Mayor Brandon Johnson’s proposal to borrow $1.25 billion to fund affordable housing and economic development raises big questions on how the city will spend the money — and at least one opponent argues it makes a proposed tax hike to raise money to address homelessness unnecessary.

Johnson’s pitch relies on the expiration of dozens of controversial tax increment financing, or TIF, districts — which siphon money from the city’s general funds to pay for local projects within specific boundaries. City officials estimate that could mean up to $2.2 billion will flow back into the city’s general coffers over the next 15 years.

On Wednesday, Chicago Mayor Brandon Johnson pitched his plan for what to do with that newfound money — use it to borrow $1.25 billion dollars to fund affordable housing and other development projects.

And he wants the City Council to greenlight that plan by March. But whether that’s enough time for alderpersons to weigh the complex and consequential plan remains to be seen, and one fiscal analyst says there are big questions and factors to weigh ahead of a vote.

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Mayor Brandon Johnson pitches borrowing $1.25 billion for housing and development

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“It’s a noteworthy change in policy to say, ‘Hey, as a city we’re going to move away from TIFs.’ And then separate from that it’s a question of: not renewing these TIFs is going to bring in additional revenue — what do we do with that revenue?” said Amanda Kass, an assistant professor with a doctorate in urban planning and policy at DePaul University.

Paying off pensions?

Kass said officials could use the recouped money for a slew of things, including paying the city’s pensions, which continues to be one of the city’s biggest financial burdens. Or, the recouped money could even allow the city to lower property taxes, she said.

“I think it’s important to recognize that using that revenue for financing affordable housing is a policy proposal, but it’s just one of a menu of options of how they could use that money,” Kass said.

The city estimates that it will have more than enough money from expiring TIF districts to pay down the interest on Johnson’s proposed $1.25 billion borrowing plan. City officials estimate that expiring TIF districts will lead to roughly $2.2 billion in additional revenue coming back to the city in the next 15 years alone. The city plans to use its share of the money from expiring TIFs to fund the debt plan over 37 years, which will cost about $2.4 billion.

At a news conference Wednesday, Johnson’s Chief Financial Officer Jill Jaworski did not commit to a portion of the revenue being dedicated to paying down any of the city’s existing debt or contributing to underfunded pensions.

“As our obligations increase … we obviously are looking for funding to match that and this could be part of that solution,” Jaworski said. “But we haven’t looked in the future and said this is how we’re going to allocate these monies — to pensions.”

The Civic Federation, the city’s preeminent public tax watchdog, has not weighed in on the plan yet.

Cautionary flags

Kass said another cautionary note alderpersons should consider is that while the city would be obligated to pay back the $1.25 billion borrowing plan, the recouped revenue from expiring TIF districts is only an estimate. Alderpersons should seek a range from the city’s Finance Department, to get a better sense of worst case scenarios, she said.

“They can’t guarantee that property values are going to perform the way that they think they’re going to perform,” Kass said. “And then if they don’t, that means potentially raising property taxes, raising other taxes or cutting some other areas of the budget.”

She cautioned, too, that while the city would be obligated to pay down the debt, it isn’t obligated to use the recouped TIF money to do so, meaning future mayoral administrations could change course — deciding instead to spend recouped TIF money elsewhere.

The borrowing plan, if approved, would consist of general obligation, or GO, bonds as well as sales tax securitization corporation bonds. Sales tax bonds are secured against and paid for through sales tax revenue. So, if sales tax revenue projections fall short, the city may need to increase sales taxes down the line, Kass said.

On Thursday, S&P Global Ratings revised Chicago’s general obligation bond rating from positive to stable based on analysis that “the city’s outyear budgetary flexibility has diminished meaningfully given mounting cost pressures that are not offset by new revenue growth,” said S&P Global Ratings credit analyst Jane Ridley.

While a continued growth in Chicago’s local economy and continued advanced pension payments are positive factors, the analysis noted discontinuing former Mayor Lori Lightfoot’s policy of increasing property taxes to the rate of inflation and rising costs related to caring for thousands of asylum-seekers and pensions and public safety wages are contributing to greater uncertainty for Chicago’s ability to maintain budget stability.

Still, Kass said, while a borrowing plan of $1.25 billion may sound extraordinary to an average person, taking on that much debt for a capital program of this size is not unusual. Since 2019 alone, the city has taken on at least $2.3 billion in general obligation debt, according to documents on the Electronic Municipal Market Access. That includes bonds for things like Lightfoot’s Chicago Recovery Plan, and the Chicago Works capital improvement plan.

Alderpersons, who would have to approve the proposal, say they’re still digging into its specifics. Already some have endorsed the plan.

Ald. Daniel La Spata, 1st Ward, said he thinks using recaptured revenue to pay for bonds is a “really stable and responsible way of funding this,” that will remove the confines of a TIF district’s geographic boundaries.

“This takes all of those geographic restrictions off,” La Spata said. “We can fund projects because they’re great projects, not based off of their addresses.”

Ald. Gilbert Villegas, 36th Ward, said he wants more details on how the city will determine which projects are prioritized — which will likely be a point of contention as the plan moves through city council.

“I just think that right now, a $1.25 billion plan without having any details, is problematic for me,” Villegas said. “If they don’t have specific projects, could they at least identify corridors or communities where these investments will go? So that way, when we’re asked about where the money’s going, we can obviously say that there’s a plan, versus just providing a blank check for the administration.”

Ald. Jason Ervin, 28th Ward, who chairs the council’s Budget Committee, did not comment on the plan Wednesday.

The uncertainty of moving away from TIFs — a tool used for four decades in Chicago that has become an expected way of doing business — for a new model, may be one of the uncertainties to overcome, La Spata said.

TIFs are “arguably a failed tool on a lot of levels, but they’re what people know and they’re what a lot of people control,” La Spata said. “And I can understand how that could be very attractive against something that you don’t know quite how it’s gonna work out. We have to have the faith, I think, and the courage to move in a different direction here.”

Bring Chicago Home

The borrowing plan’s announcement also comes as a campaign is underway to increase a tax on the sale of high-end properties to fund homelessness prevention. Both initiatives seek to increase and support the construction of affordable housing, and at least one opponent to the ballot question, known as Bring Chicago Home, argues Johnson’s borrowing pitch negates the need for the proposed tax increase.

“To me, this plan says: We don’t need Bring Chicago Home,” said Paul Colgan, a government affairs consultant for the Building Industry Association of Greater Chicago. “Bring Chicago home is a big, open-ended checkbook. This at least has a decent outline of looking at opportunities to invest in housing in a way that could be beneficial to the city of Chicago”

Michael Glasser, President of the Neighborhood Building Owners Alliance of Chicago, in a statement called the mayor’s plan “heavy on spending, but light on resolving the structural obstacles that have led to the city’s 120,000-home deficit.”

The Building Industry Association of Greater Chicago and Neighborhood Building Owners Alliance of Chicago are among more than a dozen groups that have sued to block the ballot question from being voted on in the March primary next month. Colgan said the specific buckets of funding outlined for the borrowing plan provide a better outline to invest in housing — although he said he would like to see more engagement with private developers, and proposals like buying down interest rates for home buyers.

But Doug Schenkelberg, executive director of Chicago Coalition for the Homeless and treasurer of a political action committee fundraising to support the referendum question, said “to suggest that it’s too much to do two different investment vehicles in communities is really, really short sighted.”

“Their opposition isn’t based on a bond program versus Bring Chicago Home, it’s based on concern about their own profits,” Schenkelberg said.

The bond program could be focused on driving capital for construction, rehabilitation and preservation of affordable housing while the referendum’s dollars could help support rental subsidies and wraparound services so “dollars go as far as possible and as many people are served as possible,” Schenkelberg said.

Dixon E. Romeo, executive director of Not Me We, a community group that advocates for affordable housing and works to combat displacement in the South Shore neighborhood, said the homeless population is the most vulnerable and needs a dedicated funding source. The two funding mechanisms could work as different lanes on the same track to tackle housing issues holistically, he said.

“That doesn’t mean that homeowners and folks who are able to barely pay their rent and stay in a building … that they don’t need assistance, too. So we have to address all populations,” Romeo said. “Because all of us have been affected by this housing crisis as it bleeds into the other areas of the city.”

Tessa Weinberg and Mariah Woelfel cover Chicago government and politics.