Chicago kills off $1.4 billion of short-term debt programs


Chicago will terminate $1.4 billion of short-term borrowing programs, saving the city about $22 million in fiscal year 2020, Mayor Lori Lightfoot said Thursday.

The termination of the lines of credit and commercial paper programs resulted from improved cash flow forecasting and reporting done by the city, the mayor said.

The $22 million in savings includes $14 million in reduced fees to banks and $8 million in reduced interest, according to Chicago Mayor Lori Lightfoot.

Bloomberg News

“We’re using the short-term borrowing program as always anticipated — borrow in the interim at lower interest rates until we can issue long term bonds. Since the ORD and GO deals were completed in December 2018 and early 2019, we have enough cash on hand to cover capital needs for next year,” finance department spokeswoman Kristen Cabanban told The Bond Buyer in an email, referring to deals for Chicago’s O’Hare airport and a general obligation bond sale.

“Chicago’s tremendous financial challenges require creative solutions, improved efficiencies and long-term fiscal management,” said Lightfoot. “By finding savings and creating meaningful financial reform, we are both strengthening our city’s fiscal position and freeing up dollars that are better allocated in next year’s budget toward investments in public safety, infrastructure, programs for youth, and improvements in our neighborhoods.”

The $22 million in savings comes from $14 million in reduced fees to banks and $8 million in reduced interest, the mayor’s office said. The changes will take effect at the end of the month and will result in cost avoidance of more than $1 million each month, according to the city.

The mayor said about $16 million of the savings would be directed to the corporate fund, with $6 million directed to investments in infrastructure at O’Hare International Airport.

As part of the annual city budget process, the Lightfoot administration said it will outline its financial outlook soon and begin work on solutions for meeting fiscal 2020 costs. Earlier this month, Lightfoot announced changes to the workers’ compensation program, which aim to cut costs, restore accountability and generate significant annual savings.

Fitch Ratings rates Chicago at the lowest investment grade level of BBB-minus. Kroll Bond Rating Agency rates the city A and S&P Global Ratings rates the city BBB-plus. Moody’s Investors Service rates the city at the junk level of Ba1. The city and its sister agencies no longer ask Moody’s for new ratings and it’s unclear whether the new mayor will maintain that policy. All four agencies assign a stable outlook.

The city has yet to put a number on the size of the expected deficit in the 2020 budget. Former Mayor Rahm Emanuel’s administration said the city needed to come up with more than $700 million to cover expenses not accounted for this year, including rising debt service, police and firefighter pension funds contributions, and public safety raises. That’s separate from the structural deficit that last summer was estimated at $250 million. The city has $28 billion in net pension liabilities.

The Lightfoot administration, which took office May 20, plans to hold an investor conference for market participants in late summer or early fall. That’s the same timing as in recent years and it comes after release of city financial documents including the annual financial analysis that is published at the end of July, according to Cabanban.

Yvette Shields contributed to this report.

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