• Alex Nitkin
    AUG 31, 2021

    Finance officials defend use of $782M in ARP to cancel ‘very expensive’ scoop-and-toss

    Chicago Budget Director Susie Park briefed aldermen on the city’s 2021 year-end balance sheet on Monday.

    Mayor Lori Lightfoot’s top financial officials stood firm on Monday amid prodding from aldermen over their plan to use hundreds of millions in federal rescue dollars to unwind a risky pandemic-era financial maneuver instead of plowing it all into social and economic programs.

    Chicago Budget Director Susie Park and Chief Financial Officer Jennie Huang Bennett held court during a nearly two-hour meeting of the City Council Committee on Budget and Government Operations, detailing the city’s financial health as aldermen prepare to consider a new spending plan for 2022.

    The city in 2020 lost out on $886 million in expected revenues because of the COVID-19 pandemic and planned for collections to keep lagging in 2021, Park said. But the city has already pulled in about $1.7 billion in revenue through the first half of this year, exceeding budget officials’ expectations by nearly $89 million, or 6.5 percent.

    The boost — mostly explained by higher-than-expected collections of taxes on real estate sales and personal property leases — will help push the city’s projected revenues this year to $4.2 billion, eclipsing its $4 billion in expenses. But those expenses don’t factor in the extra burden imposed by the $950 million in short-term debt restructuring and refinancing the city took on last year as a means of surviving the pandemic without having to decimate city services.

    Related: Budget hearings begin Monday as city officials acknowledge ‘scoop and toss’ measure proposed to fill 2021 revenue gap

    Lightfoot this spring floated plans to use about $965 million from the American Rescue Plan Act — about half the total allocation coming the city’s way from Washington, D.C. — to pay off the city’s $450 million short-term loan and cancel the $500 million “scoop-and-toss” restructuring that would have put future taxpayers on the hook for plugging the 2021 budget hole.

    Related: American Rescue Plan dollars will pay down debt as first priority: finance officials

    Budget officials changed tack in the wake of federal rules against using the rescue funds to pay off debt, but they kept the same goal in mind. Lightfoot’s preliminary budget forecast, unveiled earlier this month, called to use $782 million in federal dollars to plug “eligible operating expenses” for 2021 so that the city can scrap its “scoop-and-toss” debt restructuring plan.

    Related: Chicago faces $733 million budget shortfall heading into 2022 budget, Lightfoot announces

    “Our intent always was, to the extent that we’d receive federal funding, to not have to go to what would be one of the larger scoop-and-tosses that the city would have to issue,” Bennett told aldermen on Monday. “So because we have received that federal funding, it gives us the flexibility to be able to avoid some of those expensive measures.”

    Ald. Daniel La Spata (1) was one of multiple aldermen who asked why more of the federal money could not be used to help struggling residents and businesses, saying the city’s “economy is not recovered yet” and “people are still feeling a lot of pain.” La Spata is a lead sponsor of the Chicago Rescue Plan ordinance (O2021-2860), which proposes to split the entire $1.9 billion federal windfall among antipoverty, antiviolence and business support programming.

    Related: Aldermen hit back at plan to delay spending federal aid until fall: ‘these needs do not allow us to wait’

    “When we come to our constituents, we will have to talk to them about why we’re using the [American Rescue Plan] revenue replacement funds for central services so that we can free up corporate funds for debt service,” the alderman said. “What is the financial benefit that Chicagoans get by paying this debt up front rather than choosing to restructure or refinance?”

    Bennett called scoop-and-toss debt restructuring “very expensive” in the long run, comparing it to “taking out a second mortgage to pay your groceries.”

    “Last year we had a very, very significant revenue loss, one-time in nature, that would have been very painful for us otherwise to try to break,” Bennett said. “That federal money provides us with the lifeline to be able to apply to help us bridge our budget imbalance.”

    But Ald. Sophia King (4) wondered whether finance officials have “weighed the cost” of “paying the scoop-and-toss immediately” instead of using the money to lift up the city’s economy and protect its most vulnerable residents. King is also a sponsor of the Chicago Rescue Plan.

    “There are certain things that, if we don’t get to address right now, could cause longer-term problems that may be financially burdensome,” King said. “I know from my colleagues that there are a number of issues they want to address, [and] that I don’t see these proposals addressing.”

    Bennett responded that city finance officials have “definitely taken a look at the importance of making investments in various areas” including mental health care, affordable housing and antiviolence programming.

    “We have to weigh that against repayment of…a scoop-and-toss, which also has very negative ramifications,” Bennett said. “So we are working toward a proposal that will balance both, understanding…that there are significant needs, but also understanding that we need to find a financially responsible path forward.”

    Responding to a similar line of questioning from Ald. Raymond Lopez (15), Bennett added that it’s “very important” for bond rating agencies to see that the city is “able to not rely on large one-time measures like scoop-and-toss, which obligate us in years going forward to more debt.”

    The Kroll Bond Rating Agency upgraded the outlook on Chicago’s debt last week, citing the federal stimulus and the city’s improved revenue picture.

    Related: Kroll upgrades outlook on Chicago’s debt to ‘stable,’ citing rebounding economy

    The city’s revenues are projected next year to jump by almost $180 million over 2021. But at the same time, expenses are on track to grow by nearly $913 million, opening up a $733 million gap that the mayor’s financial team must close in their proposed budget. New costs include $378 million in back pay for police officers as part of a pending contract with the Fraternal Order of Police, plus a nearly $254 million increase in pension payments to keep the city on track with its scheduled ramp-up in pension funding.

    Lightfoot has promised to unveil her budget proposal in “mid-September” but has not confirmed a date.

    Aldermen flag ‘disturbing’ staff shortage in police budget

    Separately during Monday’s meeting, Park walked aldermen through the $1.7 billion budget the city approved for the Chicago Police Department in 2021, nearly 90 percent of which comprised personnel costs locked in through bargaining agreements with the city’s two largest police unions.

    The department fell to just over 14,000 full-time positions in 2021, its lowest staffing level since 2016, after city finance officials opted to cut more than 600 vacancies to close last year’s budget gap, according to Park’s presentation.

    She added that the department still has 1,066 vacant posts, including 877 unfilled “sworn” positions, and at least 125 more police and other department employees are projected to retire by the end of 2021.

    The numbers raised alarm bells from Lopez, Ald. Nicholas Sposato (38) and Ald. Anthony Beale (9), who questioned how city leaders plan to replenish the department’s ranks.

    “With all the crime and everything that we're dealing with in the city of Chicago, to drop almost 1,600 officers is very disturbing, so hopefully we can turn this ship around,” Beale said.

    Park noted that the department had to hit pause on police training academy programs at the height of the pandemic last year but is on track to recruit a new class of officers each month by the end of this year.

    “Between a robust recruitment, access to testing, and we plan to hold a class every month — we’re going to work on all three prongs by the end of this year to really keep up with attrition,” Park said.

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