Saturday, February 4, 2023
HomePoliticsChicago’s ‘social bond’ program lets residents invest in neighborhood improvements

Chicago’s ‘social bond’ program lets residents invest in neighborhood improvements

The city of Chicago is conducting an experiment in the financial markets. It is giving everyday Chicagoans a chance to invest in and earn money from neighborhood improvements.

It’s a program that sounds tailor-made for die-hard city boosters. No longer do you have to just lobby for or cheer on municipal efforts to rehab dumpy buildings, increase supportive housing or bring something productive to vacant lots. Now you can earn a return from presumably good works, maybe in your neighborhood.

If you wish to put out real cash, you’ll have to decide by Wednesday to get first crack at the program. And there are caveats, enough to raise questions about whether this populist approach to public finance will draw much of a response.

First, the facts: City Hall calls them “social bonds.” Officials are taking the bonds to market this week. On offer will be $97.7 million in nontaxable municipal bonds, “munis,” plus just under $60 million in taxable bonds. Maturities will range from 2026 to 2039. The interest they pay will be determined by the demand; the more the better for the city.

Nine financial firms will manage the bond offering and ensure it gets out to a wide audience. In most cases, investment banks and large firms snatch these to resell to clients. In this case, the city has arranged the offer to go first to individual investors, with dibs to Chicago residents. Bond denominations can be as little as $1,000, not the usual $5,000. Interest is paid twice a year.

On the program’s website is a list of 43 banks or brokerage firms set up to take orders from account holders. Prospective buyers without accounts at any of those firms can call Fidelity Investments, which was hired to distribute orders with Citigroup, said Jack Brofman, deputy chief financial officer for the city. Orders have to be made by Wednesday. The institutions move in on Thursday.

Brofman said it’s the first time since 2005-06 that the city has taken a straight-to-the-people approach in bond sales. Back then, it was a “direct access” program for bonds serving more general spending needs, he said.

This new issuance funds improvements within a broader $1.2 billion Chicago Recovery Plan aimed at helping neighborhoods bounce back from the pandemic. The bonds have high ratings from Standard & Poor’s, Fitch and Kroll.

During a virtual meeting last week with community leaders, Brofman emphasized how the bond proceeds will be used. The largest piece, more than $80 million, would go to housing programs, such as acquiring a former hotel and motels — details to be announced — to help homeless people. Also planned are rehabs and construction of multifamily buildings in areas hardest hit by COVID-19.

Money is also earmarked for small businesses and commercial streets. The city also wants to buy electric vehicles and build recharging stations.

Several questions at the virtual meeting dealt with trees. The city intends to use $17.2 million from the bond sale to plant about 75,000 trees over the next five years. Brofman called it a “massive acceleration of tree planting” from a recent rate of 6,500 per year. The goals are to improve air quality, reduce the urban heat island effect and general beautification.

“The city is demonstrating its values in the marketing of its bonds,” said Jennie Huang Bennett, the city’s chief financial officer. “We want to promote Chicagoans investing in their own neighborhoods.”

Jennie Huang Bennett, chief financial officer for the city of Chicago.

Ashlee Rezin/Sun-Times file

Asked about the city’s unusual marketing plan, Greg McBride, chief financial officer at the personal finance site Bankrate.com, said, “Most individual investors are better off in a low-cost mutual fund that spreads their risk among hundreds or even thousands of issuers. Buying individual bonds — just like buying individual stocks — means having to do a level of due diligence most individuals are not prepared for.”

Financial advisers also will warn people about munis losing value during times of high inflation. But while there’s interest-rate risk, there’s little credit risk. Whatever you think about Chicago’s pension pileup or fiscal management, the city pays its bondholders. These latest bonds are issued by a related city entity, the Sales Tax Securitization Corp., that repays the debt from sales taxes. It gets better ratings because it’s set apart from the city’s other obligations.

Investors charmed by “social bonds” need to have both eyes open. But maybe there’s a payoff there that’s more than financial. Mayor Richard J. Daley once called out pesky critics by asking, “What trees do they plant?” Finally, residents can throw a little of their own shade, in a good way.

Source link

RELATED ARTICLES

LEAVE A REPLY

Please enter your comment!
Please enter your name here

LATEST

CATEGORIES

Most Popular