Chicago's Progressive Reform Caucus wants the Emanuel administration to "delay or abandon" its proposal to use roughly $100 million in borrowed money to pay termination penalties for interest-rate swap agreements.
The caucus opposes the "Emanuel administration's plan to voluntarily pay massive interest-rate swap termination penalties" because it could result in "windfall profits for big banks" and cost "taxpayers more over the next few decades," Ald. Scott Waguespack (32nd) said during a press conference at City Hall on Tuesday.
The interest-rate swap agreements in question, held between the city and financial institutions, date back to former Mayor Richard M. Daley's administration. The $100 million in swap termination payments is part of a $2 billion borrowing package set to go before the Chicago City Council on Wednesday.
"The administration has said we're getting out of these risky deals, but what we're getting out of this deal is an irresponsible financial move by the administration," Waguespack said. "We need to stop this plan, abandon it today, and not move forward on behalf of taxpayers."
The progressive aldermen said they will vote against the borrowing package Wednesday if it includes the roughly $100 million intended for the swap termination penalties.
"We as a council need to make better choices on behalf of our constituents," said Ald. John Arena (45th). "Borrowing money to pay off debt and penalties that we don't have to do right now is not a good financial practice."
Progressive Reform Caucus members plan to introduce an order at Wednesday's council meeting, directing the law department to look into the interest-rate swaps and "see if there are legal measures we can take to terminate the ones that exist or recoup losses on payments we've already made on past swap deals," Arena said.
The caucus also plans to write the U.S. Securities and Exchange Commission (SEC) and Illinois Attorney General, requesting a review of the city's swap agreements and details on "whether these were entered into legally without fraud or without misrepresentation," Arena said.
Ald. Carlos Ramirez-Rosa (35th) added that "Houston, San Francisco, other cities have negotiated better deals for their constituents, and what we're merely asking here is to delay or hold off on this plan until we make sure that we have the best deal possible for the taxpayers of the city of Chicago."
Also on Tuesday, the Chicago Teachers Union urged the city to take legal action against banks over the controversial swap deals, also held by the Chicago Public Schools.
More specifically, the union said in a statement that "the City Council must act quickly to press for legal action against banks under state law for misrepresentation of these toxic deals; work with Illinois Attorney General Lisa Madigan to open a statewide investigation and bring a class action lawsuit; and petition the federal Securities and Exchange Commission to bring enforcement action against the banks."
"There is strong reason to believe that Bank of America (B of A) and other banks that sold the toxic swaps broke the law," CTU President Karen Lewis said in a statement. "We should take legal action to cancel the deals, get out of penalties and claw back losses. The standard industry practice was for banks to emphasize the potential upside of these deals, but downplay the risks. This is a violation of the 'fair dealing' rule that governs municipal finance."
At Monday's Finance Committee meeting, City Budget Director Alex Holt stated that representatives from the Daley administration "knowingly" entered into the swap deals and "understood the risks" of the agreements. She also said that the law department has found "no legal basis under securities law or state law" to pursue a claim in an effort to recover losses from the controversial bank deals.
On an afternoon conference call with reporters, Chief Financial Officer Carole Brown and other city financial officials reiterated those points. Brown noted that the city is taking what it believes to be the cheaper approach to terminating the swap agreements, a move that is a component of Mayor Rahm Emanuel's long-term plan for reforming the city's financial practices. In announcing details of his financial plan in April, Emanuel also called for, among other changes, an end to "scoop and toss" budgeting practices and the transfer of $900 million in variable-rate debt to fixed-rate debt.
Meanwhile, Chicago's Progressive Reform Caucus is also calling for action related to the state's finances.
In light of the one-year anniversary of Illinois Gov. Bruce Rauner being sworn into office, Chicago's Progressive Reform Caucus members delivered a cake to the governor's office on Monday. They did so as they urged Rauner to support a budget that asks the wealthy to pay their "fair share." The state budget impasse is now in its seventh month.
"Organizations and working families are suffering because we don't have a budget, and we don't have the revenue to pay for the things that we are required to by law," Waguespack was quoted as saying in a news release. "We're sending this cake to the Governor hoping that he'll sit down at the table and work with both sides of the aisle to get a budget passed as quickly as possible to end the suffering of a lot of families, not only in Chicago but thought the state."