How Chicago has used financial engineering to paper over its massive budget gap
This article explains that the City of Chicago has concealed how it has dealt with its budget gap over the past decade. The city failed to cut its recurring expenditures to match its recurring revenues after it blew through its reserve funds. Instead, two administrations have:
Used long-term debt to finance everyday expenses and maintenance;
Used long-term debt to finance judgments and settlements, including police brutality cases, and retroactive wage increases and pension contributions for its unionized employees;
Restructured the city’s existing debt to extend the maturities on its bonds far out into the future in order to avoid having to pay the debt as it was coming due;
Borrowed more money than it needed in order to make payments on the bonds its was issuing to avoid debt service expenses, essentially using debt to pay debt; and
Possibly used the city’s portfolio of interest rate derivatives as an ATM.
State and local governments typically issue bonds to finance the construction of buildings and infrastructure that will benefit residents for generations. This article explains how Chicago residents have billions of dollars of debt and nothing to show for it.
Read the rest at: http://finance.yahoo.com/news/how-chicago-has-used-financial-engineering-to-paper-over-its-massive-budget-gap-144515066.html