Last June, Evanston City Council voted to raise its debt limit to approve sale of $85 million in its general obligation bonds, chiefly to pay for the Robert Crown Center’s expanding costs. If upon hearing this, you experienced immediate sticker shock and outrage, followed by your eyes glazing over with dim recollections of your grandparents’ instructions when gifting you a treasury bond as a child, you’re not alone.
Spoiler alert: this was and is massively important. Because the City’s sale of $85 million in its bonds, means a taxpayer burden of $137,795,334, according to City projections. Not to mention, potentially higher interest rates and diminished capital for other City projects.
If we haven’t lost you yet, welcome to the fascinating world of Municipal Bonds
This is Part 1 of our Robert Crown Center series. The next City meeting regarding the project is this Wednesday, February 13, 6pm at the Robert Crown center.
Municipal Bonds 101
Municipal bonds are like formal IOUs. When a City sells (issues) a bond, it’s issuing a promise to pay the buyer back the principal with interest until the bond matures. Cities issue bonds to finance capital projects like new or renovated infrastructure.
Using the Robert Crown project as an example, the City has issued $40,885,000 in its municipal bonds to date for the Robert Crown, and is projecting its total interest over the life of the bond will be $30,204,556, making the total debt repayment $71,089,556.
|+ Projected Interest & Fees|
|= Total Repayment||$71,089,556|
Interest payments begin immediately, and are usually made semi-annually. The principal is paid on the maturity date. The City has so far opted for a mix of both short- and long-term bonds, with the first maturing in 2022, and the next in 2023, and onward until 2044.
|Year||Repayment Type||Annual Debt Cost|
|2022||Interest + Principal||$2,405,750|
|2025||Interest + Principal||$2,853,882|
Source: City of Evanston Debt Service Schedule (Robert Crown)
Other costs not fully accounted for above include the underwriter’s discount (commission for investment bank underwriter hired to sell the bonds), financial consultant fees, bond counsel fees and expenses, disclosure counsel fees and expenses, underwriter’s counsel fees and expenses, rating agency fees, bond insurance premiums, and fees for the verification agent, trustee, cost of issuance agent and/or escrow agent. As well as CUSIP (Committee on Uniform Security Identification Procedures) and printing fees and contingency reserves.
General Obligation (GO) vs. Revenue Bonds
Municipal bonds typically come in two flavors, general obligation (GO) and revenue bonds. In 2017, roughly 60 percent of state and local issuances were revenue bonds and 40 percent were general obligation bonds. Evanston’s approval is for general obligation bonds.
While both types are considered low-risk, GO bonds generally have the lowest interest rates because they are secured to the the issuer’s “full faith and credit” of its taxing power. In other words, the City must commit to raising unlimited property taxes or other revenues at its disposal to fulfill the debt payment obligations in return for the low interest rate.
General Obligation Bonds
Backed by: Government’s tax base
Used to: Finance public projects that aren’t expected to bring enough revenue to repay debt (parks, streets and sidewalks, libraries, police and fire stations, etc.)
Repaid by: City property taxes, sales taxes and fees
Backed by: Revenues from a specific project or source
Used to: Finance public projects expected to bring enough revenue to repay debt (parking and recreation facilities, transport systems, public utilities, etc.)
Repaid by: Project-generated revenue
GO Bond Restrictions & Best Practices
Self-Imposed Debt Limit General obligation bonds are restricted by the City’s outstanding debt, which is why City Council needed to raise its previous debt limit. The new limit states, “General Obligation Debt shall not exceed $150,000,000 in aggregate principal amount.” However, because Evanston is a home rule unit, it effectively gets to set its own statutory debt limit, issue GO bonds without limitation, and levy taxes to repay all debt principal, interest and issuance fees.
Unlimited Property Tax Increase to Repay Debt Evanston has pledged an unlimited increase on property taxes in order to pay off general obligation bond debt, according to its 2019 Approved Budget.
Hearings/Voter Approval GO bonds put the debt payment onto taxpayers, so municipalities and/or states typically require voter approval. Neither Illinois, nor Evanston have this restriction, but are obligated to hold a properly noticed hearing prior to a vote. The City held a TEFRA hearing, (Tax Equity and Fiscal Responsibility Act) on June 25, 2018.
Bond Sale Debt and Interest Capital raised by selling GO bonds is finite, which means the debt incurred with each bond issued reduces funding availability for projects and improvements that can’t be financed with user fees. Because of this, best practices reserve GO bond sales for projects and improvements that can’t be financed with user fees, like libraries, police and fire stations and streets, and that revenue bonds be issued, at least in part, to help finance parking and recreation facilities, water and sewer systems, municipal electric and gas improvements, municipal gas improvements, solid waste facilities, transport systems, utility operations, etc.
Likewise, interest rates for both GO and revenue bonds are set by the issuers’ ability to repay the debt (aka, their bond rating). Municipal ratings are determined by agencies such as Fitch, Moody’s Investor Services and Standard & Poor’s. The higher the City’s outstanding debt obligations, the lower the rating, and the higher the interest rate.
Robert Crown Series
The City of Evanston’s will have to maneuver its budget over the next 25 years to account for the $91.1 financed price tag for the new Robert Crown Center’s $53.3 million construction and almost $37.8 million debt service costs. The City will fund the center’s $53.3 million in planning, construction and design costs primarily through…
When City Manager Wally Bobkiewicz first recommended Robert Crown’s new construction back in 2009, he suggested it was feasible to expect it could be done with no money to the City. Left, Bobkiewicz recommendation; Right, Ald. Wilson response As originally reported by Evanston Roundtable, “with little discussion, Council members followed the lead of City Manager…
The City has made its first public release of a private funding term sheet for the new Robert Crown Center. The agreement, between local private school Beacon Academy and Friends of Crown, offers the first glimpse funding contingencies built into the $12 million in pledged donations reported by Friends of Crown.
Updated Feb. 17, 2019 The City is hosting a community meeting this Wednesday, February 13, 2019 to discuss concerns regarding the Robert Crown project’s escalating costs ($53.3 million), debt service ($80-90 million, depending on bonds issued this year) and controversial private deals in raising funds. The meeting will take place at 6 pm at the Robert Crown Center Gym,…
Last June, Evanston City Council voted to raise its debt limit to approve sale of $85 million in its general obligation bonds, chiefly to pay for the Robert Crown Center’s expanding costs. If upon hearing this, you experienced immediate sticker shock and outrage, followed by your eyes glazing over with dim recollections of your grandparents’…
Robert Crown Center project costs soared from $18 million to $53 million in three years. Much of the new costs can be attributed to increased scope, such as additions of a third artificial turf field and larger and additional interior rooms following negotiations and a $500,000 from a local private school; foundation design issues; and…