With his time in office down to just a few months and the credit markets moving the wrong way, Mayor Rahm Emanuel and his financial team have decided to at least temporarily shelve plans to borrow up to $10 billion to refinance a part of the city's yawning pension debt.
Officials insist the idea is not dead but merely set aside while the administration focuses on other financial priorities, such as passage of Emanuel's proposed 2019 city budget that will be introduced Oct. 17. But with Mr. Emanuel's clout fading as the reality of his lame-duck status sinks in, that means he'd have to gather City Council votes in the midst of a heated aldermanic election or leave the final decision to his predecessor — either alternative politically problematic.
News of the decision came from city Chief Financial Officer Carole Brown, who, along with mayoral confidant Michael Sacks, had floated the idea of a huge pension obligation bond in midsummer — and had suggested that a quick decision was likely.
In an interview, Ms. Brown said she has completed her review of the concept and recommends that it be pursued as potentially very helpful to the city in avoiding or limiting the roughly $1 billion in tax hikes by 2020 that will be needed to make pension payments under current law. "I think it still is a fiscally sound idea," she said.
But Ms. Brown conceded that her timing in proceeding was thrown off when Mr. Emanuel shocked the city and announced he would not seek a new term in the February election.
"We were assuming that he would be mayor for another four years" and any borrowing plan could be slowly rolled out, Ms. Brown said. "When he decided not to run, it added another variable."
Then interest rates started rising, cutting into the hoped-for arbitrage gain the city would make by borrowing funds at one interest rate and then making more than that on investments.
With rates on 30-year bonds up about 50 basis points in the past couple of months, city borrowing "makes less sense," Ms. Brown said. And if rates rise another 100 basis points, as some financial experts believe, the idea will be unfeasible, she added.
Ms. Brown says she has not given up on the idea. "I think it's still alive," if only because the first chunk of the new taxes, roughly $277 million a year for police and fire pensions, will have to be included in the 2020 budget.
Even though he's a lame duck, "the mayor could make a decision to proceed and we could structure a deal before we leave office," Ms. Brown said. "How likely is it? It's a possibility."
For now, "We're going to focus on the budget and making sure the budget passes," she said. Then officials will decide whether to proceed "or whether to leave this to the next administration to consider."
Ms. Brown said aldermen have been generally supportive of the idea in private discussions, wanting to avoid the possibility of more pension-related tax hikes after more than $1 billion in increases in recent years. But many of those running have been highly skeptical, like former city Budget Director Paul Vallas, for instance, terming it "irresponsible" and potentially "devastating" to taxpayers.