| by Michael Graham and Faisal Khan

Project Six sent the following letter to all Chicago City Council members to urge them to give taxpayers much more information about Mayor Emanuel’s proposal to make a new financing structure for issuing City debt (O2017-6819).

The proposal would essentially refinance hundreds of millions in City debt by establishing a special entity corporation to leverage sales tax revenues that flow from the state to refund general obligation and sales tax-backed debt. Aldermen passed the ordinance in out of committee despite many aldermen criticizing the city’s chief financial officer, Carole Brown for offering few details or legitimate projections about how much this could possibly save or potential risks.

The full City Council is scheduled to vote on the proposal on October 11.



Project Six writes this letter out of a deep concern that the City Council has not had the opportunity nor the information needed to properly evaluate the pending sales tax securitization bond structure, introduced a mere month ago. For the reasons set out below, Project Six urges the council to take seriously its role in our city government as a deliberative body, to utilize its power to collect relevant information and projections, and to structure any new municipal finance scheme in a way that minimizes the potential for adverse effects to the city and its citizens.

On its face, this vote would create a new corporate entity, and firmly place under its thumb a single branch of our municipal government, the Office of the Mayor, while simultaneously authorizing a massive new bond issuance, potentially reaching $3 billion and encumbering an enormous portion of the city’s yearly sales tax revenue for an undetermined number of years.

This is no pilot program; it is a full-throated embrace of a brand new and untested financing structure. That structure would ensure the City Council will have essentially no control of the process once this vote is passed, yet both the council and the public have not been given even basic information that would allow either to assess the value of this proposal.

As an initial matter, we wish to make clear that Project Six has not taken a position on the utility or propriety of tax revenue securitization of municipal bonds. However, the scant material provided to the public for the current proposal, notably the Aldermanic Briefing, does not inspire confidence. Of particular note is the usage of the PICA (Philadelphia) as a comparable to Chicago’s sales tax securitization structure. PICA’s bond-issuing authority expired in 1995, three years after PICA’s establishment, and the entity’s role in stabilizing Philadelphia’s financial health is far more expansive than simply using it as a city-remote, tax-secured debt issuer. Additionally, both PICA and the New York comparable (NYCTFA) are more than 20 years old, which begs the question: If these types of financing structures are so beneficial, why are they so rare?

We are further troubled that as we near the council’s vote on this issue, it is still unclear if these proposed bonds could clear the single hurdle that make them an attractive tool for refinancing Chicago’s bond debt—having an effective lower interest rate than current outstanding municipal bonds. From an outside perspective, the use of this new bond structure looks an awful lot like a payday loan, which is not the type of financial transaction that inspires confidence in the city’s long-term financial health. Furthermore, the structure of the new bond-issuing entity appears to strongly contemplate a future corporate or municipal bankruptcy, potentially further eroding confidence in these new bonds, and possibly raising their interest rates.

But analyzing these issues further is near impossible, because basic questions have not been answered and meaningful projections have not been supplied.

At a minimum, those proposing this structure should be able to answer one simple question—what is the maximum interest rate that sales tax securitized bonds could have, which, when the cost of the corporate entity’s operation and any legal or transactional fees are included, would still allow these bonds to be viable (i.e., debt reducing)?

These issues would be less troubling if the council was assured a continuing oversight role in the new structure after passing this vote. That is not the case. This structure, once approved by council, will sit wholly in the purview of the Mayor’s Office. The four authorized officers who are given authority to operate the new bond-issuing entity, as well as given sole authority to assign, sell, transfer or convey the city’s sales tax revenue to the new entity, are all mayoral appointees. The same goes for the board that will oversee the new entity; three of the five seats will be filled by mayoral appointees.

Council’s representation on the board will be token: Two City Council representatives will be on the board, a meaningless presence if the three other board seats are filled by a unified voting block of individuals who serve at the pleasure of the mayor. It is a transparent attempt to create the illusion of meaningful opposition when in reality the new entity will operate in a manner most pleasing to a single elected official, the mayor.

It would be far more beneficial to taxpayers if the board was formed as originally envisioned: six sitting members (three mayoral appointees, two council representatives and one independent member)—a structure that would create a need for consensus beyond mayoral appointees.

Worsening the problem, the new entity is also not required to file annual reports or audits with the City Council, further eroding the council’s fundamental oversight role and limiting the ability of the council to evaluate the merits of this bond structure.

We recognize that this is not glamorous work; it is simultaneously dull and overwhelming. Few, if any, council members are municipal bond experts … but no one expects you to be. The evaluation of a new structure such as this should be a collaborative exercise between the Mayor’s Office, the city’s executive agencies, the City Council and the citizens of Chicago. But that collaboration relies on the exchange of meaningful information. Council may not contain many bond experts, but this city has hundreds, if not thousands, of citizens who have relevant expertise. We urge the council to use this massive resource. Use your power to get meaningful answers and projections for this new bond structure, so that together we can decide if this is the best path for Chicago.