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Read yesterday’s Bloomberg piece, “Bondholders Fret as Alchemy Turns Chicago’s Junk to Gold.”

It’s about Chicago’s new sale of ownership to some of its future income. Bondholders will have a first claim to more than 90 percent of the approximately $715 million of sales-tax revenue collected each year, says Bloomberg. We wrote often about the legislative authorization for this as it, and similar proposals, moved through the General Assembly. Most recently, my article in Crain’s last month was about the same financing method.

Too late now. Not mentioned in the article is that the legislation also made it mandatory for all Illinois municipalities to use the same scheme if they want to use any part of the money that flows to them from state government as collateral for bonds. That will make it much more difficult for taxpayers and service recipients to get access to critical future revenue if their local government tanks, even if there’s a formal bankruptcy.

The municipal bond community crafted the legislation carefully to make its priority bulletproof and, from that perspective, they did a superb job.

Mark Glennon is founder of Wirepoints. Opinions expressed are his own.

 

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