The following was written by Chicago Alds. Scott Waguespack (32nd) and John Arena (45th).
For more than 20 years, the City of Chicago has borrowed money--big money--without much in the way of public disclosure or examination. Sometimes the reasoning has been that it's an emergency--to enable one or another City function to keep functioning. Other times, cronyism has factored in as lenders and political figures worked out deals behind closed doors. Often, these loans have been presented as done deals, without any opportunity for elected officials to question the terms or seek other options to finance city operations. And when presented with "emergency" borrowing proposals, aldermen have often felt pressured to vote "Yea" without sufficient information about the terms and longterm impact of the loans we've taken out.
Today, Chicago faces municipal debt exceeding $4.6 billion in borrowing in the municipal market. Hundreds of millions of dollars have gone into refinancing and paying off what we call "toxic" interest rate swap deals between the City and the big banks. The debt service on these loans will burden our grandchildren.
The City entered many of these toxic swap deals with no oversight or transparency in the years before and following the 2008 financial crash. They've been hugely profitable for the big banks, but terrible for taxpayers.
How do we dig out from this situation without further compounding and adding to it?
In recent months, the Progressive Reform Caucus of the Chicago City Council has worked closely with the Emanuel Administration and Carole Brown, the City's Chief Financial Officer, to craft a new policy designed to add a layer of accountability and transparency to any new debt that does not have a fixed interest rate being added to the pile. The product of our deliberations is the proposed Debt Transparency Accountability and Performance Ordinance (DTAP), which passed unanimously through the Finance Committee and will be voted on this week in the City Council.
Under this law, the City won't be able to enter into any new non-fixed rate long-term debt deal without a series of reports and hearings which offer sufficient time and information to allow us as aldermen to fully examine the terms and consequences. These include an independent financial advisor issuing a report regarding whether a proposed loan is in the best interest of the city, and analyzing benefit and risk to the City and its taxpayers. The ordinance stipulates practical measures such as the amount of days needed to properly study a debt transaction (such as 45 days notice before a vote can be taken on a loan). And the ordinance requires a detailed plan and chain of responsibility for any new non-fixed interest rate borrowing.
What's more, under the terms of this new law, the City won't be able to indemnify any party to any new non-fixed interest rate debt deal. In plain English, that means we'll be able to sue the lender if they do something wrong. While that might seem obvious, we haven't had that option in many of the previous debt deals the City has entered.
The Debt Transactions Transparency, Accountability and Performance Ordinance will require an unprecedented level of transparency and disclosure on the part of the City. Under the ordinance, the City should not enter any new non-fixed rate debt deals, including "novel" debt transactions on the derivative market, unless all our new criteria are met. Perhaps most notably, the ordinance also requires a special public hearing, in addition to the hearings of the City Council Finance Committee, in which the public and interested parties can comment on and inquire about the financial action.
Our hope is that this new law will offer a level of protection to the taxpayers and prevent our legacy from being one of austerity and endless debt. This is a law worth passing and enforcing with rigor as part of a comprehensive plan to recover and rebuild our City's economy.