Bank of America quit before it started helping the city sell $1 billion of vehicle debt amid a midyear budget shortfall.

By Sophia Kalakailo

Heavy traffic is seen at O'Hare International Airport in Chicago, Monday, April 15, 2024. Alders are looking to sell debt owed for traffic tickets and fines to a private debt collector as a way of closing a $90 million budget gap for 2026. (AP Photo/Nam Y. Huh)

Bank of America has dropped out of Chicago’s unprecedented plan to sell city-owned debt.

The San Francisco-based bank’s exit is another setback in the city’s plan to sell at least $1 billion of vehicular debt such as unpaid tickets for parking, speeding and red-light camera violations, in hopes of earning at least $89.6 million. 

A sale of this magnitude has not been done before, officials say. That’s why they were hoping to rely on Bank of America’s outside expertise.

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However, the city and Bank of America never mutually agreed on the “scope of the services” the banking institution would provide after being formally selected for the job June 5, a city spokesperson said in a July 22 email.

Bank of America was never signing up to buy the debt; it was supposed to be the intermediary to figure out the details of a potential agreement with a buyer, including which types of vehicular debt to sell and which age of debt has the most money-making potential, according to city documents. 

Bank of America representatives declined to comment. 

Questions linger over sale’s potential

Experts and officials have questioned the debt sale’s viability since City Council approved the plan in December. Over Mayor Brandon Johnson’s objections, a coalition of alders added the debt sale to this year’s budget as a way to prop up the city’s struggling finances in lieu of taxing large companies based on their number of employees.

In early April, the city sought proposals for a debt sale facilitator — or placement agent — for outside help with the sale. Besides Bank of America, it received just one other proposal. City officials now are contacting that second company to gauge its interest, the spokesperson said, but would not specify who that is. 

The city has denied public records requests from City Bureau to obtain copies of the proposals and identify the other applicant. Department of Finance officials cited a rule under the Illinois Freedom of Information Act that exempts them from disclosing these records until a contract is awarded.

The sparse interest in the job is “indicative” of concerns over whether the sale is viable, the city said.

Because this specific debt is unsecured — meaning it’s not backed by a physical asset like a house or other collateral — there’s a higher risk lenders won’t get their money back. That means it might be less attractive to potential buyers.

As head of the Department of Finance, Comptroller Michael Belsky is charged with making the sale happen. Belsky voiced doubts as far back as February about how attractive the sale will be to private debt collectors, according to a memo he sent to City Council. 

The Johnson administration “has repeatedly made clear that such a plan has never been guaranteed to succeed,” a city spokesperson said earlier this month.

What happens if debt isn’t sold?

The so-far unsuccessful debt sale comes as the city grapples with an $89 million midyear budget shortfall, down from an initially announced $131.7 million deficit thanks to a few over-performing sources of revenue.

The projected shortfall could mean 2,000 layoffs for city employees, half of which could be police, since they are among the highest-paid employees in the city, said Budget Director Annette Guzman at a midyear budget hearing earlier this month. 

But alders who backed the alternative budget are accusing Johnson’s administration of delaying the debt sale, which the mayor has called “predatory” and “immoral.”

Other money-making initiatives from the alternate budget included $29 million from selling advertising spots on city-owned light poles, $6 million from an augmented reality licensing program, and nearly $7 million from video gambling machines. That money hasn’t materialized, either. 

Alderpeople pressed Belsky, Guzman and acting Chief Financial Officer Steven Mahr at the July 16 budget hearing, accusing them of intentionally delaying or blocking the initiatives.

“It does seem like an awful big coincidence that those happened to be the revenue streams that the mayor vehemently opposed,” Ald. Brendan Reilly (42nd Ward) said.

Mahr denied there being intentional delays and reiterated that a sale of this kind hasn’t been done before and walked City Council through the steps they’ve taken so far.

Guzman added that they have been “working enormously hard to enact the budget that was passed by City Council, and there are a ton of public servants who are doing exactly what you’ve asked them to do.”

Others blamed the alderpeople who proposed the alternative budget, with Ald. Byron Sigcho-Lopez (25th) saying he “cannot believe” that they “have the audacity to be blaming the administration for the utter failure of balancing the budget.”

Ald. Rossana Rodríguez Sánchez (33rd) also pushed back.

“I feel like this hearing has been a full gaslighting session of people who proposed measures for revenue that were impossible to meet and now are coming here outraged,” she said. “The idea — that because the [Johnson] administration didn’t agree with these measures, they’re just not going to do it — is outrageous.”

Ald. Gilbert Villegas (36th) asked the trio of finance and budgeting officials if they thought collecting on debt that’s owed to the city was “immoral.” Guzman said it’s not, but that the city doesn’t use predatory practices to do so, adding that it is “going after those who we know can pay.”

Villegas responded that what are considered predatory collections tactics is “subjective.” He also said he thought any contract with a buyer would have guardrails in place to make sure sold debt is collected in a “responsible” and “moral” manner.

However, these kinds of guardrails would likely make the purchase less attractive to buyers, Guzman said.

“A company that would purchase this debt would insist upon using any tool in their toolbox to achieve the returns on their investment,” Guzman said.

Sophia Kalakailo is a Report for America corps member covering Chicago’s South and West sides. She focuses on holding public officials accountable to their communities, covering civic happenings, and building resources and guides with solutions related to housing, public services and other political issues. Before joining City Bureau, Sophia reported on the Ypsilanti, Michigan area for MLive.

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