ends up costing much more in the long run. An additional $100 million, city officials say, will go to pay off commercial paper loans used to cover legal judgments.
That means at least half of the first round of borrowing will be used to pay one-time expenses. In an interview last year, Scott told the Tribune that strategies such as scoop and toss and paying judgments with bond proceeds help the city avoid tax increases and service cuts.
"Putting the full pedal down on tax increases to address these issues (is) not responsible, and it's also not responsible, long term, to borrow for any operating costs," she said at the time. "So we are balancing between these, during this interim period."
Others question using bonds in this manner.
"The borrowing is an immediate cause of concern because it appears that it's merely pushing the principal out at a very large cost to the taxpayers," Msall said. "Scooping and tossing (by state government) is prohibited under state law. It should also be prohibited for the municipalities."
In her testimony, Scott told aldermen that the use of scoop and toss would help the city "better align revenues with our obligations." She did not provide details of how long the debt would be pushed off or how much it would end up costing future taxpayers, but she said the length would be "approximately 10 years."
Despite the lack of particulars on the costs or the types of projects that would be paid for with bond proceeds, most of the questions from committee members centered on whether the financial firms executing the deals are employing enough minorities.
"These transactions are the largest opportunities for people to make money off the government, and so we want to make sure everybody is included," said Ald. Walter Burnett, 27th. "It's a lot of money. It's enough for everybody."
Ald. Scott Waguespack, 32nd, was the only alderman to press Scott for details on the spending, pointing to a Tribune story that raised questions about the city's use of $41 million in bond money for a run-down warehouse complex along West Pershing Road.
Scott was quick to point out that the bonds would fund the roughly $1.3 million in "menu money" provided annually to each alderman. The program allows aldermen to launch projects in their wards, including street repaving, sidewalk reconstruction and other minor improvements.
After the meeting, Waguespack said he was concerned about undertaking so much borrowing after two major bond rating agencies last year downgraded the city's creditworthiness by three notches, which will make borrowing costs higher. The city's triple downgrade will cost it $500,000 to $1 million more a year for every $100 million in bonds issued, Scott told aldermen last year.
Waguespack also was concerned that the city wasn't providing aldermen with a detailed list of what all the money would be used for.
"We've been voting on a lot of these bond issues not knowing specifically what we're voting on, and that's what we're trying to get today," Waguespack said after the committee vote. "Tell us exactly what we're spending this money on. They've given us some specific numbers, but not specific tasks, projects or equipment that they're spending it on."
Ald. Bob Fioretti, 2nd, who like Waguespack is a frequent critic of the administration's financial practices, agreed, describing the ordinance to authorize the borrowing as "carte blanche."
"We spent more time discussing the issues on who's representing who rather than where these deals are going and what the impact is, and that's where we should be focusing on," Fioretti said.
Fioretti also criticized the practice of borrowing money to pay off legal settlements rather than including those costs in the city's annual budget.
"Those should have been budgeted," he said. "What happened to our actual budgeting? If that's the way we're going to approach this, we're heading toward a financial collapse — not today, not tomorrow, but in a future City Council somewhere down the line."
In addition to taking on more long-term debt, Emanuel's finance team sought to double its short-term borrowing capacity through commercial paper loans. Often, the city has turned those loans into long-term debts by paying them off with more general obligation bonds.
The commercial paper program dates to 2002, when Mayor Richard M. Daley won approval to borrow up to $200 million a year. In 2012, Emanuel increased that amount to $500 million a year. The current proposal would double that to $1 billion.
"That starts raising questions, legitimate questions of why the increase?" said Bart Hildreth, a professor at the Andrew Young School of Policy Studies at Georgia State University. "Commercial paper can be used to paper over operating deficits."
Hildreth also said borrowing can be a more appealing option than budget cuts for officials facing a re-election campaign. "(Emanuel's) got that trade-off between doing what the voters apparently want and doing what the long-term interest of the city might be."
The city, Scott said, had already requested bids from banks that want to participate in the commercial paper borrowing.
Scott said the firms involved include Morgan Stanley, one of the companies behind the controversial 2008 parking meter deal. This will be Morgan Stanley's first deal with the city since then, she said.
Scott provided even fewer details on how the administration would use proceeds from commercial paper borrowing, other than to say it would provide liquidity and give the city more flexibility. Aldermen asked few questions about the program.
The ordinance will go to the full City Council on Wednesday, when it is expected to pass.