With recent attention focused on the budget drama in Chicago, you’re forgiven if you missed what could end up being a yet-bigger story with perilous long-term consequences for this city.
The city floated $454 million in bonds on Nov. 19, and $75 million of those went unsold.
More precisely, Goldman Sachs, which underwrote the deal, was left holding the $75 million after the bank couldn’t find buyers for that amount, according to Bloomberg News. And, making matters worse, the bonds that were sold moved only after Goldman boosted interest rates beyond what the city forecast in order to entice the buyers.
These bonds weren’t issued to finance new spending. Instead, these securities refinanced bonds already on the city’s books, some of which were backed by sales tax revenues and so were about as safe an investment in the city of Chicago as an investor can make these days.
Which begs the question: How will investors respond when they’re next asked to bankroll hundreds of millions in new spending?
If the markets already perceive Chicago as such a fiscal basket case that there’s tepid-at-best appetite for the most risk-free debt the city has to offer, it’s not a stretch to worry that the city will struggle to finance future needs.
Mayor Brandon Johnson’s administration surely isn’t helping to reassure investors by proposing the City Council approve a record-setting $3.8 billion bond authorization.