Community activists say they have an alternative plan for making Chicago fiscally solvent -- and it doesn't rely on cuts that disproportionately affect low- and middle-income people.
A new report, "Our Kind of Town: A Financial Plan that Puts Chicago's Communities First," targets "predatory financial deals" that cost the city millions of dollars. The paper, crafted by the Refund America Project at the Roosevelt Institute, also suggests a series of progressive taxes could put millions back into the city's coffers.
"What we have is a priorities crisis," said Amisha Patel, executive director of the Grassroots Collaborative at press conference outside the offices of Loop Capital Management. "For decades, budgets in Chicago have been balanced on the backs of working families. In fact, there are a clear set of policy solutions to raise a progressive revenue that our neighborhoods need."
The report points to the recent decisions by Moody Investor Services and Fitch Ratings to downgrade the city and Chicago Public Schools' credit rating, which triggered millions in fees and penalties, and could force government entities to take out credit enhancements and bond insurance to boost investor confidence. Saqib Bhatti, director of the Refund America Project, called the downgrades "baseless," and said that they benefit Wall Street at the expense of Chicago taxpayers.
"They're being used to push a political agenda that says we have no choice but to cut or Chicago will go flying off the fiscal cliff," Bhatti added.
To solve the city's massive financial crisis, Bhatti said the kneejerk reaction by politicians is to cut social services, pensions and schools.
"There's already a consensus starting to emerge that if we don't [make those cuts], we're basically out of options. These are all so-called solutions that throw working people under the bus and balance the budget on the backs of the people who can least afford it," he added.
The report argues that Chicago has options to fix its budget outside of "enacting painful cuts." By renegotiating interest-rate swap deals through either petitioning the Securities and Exchange Commission or outright suing the banks, some $1.2 billion could be saved. The Refund America Project says the banks violated a federal "fair dealing" rule, which prohibits financial institutions from misrepresenting or omitting information when doing business with municipalities. Here's more from the report on the city and school district's potential ablity to file a lawsuit over the controversial interest-rate swap deals:
The federal "fair dealing" rule prohibits financial institutions from misrepresenting or omitting "facts, risks, potential benefits, or other material information" when doing business with municipal clients. It is likely that the banks that pitched interest rate swaps to the City of Chicago and CPS violated this rule. For example, some of the banks that sold swaps to the city government and school district have admitted to manipulating the interest rates that the swaps were linked to,which cost taxpayers millions of dollars. Unless they told public officials in advance that they had planned to illegally rig interest rates, this constitutes a violation of the fair dealing rule.
The city government and school board should petition the Securities and Exchange Commission (SEC) to bring an enforcement action against the banks to disgorge them of their ill-gotten profits and undo these deals. These violations also give rise to state-based legal claims. The City of Chicago and CPS should also sue the banks under state law to try to get back their past payments on these deals and get out of future termination fees, which could save taxpayers up to $1.2 billion.
In addition to renegotiating the interest-rate swap deals, the report calls for a 20 percent reduction in financial fees. Those fees work similarly to ATM fees which individual consumers pay, with banks charging municipalities hundreds of millions for money management.
Critics of the swap deals say those fees and other poor financial decisions have directly contributed to the city's budget shortfall. One activist argues that the city's bad financial decisions heled lead to the closing of six of Chicago's 12 neighborhood mental health clinics.
"The city only saved $3 million [by closing the facilities], but it had to put it back into hospitalization and deaths," said N'Dana Carter, a member of the Mental Health Movement. "The city is losing money because of all the decisions this mayor has made."
In addition to cutting financial costs, the Refund America Project's report lists several ideas for much needed revenue generation. By working with the Illinois General Assembly to implement a financial transaction tax, also called a LaSalle Street tax (HB106), the city could allegedly see as much as $2 billion, while the state could gain some $12 billion. The bill would add a small tax on transactions and trades made at the Chicago Board of Trade and Chicago Board Options Exchange.
"Even though it's tiny, economists estimate it would raise billions of dollars for the state of Illinois," said Jan Rudolfo, Midwest director of National Nurses United. "It would completely change the financial budget picture and could result in fully-funded education, funding for healthcare services, rebuilding our infrastructure and yes, fully funding our pensions."
Other options on the table include pushing for a graduated income tax and a commuter tax.
"We can't afford not to fund the systems that keep people afloat," said Rudolfo. "It's not that there isn't enough money in Illinois or Chicago, it's that the money is in the wrong pockets."