Monday Marks Second Hearing On Illinois’ Controversial Interest Rate Swaps

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An Illinois House committee will hold a second subject matter hearing Monday morning in Chicago on the issue of interest rate swaps.

City of Chicago Treasurer Kurt Summers is among those expected to testify before the House Revenue and Finance Committee.

Last month, Summers urged three Chicago employee pension funds to consider joining class action lawsuits against banks in an effort to recoup losses from swap deals.

“We are asking the question of whether this financial market was ever fair. If we are successful, then all Illinois residents and taxpayers will benefit. We will send a message that this sort of bad behavior will no longer be tolerated by the people of Illinois. We will only accept a fair and level playing field for the investment of public money,” Summers said in a news release distributed by the Grassroots Collaborative. “I call on Governor Rauner to fulfill his fiduciary obligation to protect our finances at their most vulnerable moment by joining the antitrust lawsuit.”

Monday marks the second subject matter hearing the House Revenue and Finance Committee has held on the interest rate swap deals Illinois has struck with big banks. Progress Illinois previously covered the first hearing on the issue, which was held in late April.

According to the Grassroots Collaborative, which has been working to shed light on interest rate swaps, the controversial financial deals “have already cost the state of Illinois $684 million” and “could cost taxpayers an additional $870 million in November if the state does not sue or renegotiate these deals as others across the country have done.”

Read Progress Illinois’ past reporting on how interest rate swaps work and their financial impact on the state, city of Chicago and Chicago Public Schools system.

 

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Experts Sound Alarm: Wall Street Banks Set to Shakedown Illinois for $870 Million Unless Springfield Acts Fast

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Mayor Emanuel Paid Out Hundreds of Millions to Wall Street Banks on Swap Deals that Torpedoed Chicago and CPS budgets, Governor Rauner Urged to Not Repeat Mistake with State Swaps

CHICAGO, IL – On Monday, the Illinois House Revenue and Finance Committee held a second subject matter hearing on interest rate swap deals that have cost the state of Illinois over $684 million thus far. During the hearing experts testified how these deals could trigger further financial crisis for the state if letters of credit are not renewed in November. Without these letters of credit, renegotiation, or legal action by the State of Illinois, taxpayers would be on the hook for $870 million in entirely avoidable payments to Wall Street banks.

Kurt Summers, Chicago City Treasurer, stated,  “On May 27th, I sent Governor Rauner a letter encouraging him to join the ongoing class action lawsuits as a chance for the State to recoup tens of millions of dollars in potential damages. This is real money that will benefit the State in a time of unprecedented fiscal challenges but there is more to it than that. This is a statement to financial institutions that the citizens of Illinois, Chicago and any municipality in the union demand to be treated fairly and openly.”

Experts speaking during the hearing made clear that Illinois has alternatives to paying out to the banks including litigation and regulatory action. When faced with a similar situation involving toxic swaps, San Francisco successfully leveraged a public campaign to save money and win substantially better terms from JPMorgan Chase.

Jono Shaffer, a leader with the Service Employees International Union who helped run the campaign in San Francisco explained, “We worked with the Mayor and Controller’s offices in San Francisco to force Chase to the table and avert the crisis. As a result the bank agreed to terminate the swap without charging us $18.5 million in penalties, return $13 million of collateral, refinance us into an affordable fixed-rate loan and to reduce to the outstanding principal on the loan by $21 million.”

The social service infrastructure in Illinois is already in crisis as a result of the ongoing budget impasse. Testimony during the hearing warned of the human toll on Illinois residents if the state paid out in full on the swap deals.

“The $870 million payoff to the banks we are talking about today is sufficient to pay off, in full, all human services providers who are under contract with the state and have not been paid for services rendered over the past 11 and ½ months, since the start of fiscal year 2016 on July 1, 2015. This includes service providers in the areas of infant mortality, homeless youth, mental health, addiction prevention and treatment, respite care, supportive housing, and centers for independent living,”, stated Dan Lesser, Director for Economic Justice at the Sargent Shriver National Center on Poverty Law, to the committee.

Erica Rangel, Lead Community Organizer with Enlace Chicago which runs one of the few Ceasefire programs still operating in the state commented, “These banks have contracts with the state – just like our programs have contracts with the state.  The only difference is, the contracts with the banks are being honored.  Ours are not.  When our government prioritizes big banks who have cheated our state through bad deals over life saving programs – then we have lost our way.”

“Although Springfield has been unable to pass a budget it is our hope that our elected officials can work together to prevent money that should be going to educate our young people and protect our most vulnerable residents from being eaten up by Wall Street bankers,” stated Amisha Patel, Executive Director of Grassroots Collaborative, following the hearing. “Otherwise, the Governor and legislative leaders can take any remaining claim they have to fiscal responsibility and throw it right out the window.”

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EndBadBankDeals

Failure of Emanuel Administration to Push Through Swap Payments a Victory for Working Families

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The House failed to bring the Fair Tax Amendment (HJRCA 59) to a vote, missing the deadline for placing it on the ballot for the upcoming November elections. The Fair Tax amendment, that would have allowed voters to vote on a constitutional amendment to implement a progressive income tax enjoyed massive public support in both Democratic and Republican districts. By not taking up the amendment, Governor Rauner and House Republicans allowed Illinois to continue to head in the wrong direction.

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The Peoples Agenda, a path to prosperity for all IL families

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The House failed to bring the Fair Tax Amendment (HJRCA 59) to a vote, missing the deadline for placing it on the ballot for the upcoming November elections. The Fair Tax amendment, that would have allowed voters to vote on a constitutional amendment to implement a progressive income tax enjoyed massive public support in both Democratic and Republican districts. By not taking up the amendment, Governor Rauner and House Republicans allowed Illinois to continue to head in the wrong direction.

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Tax Corporations

Failure to Pass Fair Tax Amendment Will Take High Human Toll in Illinois

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The House failed to bring the Fair Tax Amendment (HJRCA 59) to a vote, missing the deadline for placing it on the ballot for the upcoming November elections. The Fair Tax amendment, that would have allowed voters to vote on a constitutional amendment to implement a progressive income tax enjoyed massive public support in both Democratic and Republican districts. By not taking up the amendment, Governor Rauner and House Republicans allowed Illinois to continue to head in the wrong direction.

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Failure to Pass Fair Tax Amendment Will Take High Human Toll in Illinois

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Springfield, IL – Today the House failed to bring the Fair Tax Amendment (HJRCA 59) to a vote, missing the deadline for placing it on the ballot for the upcoming November elections.  The Fair Tax amendment, that would have allowed voters to vote on a constitutional amendment to implement a progressive income tax, enjoyed massive public support in both Democratic and Republican districts. By not taking up the amendment, Governor Rauner and House Republicans allowed Illinois to continue to head in the wrong direction.

“Increasing state revenue has become a matter of life and death in our community,” stated Erica Rangel with Enlace Chicago. “Our Ceasefire program has saved lives and prevented numerous acts of violence before they happen. The reality is that by not passing common sense revenue Springfield is choosing to let people die instead of making the needed investment in the future of our young people.”

Amisha Patel, Executive Director of Grassroots Collaborative stated, “Springfield should have learned by now that not voting on the tough issues does not make them go away. Our state needs long term structural solutions. Illinois ranks 47th in spending on core public services despite being the 5th largest economy in the US. We have a real revenue problem, we need our leaders to not run away and address this structural issue. We cannot have a stable budget until we modernize our tax structure and make the rich pay their fair share.

Governor Rauner has used his bully pulpit, PAC funds, and his role as head of the Illinois GOP to recklessly push his own personal agenda at the expense of Illinois’s people and economy. The Turnaround Agenda is dead. Instead of pressuring his party to obstruct passage of popular, equitable, and rational solutions Governor Rauner should be working with the legislature to fully fund the programs and services our state needs.”

Even without Fair Tax being on the ballot in November, there are many other revenue solutions that legislators can pursue including closing corporate loopholes, enacting a financial transaction tax, and ending bad bank deals. A full list of revenue solutions can be found the in Grassroots Collaborative’s People’s Agenda: http://thegrassrootscollaborative.org/sites/default/files/ThePeoplesAgenda.pdf

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Decatur Residents Demand Illinois Budget with New Revenue

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As Budget Impasse Continues, Residents Speak Out on Damage Being Done to Local Community

Decatur, IL – On Monday, Decatur residents and elected officials called on officials in Springfield to pass a fair budget that raises new revenue from those who can most afford it, and funds the programs and services that Decatur residents need.

Speaker after speaker detailed the devastating impacts that the 10 month old budget impasse has had on Decatur residents.  Speakers called on Gov. Rauner and other officials in Springfield to stop holding the budget hostage, and pass a fair budget with new revenue before the end of May.

“I’ve been hurt by the budget impasse and so have my children,” stated Amber Ginger during the press conference. “My son can no longer go to the doctor to get the services that he needs because of the lack of a state budget. Our lights are off because of the budget impact on the LIHEAP program. I’m speaking out because I know I am not the only one being impacted, there are many other people in Decatur with their lights off too.”

Participants made it clear that they believe there is a way forward.  They asked legislators in Springfield to take immediate action to create new revenue for the state, by asking the wealthy of our state to pay their fair share.

“The people of Decatur are a smart investment. We need a state budget that recognizes that fully funding programs and services help our residents succeed and contribute back to the state economy,” said Lisa Stanley, City of Decatur Supervisor.

“We need to have real revenue solutions,” stated Cheryl Flowers, Grassroots Collaborative organizer and Decatur resident. “Illinois is the 5th largest economy in the US but ranks 47th in spending on public services. We have to stop trying to cut our way out of this mess and instead invest back into the people of our state as our Midwestern neighbors have. If we had their tax rates we would be talking about surpluses instead of deficits. Decatur residents deserve to be invested in.”

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Financial Experts and Social Service Providers Challenge State, Municipal, and CPS Payments to Wall Street Banks

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Chicago, IL – On Wednesday, a set of financial experts and social service providers gave testimony before the Illinois House Revenue and Finance Committee detailing how Wall Street banks have soaked all levels of government in Illinois for hundreds of millions of dollars through interest rate swaps and other complex financial deals.

“In essence the banks lured the state of Illinois into a suckers bet – heads I win, tails you lose,” stated Saqib Bhatti, Director of the ReFund America Project. “During the budget stalemate this year, while the Governor has refused to fund critical services, the state has nevertheless paid more than $92 million in fees to banks. $68 million of this money was for toxic swaps—the same toxic swaps that have drained more than a billion dollars out of the Chicago and CPS’s budgets.”

The panel of experts included: Saqib Bhatti, ReFund America, Greg Will, SEIU HCII, Jonathan Jackson, Business Professor at Chicago State University; Brad Miller, Former US Congressman; and Tom Sgouros, Senior Policy Advisor, Rhode Island General Treasurer.

The expert panel questioned the ability of local and state governments to win bets against savvy Wall Street bankers.

“The parties to an interest rate swap are each taking different sides of a bet. One party is betting that interest rates will rise, while the other is betting they will fall. Pricing risk is a tricky business. People write doctoral dissertations about it, and win Nobel prizes in Economics for figuring out the essential problems involved,” explained Sgouros.

“There are many other specific risks that the banks knew well and even the most sophisticated public issuers did not. The failure to disclose those risks seems very much like a realtor not telling a homebuyer that the basement floods,” added Miller.

In addition to the interest rate swaps the panel of experts pointed out the numerous add on fees that have continued to be paid during the budget impasse despite the lack of a budgetary authorization. “The state has paid banks and other finance industry companies for a litany of fees and charges: letters of credit, other credit enhancements, remarketing fees, trustee fees, ratings agency fees, fees to counsel, underwriter fees, fees associated with cash management functions – the list goes on,” explained Greg Will, Research Director for SEIU HCII.

Experts made clear that the state paying these fees without a budget was likely illegal, “What’s truly scandalous is that the Governor’s office is actually breaking the law to pay the banks. The state has paid more than $10.5 million in bank fees that have no budget authorization. These are illegal payments,” said Saqib Bhatti.

Prioritizing payments to Wall Street banks over human service providers is having a devastating impact on the social service infrastructure in Illinois. Inspiration Corporation, an agency that provides job training and employment placement, supportive housing, meals, and other services to Chicago’s homeless and low-income residents has had to lay off staff and reduce services as a result of late payments from the state.

Evan Cauble-Johnson, Chief Development Officer at Inspiration Corporation explained during the hearing, “Study after study has shown that the cost of providing supportive housing to the homeless is a fraction of the cost of relying on emergency services like policing, emergency medical care, or incarceration.  If we do not preserve supportive housing for our most vulnerable neighbors now, if we choose to direct the money that we have towards interest payments on risky loans instead of on vital services to our most vulnerable neighbors and fellow citizens, not only do we fail the people that need our support the most, we fail ourselves.  We will pay for this choice down the road.  There is no avoiding it.”

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Legislators and Grassroots Leaders Release the People’s Agenda, A People-Focused Alternative to Turnaround Agenda

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On the eve of Rauner’s Budget Address, Groups Lays Out New Vision to Put People Back on the Agenda in Illinois State Government

The People’s Agenda can be found at: http://thegrassrootscollaborative.org/sites/default/files/ThePeoplesAgenda.pdf

Springfield, IL – On Tuesday, February 16, grassroots leaders joined with legislators to release the People’s Agenda, a new report laying out a plan for the prosperity of Illinois families of all incomes.  

Counter to the narrative coming out of the Governor’s office, the People’s Agenda points out that the state of Illinois is not spending too much, but rather is spending too little. Illinois has the 5th largest economy in the country and is the 13th wealthiest state, yet ranks 47th in spending on K-12 education, higher education, healthcare, public safety, and human services.  

“Right now, families are hurting all across Illinois,” stated Amisha Patel, Executive Director of the Grassroots Collaborative. “For over a decade, the state of Illinois has been disinvesting from the vital public services needed to provide the opportunity to low and middle-income families, create jobs, and bolster the Illinois economy.”

Present-time funding needs describing in the People’s Agenda would support $323 million of additional economic activity in other parts of the Illinois economy.  If the more visionary investments described in the People’s Agenda were enacted, these investments would support $4.2 billion in additional economic activity in other parts of the Illinois economy.

In order to bring Illinois in line with other Midwest states, the People’s Agenda calls for generating new state revenue from those most able to afford it. The People’s Agenda revenue package includes closing corporate loopholes, passing a graduated income tax, millionaire tax, and a financial transaction tax. Together, these revenue proposals would generate billions of dollars for the state of Illinois. The report goes on to give concrete examples of how this new revenue could be spent, such as providing universal Pre-K childcare assistance, reducing violence, and ending homelessness in the state of Illinois.

Participants outlined how reinvesting in public services would grow the economy and improve lives.

“I was homeless and if it hadn’t been for a group home and my family I would be dead. Due to being placed in the health system, I was able to get sober and stay that way. Because of the assistance I received, I have a healthy, happy and productive life. I got married last year and have now been sober for 8 years,” said Stefano Medansky, a leader with the Chicago Coalition for the Homeless.  Cuts to vital services like homeless prevention puts thousands of lives in danger.

The People’s Agenda Reform Package:

  • Modernize the Tax Structure
  • Invest in Communities and Create Jobs
  • Reform Bank and Financial Industry Policies – End Predatory Financial Deals
  • Create an Adequate and Equitable Funding Structure for Education
  • End protections and preferential treatment of corporations and Wall St. over working families
  • Provide for the real needs of our population in education and human services

The People’s Agenda is available for download at: http://thegrassrootscollaborative.org/sites/default/files/ThePeoplesAgenda.pdf

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