A government watchdog group is calling on Mayor Rahm Emanuel to end the city's tradition of pushing off massive debt payments through a practice nicknamed "scoop and toss."
The maneuver is one way the city has attempted to manage its $7.2 billion in outstanding general obligation debt, the legacy of more than a decade of reckless borrowing and spending that the Tribune detailed in its "Broken Bonds" investigation.
Scoop and toss maneuvers allow the city to avoid making hefty principal payments by issuing new, often more expensive bonds. A report released Wednesday by the Civic Federation, a nonpartisan think tank that analyzes government finances, recommended that the city rewrite its debt management policy to prohibit the practice.
Banning scoop and toss, except in cases where the city saves money through lower interest rates, would help protect the city from "the repercussions of short-term, politically attractive decision-making," said Civic Federation President Laurence Msall.
"You shouldn't push off principal payments to balance your budget," Msall said.
Scoop and toss also recently drew criticism from the Fitch Ratings agency, which late last week downgraded the city of Chicago's debt rating by three notches. Fitch analysts said in their report that the city's "annual 'scoop and toss' restructurings continue to marginally weaken debt structure."
Both Emanuel and former Mayor Richard M. Daley have made use of scoop and toss, a type of refinancing that got its nickname because it enables a city to scoop up debt payments as they come due and toss them into the future.
The city will avoid about $141 million in debt payments that were scheduled to come due this year and next year because Emanuel last year issued new bonds refinancing the debt. Those bonds won't be paid off until 2041.
Some cities have saved money by refinancing debt at a time of low interest rates. But the bonds Chicago issued last year will add tens of millions of dollars to the city's debt burden, according to a Tribune analysis that accounted for the present value of future dollars.
In their reports, the Fitch analysts and the Civic Federation each praised Emanuel's commitment to ending Daley's practice of using money from reserves to balance the budget.
There was no immediate response Wednesday from City Hall to Tribune questions about the Civic Federation's findings.
In an earlier interview with the Tribune, Chief Financial Officer Lois Scott called refinancing a preferable short-term alternative to raising taxes.
"I will say that restructuring debt is not optimal," she said. "We'd like to move away from that. But during this period when the economy is recovering, we felt that it was prudent not to put additional tax burdens on our property tax base."
Contributing to Chicago's debt problem is the practice of structuring debt so that the city pays only interest for decades and principal is lumped into a few final payments. When it finally comes time to pay off the principal, the payments threaten to cripple the city budget, creating a huge temptation to scoop and toss instead.
The Civic Federation report recommended that the city instead structure bonds so that it pays the same amount of principal each year.
"It's the difference between paying for your groceries with your credit card and then paying the minimum balance, versus paying for your expenditures with available revenue," Msall said.
Equally spaced principal payments would lower the overall cost of borrowing, as the city pays interest only on outstanding principal.
The cost of borrowing could increase in the future, however, in light of Fitch's three-notch downgrade, to A- from AA- on general obligation bonds.Copyright © 2015, The Baltimore Sun