Both mayoral candidate Bob Fioretti and aldermen from the City Council’s Progressive Reform Caucus have called for hearings on the Chicago Public Schools borrowing practices, specifically the series of deals from 2003 to 2007 that ended up costing taxpayers as much $100 million more than more traditional borrowing methods.
CPS, along with current board president David Vitale, have been under public scrutiny in recent days following a Chicago Tribune investigation showed the decision to enter into $1 billion in risky bond loans resulted in higher fees and came as a result of paid consultants, bank counterparties and CPS official downplaying the risks of the deals.
The deals included refinancing already existing CPS debt with a series of exotic financial instruments, including interest rate swaps, auction rate securities and swaptions.
Vitale was a strong proponent of the deals before and after he became board president, and the risky strategy was undertaken with little to no public debate. The CPS board has been silent in the wake of the revelations, and when asked about the troubled bond deals, Mayor Rahm Emanuel has said nothing could be done about them.
However, Fioretti and the Progressive Reform Caucus are calling for Council hearings on the matter, in hopes that not only will more information come to light but that a basis for either renegotiating or even breaking the contracts can be found.
“CPS thinks they are playing with house money, but it's actually our tax dollars and we should demand some answers,” Firoetti, the 2nd Ward alderman who is running for mayor against Emanuel, told Ward Room. “It's up to us to ask the tough questions, because CPS gambling with taxpayer money shows a total lack of respect at best.”
As a result, the Caucus introduced a resolution at Wednesday’s Council meeting calling for hearings by the Committee on Education and Child Development on the current borrowing practices of the Chicago Public Schools. The goal, says Alderman Scott Waguespack (32), is to see if the deals can be renegotiated or if some of the money earmarked for penalties and fees can be cancelled or returned.
Should nothing be done, Waguespack and other Caucus members are holding Mayor Emanuel at fault, even if the deals in question happened under the watch of his predecessor, Mayor Daley.
“Instead of sitting on his hands and allowing the banks to benefit from continuing bad judgments by his advisors, [the Mayor] should be doing what the banks even said he could do—renegotiate the deals,” Waguespack told Ward Room. “If he doesn't, the Mayor is snubbing the fiduciary duty he owes to Chicagoans”.
While Emanuel claims that the City’s hands are tied because, as he put it, “there’s a thing called a contract”, a number of notable examples exist of the city refusing to accept the terms of financial agreements in the past.
In 2011, the City filed suit to break the Chicago Park District’s concession deal with the clout-heavy operators of the Park Grill in Millennium Park, a move heralded by Emanuel as necessary because city taxpayers were “being taken advantage of”.
In 2012, Mayor Emanuel refused to pay a $14 million bill related to the Chicago parking meter deal, as part of an overall effort to renegotiate the terms of the original contract.
“I do know the parking-meter management team now knows there’s a new sheriff in town,” Emanuel said at the time. “Don’t send a bill just thinking we’re going to sign it. And don’t act like you’re in possession of information when the contract calls for something else. Those days are over.”
As well, the mayor has proposed renegotiating the terms of pensions for city workers by cutting benefits and required retirees to pay more, even though pensions are considered unbreakable contracts by everyone from the U.S. Constitution to state constitutions and municipal agreements.
It’s a point not lost on Fioretti and others. “Isn’t it interesting when a mayor says we can’t break a bond deal like this?” Fioretti said. “But we can break all the pension contracts that affect every worker in this city.”