The City Council voted to send Republican Mayor Erin Stewart’s controversial plan to borrow $115 million to push current city debt into the future back to the Council’s Bonding Subcommittee.
In making his motion to refer the matter back to committee, the Democratic Council Majority Leader, Ald. Carlo Carlozzi (D-5) expressed the desire of Council members to explore other options than the one presented to them. “We are going to be looking at additional options. Instead of just this one plan, we are going to see what other plans are available.”
Republican Leader Ald. Robert Smedley (R-4) seconded the motion and Republican Mayor Erin Stewart said that she supported additional time to consider other options. However Stewart also said that a special meeting will be called to consider that matter in one week, on January 17th.
The “Debt Restructuring” discussed in a January 3, 2018 plan issued by the city’s debt underwriter, Mesirow Financial, would involve borrowing money to lower debt payments in the short term at a cost of rising future taxpayer debt costs. The plan would use up to $115 million in city borrowing to pay existing city bonds, creating new debt that would push continuing taxpayer debt payments into the future.
City taxpayers would be making smaller payments on existing city debt in the current year and next eight years, with the largest saving being in the three years following the current year.
After the year 2026, however, taxpayer payments on existing city debt would increase, becoming dramatically higher over the course of twenty-one years. The plan would add an additional ten years to the taxpayer’s payments on existing city debt.
In addition to refinancing existing bonds, the plan in the Mesirow document would also use new city borrowing to pay, “interest on outstanding bonds through and including March 2020.” The proposed Council resolution would authorize Stewart, “to pay interest costs on such bonds through June 30, 2020.”
The plan would also authorize Stewart to pay, “applicable redemption premiums.” Redemption premiums would generally refer to additional amounts that the city would have to pay in order to pay the city’s existing debt early.
The plan in the Mesirow document would be of a more substantial scope than earlier debt refinancing that has been the source of intense criticism of Stewart. Critics say that she has already pushed millions of dollars of debt into the future, to artificially lower costs during her administration, at the expense of higher debt payments for city taxpayers into the future.
Last year, a graph from the city was obtained that showed that this “debt restructuring,” has resulted in a reduction in short-term debt payments and a spike in taxpayer debt payments in upcoming years.
Stewart’s opponent in the 2017 Mayoral election, Merrill Gay, had highlighted concerns about the effect of Stewart’s refinancing policies on the city’s future.
That appeared to be confirmed by John Healey, Stewart’s former Chief of Staff and a current Managing Director for Mesirow, in a presentation before the City Council on December 11, 2017, in which he admitted that, “A lot of what was said over the course of the campaign, as far as, you know, the city’s restructuring and the debt that, the debt spikes that are out there – that was absolutely true.”
Gay commented on Facebook on January 10th that, “For the 3rd time in three years, Mayor Stewart is proposing to refinance the city’s debt. Each time, it has been for one purpose, to get her through the next budget without a tax increase or major cuts.”
“What the mayor has done is the equivalent of paying the MasterCard with the Visa,” Gay commented. “When you can’t pay the debt you owe, the answer is not to borrow more money,” adding that Stewart, “borrows the money from our kids to spend it now.”
Editor’s Note (3/31/2018): The article was corrected to note that Mesirow Financial is the city’s debt underwriter.