$5.$Based on $$Bond Proposal $$1\mathrm{.}25$ Billion $2024$ for the City of Chicago $,$ is the mayor$$s proposal a positive NPV project? Why or why not? If the project is not positive$-$NPV$,$ is it still worth doing? Please state your assumptions clearly.

$*$ You need to compare the bond proposal to the status quo in terms of both costs and benefits, acknowledging that the two projects are mutually exclusive. All information on cash flows is available in the bond proposal document so there should be little space for ambiguity. HINT: You need to compute the incremental cash flows of the project associated with the bond proposal relative to the status quo.

$*$ Make sure you discount cash flows using appropriate discount rates into today's dollars. Please state your assumptions behind the discount rates. One possible way to identify suitable candidates for the appropriate discount rates would be to consider comparable bonds of similar maturities. If you take this path please clearly explain your choices of comparable bonds$/$issuers and maturities.

Summary of Key Financial Aspects of Chicago's $$1\mathrm{.}25$ Billion Bond Proposal

Overview:

Mayor Brandon Johnson announced a $$1\mathrm{.}25$ billion bond issuance intended to revamp Chicago's neighborhood development strategy. This bond is aimed at providing an alternative to the city's existing Tax Increment Financing $($TIF$)$ program, which has been the primary tool for economic development but has faced limitations in serving depopulated and disinvested neighborhoods.

Financial Strategy and Allocation:

Total Bond Value: $$1\mathrm{.}25$ billion

Annual Allocation: $$250$ million annually over five years $(2024-2028)$

Departments Involved: Department of Housing $($DOH$)$ and Department of Planning and Development $($DPD$)$

Funding Distribution:

DOH will use approximately $$625$ million for housing projects:

$$360-390$ million for affordable rental homes

$$210-240$ million for homeownership

$$20-30$ million for single$-$room occupancy structures

DPD will use approximately $$625$ million for economic development:

$$400-500$ million for neighborhood development grants

$$80-115$ million for small business support

$$55-90$ million for workforce training and housing infill development

Financial Impact and Repayment:

Total Cost: The bond will cost $$2\mathrm{.}4$ billion over $37$ years, covering both principal and interest.

Funding Source: Repayment will be supported by projected increases in tax revenues from expiring TIF districts.

Financial Oversight: DPD and DOH will monitor and report on the bond$$s use, ensuring transparency and adherence to redevelopment agreements.

Purpose and Benefits:

The bond issuance seeks to offer a more flexible and equitable financing solution than TIFs, expanding the scope of potential projects and broadening geographic eligibility for funding. It targets significant improvements in housing and economic development, particularly focusing on areas that have historically been underfunded.

Additional Considerations:

The bond proceeds are expected to be received upon their purchase by municipal bond buyers.

Regular reporting to City Council and the public will be mandated to ensure accountability.

The bond aims to start financing neighborhood projects as soon as it is approved, with detailed financial forecasts available on the city's bond website.