With the mayor’s plan for $7 billion in bonds and mortgages to help defray the cost of its massive $7-billion plan to build and renovate a new city-owned airport, Chicagoans could see an increase in their monthly mortgage payments of about $100, according to an analysis by a leading financial advisory firm.
The city would also be able to make payments on debt as it matures.
“The city could get into the $1 trillion debt business,” said Chris O’Neil, president of O’Neill & Partners.
“It’s going to be a very, very big deal.”
The city, which had already secured $3.2 billion in municipal bond and mortgage debt, would be able to borrow $1.6 billion more, according the analysis by O’Donnell & Partners, a Chicago-based financial advisory service that specializes in helping cities manage their debt.
It’s not the first time the city has looked to help its financial situation.
In February, it approved $2.4 billion in debt to cover a $1 billion bond sale by the Federal Reserve to help pay for a new police and fire headquarters.
But O’Neal said he thinks the city could use the extra cash to help balance its books as it attempts to rebuild the economy, which has been mired in the worst recession since the Great Depression.
The city’s plan is the second of its kind under Mayor Rahm Emanuel.
The first came in 2015 when the city issued $2 billion to cover bond debt as part of a $15.5 billion bond offering.
O’Neil said Chicago could use some of the extra $1bn to repay its debt on a loan to the state.
City officials have repeatedly pointed to the economic benefits of new debt as they push to keep their $7bn plan alive, despite mounting warnings that the city’s finances are teetering.
Last year, the Federal Emergency Management Agency projected the city would have to pay $1,200 in interest to borrow from the federal government to keep its plan alive.
But the city and federal officials are still working out the details of how to pay back the federal funds, and Emanuel has refused to commit to a timeline for repayment.
The federal government will only approve $1 to $2 of the $7,000 a month that Chicago is asking for.
Even if Emanuel and the federal agencies do approve the amount, O’Brien says the city will likely have to wait a few years before it can repay the debt.
“I think it’s a long time before it’s even in a position where we can make payments,” O’Heath said.
“And that would be a real big deal for us.”
Chicago will have to get its money from the state, which it has a long history of borrowing from, O”Neil said.
Chicago would likely have some trouble raising the money to pay off the bond, since it would have a tough time keeping the city afloat in the event of a downturn.
And the city may have to seek help from other state and federal governments as well, since Chicago has borrowed from other states, including Rhode Island, New York and Illinois, according O”Neill.
That means the city likely would have trouble paying its bills.
And if the federal and state governments decide to stop paying, the city might be forced to make some cuts.
A spokesman for the U.S. Department of Housing and Urban Development (HUD) did not immediately respond to a request for comment.
While O”Donnell & Partner did not put a specific number on the interest rate it would likely need to pay, it estimated that it would require about $2 to $3 a month to pay interest on Chicago’s debt.
A higher rate could be better for Chicago’s long-term budget, the firm said.
“The question is whether the city can actually pay the debt on time,” O”Brien said.