Taxpayers got good news Friday when Standard & Poor`s Corp. raised the city`s debt rating a notch.
The credit-analysis firm returned the city`s rating to A minus from triple-B plus, where it had languished since September, 1983. It was the city`s first upgrade since 1963.
”This is a grading of our financial management style,” said Mayor Harold Washington. ”They were looking at style as much as the bottom line.”
In the S&P report, which affects the city`s $518.6 million outstanding in general obligation bonds, analysts credited the Washington administration with eliminating the city`s budget deficit and slapping tighter management controls on city spending.
The city was praised for its adoption of generally accepted accounting principles and new financial information and management systems. They ”will lend credence to future financial planning,” the report said.
The report also took note of an improved city economy. ”The city`s economic base has experienced some expansion and diversification, with some movement from manufacturing to the services and trades sectors,” the report said. ”The city will be able to sustain recent gains in any future downturn in the economy.”
While the report steered clear of connecting the improved rating to the reduction in political strife at City Hall, S&P analysts said they sensed a new stability in the city`s management during their May trip to the city.
”We feel comfortable they will have prudent fiscal operations for the foreseeable future,” said Vladimir Stadnyk, the lead municipal credit analyst at S&P for Chicago finances. ”We got the impression that everything was in control and they were allowed to do their business as they should.”
”They were clearly concerned about stability in politics in private conversations with us,” said city Controller Ronald D. Picur. ”We`ve finally been able to match the perceptions with the reality.”
Picur was quick to translate the good news into potential benefits for city taxpayers. ”Higher ratings mean lower taxes,” he said.
Reduced interest payments on soon-to-be issued bonds could save city property owners as much as $10 million to $15 million during the next 25 years, he said. One municipal credit analyst said the city could see a quarter-point reduction in interest rates from the upgrading.
The city will soon issue $50 million in general obligation bonds to complete its $180 million neighborhood improvement program for this year. The city also expects to sell at least $130 million in bonds to finance a new library later this year, although city officials said that figure will probably go much higher by the time plans for the library are completed.
S&P took note of these plans to quicken the pace of major capital projects and neighborhood improvements. ”While the city may step up its general obligation bond spending in the next five years, the debt burden will remain manageable,” the report said.
S&P called containment of spending ”influential” in the city`s ability to eliminate the $142 million budget deficit that existed at the end of 1983. The agency also noted that increased sales-tax collections, higher property taxes and new taxes enacted under Washington, including the nickel-per-gallon motor and jet-fuel tax recently upheld by the courts, improved the city`s financial picture.
The fuel tax has become a problem for Washington administration officials since collections have fallen far short of projections. Slated to generate $117 million to balance this year`s $1.372 billion corporate fund budget, collections from motorists are running $30 million behind schedule, according to Budget Director Sharon G. Gilliam.
To make up for the shortfall, the city instituted a 5 percent cut in most city departments this year. City officials said they don`t expect gas-tax collections to improve significantly.
Combining that shortfall with the estimated $50 million needed to finance employee pay raises next year, the city faces a potential $80 million budget gap in 1988. Collective bargaining agreements with most of the city`s 36,000 employees expire December 31.
At a press conference Friday, the mayor refused to answer questions about how he plans to balance next year`s budget. But Picur pointed out that Gov. James Thompson`s efforts to raise personal and corporate income taxes, which Washington endorsed, would only generate $34 million for Chicago.
”If we don`t see a greater share out of Springfield, then we may have to see higher property taxes,” Picur said.
Picur said one solution to balance next year`s budget may be for the city to hold the property-tax rate steady. That way, the city can capture revenue growth from construction and increased property values–a tactic used in late 1985 to rationalize a $79 million property tax increase.
”We`re going to be seeing the biggest one-time increase in the city`s tax base in the city`s history this year” because of all the downtown construction, he said.
