#dump rahm

February 2013

CHICAGO — Of the 330 schools originally flagged for possible closure, 201 have been taken off the chopping block, but 129 remain under consideration for closing.

Schools that aren't on the list released Wednesday evening could still be subject to "possible other types types of action, like co-location, or being a receiving school, or something of that nature," Chicago Public Schools spokeswoman Robyn Ziegler told DNAinfo.com Chicago.

Patronage, Politics and Charter Schools

 By Don Rose

January 20, 2014

  Charter school proponents, including Chicago Mayor Rahm Emanuel and his schools CEO Barbara Byrd Bennett, argue that those publicly funded, semiprivatized schools offer communities greater choice in education because dropping union regulations enable the schools to develop innovative new programming and thus improve education by creating models for public schools to adapt.

     This may have been the historical case, but charters long ago ceased offering anything new that public schools could utilize, particularly since teachers unions in today’s world have reformed significantly, focusing more on education than protecting the jobs of any and all teachers—Including the lousy ones. Credit American Federation of Teachers President Randi Weingarten and Chicago counterpart Karen Lewis (whose style many find irritating).

     Chicago, like New York, already offers a range of choices within the public system and many more could be created. On average, charters run the same gamut as public schools, ranging from superb to miserable. KIPP charter schools are excellent, but in Chicago and New York even the best charters are outperformed by the best public schools. (That’s why charter advocate and funder Bruce Rauner, the zillionaire gubernatorial contender, clouted his suburban-dwelling daughter into Payton, a top Chicago public school.)

     Critics raise several issues, aside from the fact that charters offer no guarantee of quality. They view charters as strides toward union busting, paying lower wages to nonunion teachers; they see a drain of public dollars because per-pupil funding is often double or triple that of public-school kids, with taxpayers footing the bills. Many also believe the charter movement’s ultimate goal is privatizing public education.

      Chicago schools are $1 billion in debt. Last year it slashed the budget and closed 50 schools—with more to shut this year—claiming closures will save millions. As it happens the savings are far less than proclaimed because “receiving” schools had to be upgraded. Meanwhile about a thousand minority kids disappeared from CPS records in the switchover.

     Here comes the Alice-in-Wonderland part: Mad Hatter Emanuel now wants to open 22 new charters, some where he closed schools because of “underpopulation.”  This will cost Chicagoans $225 million over the next decade, plus the inflated per-pupil allowance paid by the state.

          Why? 

       Because charters are the new coin of political patronage. A glaring example is the UNO group, until recently led by Juan Rangel, who was forced out after exposes of cronyism and corruption in its charter network, which has received more than $100 million in state money. Rangel, who earned $260,00 a year, was a co-chair of Emanuel’s mayoral campaign while UNO personnel worked in local campaigns against Emanuel’s critics.

     The Sun-Times just revealed that two close cronies of the mayor own properties where a pair of the new charter schools will be housed. One will collect annual rents starting at $529,000 rising to $961,000; the other will collect $180,000 rising to $500,000.

Magic Johnson drawn in to Chicago Public Schools custodians controversy

Mar 20, 2015, 2:51pm CDT

 Francis Specker | Bloomberg

Earvin "Magic" Johnson owns one of the companies under contract to provide custodian services for Chicago Public Schools.

Staff Chicago Business Journal

Chicago Public Schools has dealt with principals’ dissatisfaction with the private companies running custodial services at the city’s schools, Aramark and SodexoMagic, ever since those contracts were awarded a year ago. Things haven’t gotten much better, as WBEZ reported about 90 percent of principals who responded to a survey believe their schools are dirtier than they were before those deals.

City officials acknowledged there have been problems with the transition to more privatized custodian services. WBEZ quoted Mayor Rahm Emanuel saying he’s watching Aramark closely, and CPS head Barbara Byrd-Bennett saying that the companies have worked hard to adjust to principals’ needs.

In its reporting, the Chicago Tribune focused on another element of the custodian contracts: Magic Johnson owns SodexoMagic and has also donated money to Emanuel’s campaign. Specifically, Aramark (NYSE: ARMK) received a $260 million contract for its portion of the work and SodexoMagic is in an $80 million deal with the city, the Tribune reported, a deal that was followed by a $250,000 contribution to the mayor’s campaign.

That doesn’t sit well with Clarice Berry, president of the Chicago Principals and Administrators Association, who told the Tribune, “Magic Johnson has flown in, shaking the mayor’s hand, offering more money so I assume so they can get more contracts -- and I’ve got principals buying brooms and mops out of their own pockets that are part of the pilot that his company is getting $80 million to do.”

Mayor Rahm Emanuel is posing as the mayor who got Chicago’s fiscal house in order. The record says otherwise.

It’s “time for Chuy to get real,” according to the Sun-Times editorial board.  I’d say it’s time for Chicago’s punditocracy to get real.The chattering class wants Jesus “Chuy” Garcia to get specific about how he’s going to solve the city’s fiscal problems.  I don’t think he has to, and I don’t think he should.The Tribune wants to know, “How would the city pay for his ideas?”  Crain’s says he is “going to have to deliver specific proposals that make fiscal and economic sense.”  Even Steve Bogira at the Chicago Reader wants details.They want him to run on a platform of raising taxes.  They’re pressing him to shoot himself in the neck.As I’ve noted, any politician facing a fiscal crisis is going to keep as many options open as possible. Especially in an exceedingly fluid situation, with credit ratings falling, court rulings pending and a state budget that’s completely up in the air.

The way to judge candidates is on their records and on the values and priorities they articulate.  And in this election, on those terms, there’s a clear contrast. The reality is different than what you might have picked up from Emanuel supporters like Sen. Mark Kirk, the Republican, who thinks Chicago will collapse like Detroit did “if somebody who was really inexperienced and irresponsible replaced Rahm.”  According to Kirk, Chuy Garcia lacks “gravitas with the bond market.” The allusion to Detroit underscores what Kirk seems to be talking about: Chuy isn’t white.  But, really, the bond market is going to take seriously anyone who happens to be mayor of Chicago.

The record shows something quite different than the rhetoric.  The reality is, Emanuel has a record of fiscal recklessness, and Garcia has been a key member of the two most fiscally responsible administrations in recent history. Emanuel is posing as the mayor who got Chicago’s fiscal house in order.  The record says otherwise. He continued the Daley administration’s practice of using bond debt to fund operating expenses, and he repeatedly used “scoop and toss” bonds to put off paying down debt for another generation. He denies that a long series of credit rating downgrades reflects negatively on his financial stewardship.  He’s in denial, you could say. Moody’s most recent downgrade explicitly cites the pension reforms Emanuel passed last year as one reason for knocking the city’s credit rating down a notch.  Because even if the reforms stand up in court, the agency notes, the city’s unfunded pension liability will continue to grow. That’s because Emanuel’s reforms, which cover two funds for city workers, include a five-year ramp up before the city moves from the current system, in which its pension contributions are based on a multiplier of employee contributions (the fundamental cause of the city’s pension crisis) to a system based on actuarial projections.  “Righting the ship” won’t start till 2020. You can call that “bold leadership” if you like.  Or you can call it “kicking the can down the road again.” That doesn’t even include police and fire funds.  State law requires the city to budget a payment of over $800 million to the two funds next year.  Otherwise the state is entitled to divert revenues that would normally go to the city into the pension funds.  Emanuel has budgeted less than half the required amount.

We’re talking about the fourth year of Emanuel’s mayoral term.  And it’s not like he wasn’t warned.  Mayor Daley appointed a commission on the pension crisis that issued a report in 2010.  The commission, which included business and labor leaders, noted that every year of delay increased longterm costs.  And it laid out a path to reform. Noting that “current benefits are not in themselves unaffordable,” it recommended that new employees be kept in existing defined-benefit plans, that city and employee contributions be raised, that some benefit cost reductions (notably ending the overuse of early retirement to reduce the city workforce) be explored, and crucially, switching to an “actuarially-based funding formula.” “This problem must be addressed as soon as possible,” according to the report.  Earlier in his term, though, Emanuel had other priorities: forcing teachers out on strike and closing schools.

When he did turn his attention to pensions, he chose to go after retirees benefits, though these are a negligible part of the problem, according to the Daley commission.  He chose to use the crisis to go after unionized workers.  Some observers believe his continuing dallying is designed to make the crisis even worse, the better to cow unions with. The editorial writers overlook Emanuel’s record because he shares their values and priorities — most prominently, sticking it to unions.

The flip side, his obeisance to the business community — particularly the financial sector — is most clear in his treatment of interest rate swaps.  About $58 million in fees related to swaps came due with Moody’s most recent credit rating downgrade.  Another downgrade — which seems almost inevitable — will mean $133 million in swap payments will come due. Emanuel says he’s eliminated hundreds of millions of dollars of risk by renegotiating or terminating swap contracts.  But what this means — and what it’s cost the city — isn’t clear.  In some cases, new swaps have been layered over old ones. In others, some consideration was given in order to change termination triggers by a credit grade or two; in others, millions of dollars in termination fees have been paid to get out of deals.

But you could get a much better deal with a little more chutzpah.  “Cities need to be standing up to the banks,” said Carrie Sloan of the ReFund America Project, which has been working with the Chicago Teachers Union on the issue. That would mean filing a complaint with the Securities Exchange Commission or pursuing a remedy under state law.  The SEC has won refunds for private investors who complained that the same banks doing swaps with Chicago and Chicago Public Schools  misled them about risks on the kinds of variable-rate bonds to which swaps are tied.  The Chicago Tribune has detailed how Bank of America misled CPS in one such deal. Such an approach has the potential of saving the city and school system tens of millions of dollars.  Emanuel would prefer small-bore fixes — just enough to claim that he’s doing something — that don’t threaten his donor base.

It’s funny.  By the standards of the business community, Garcia has the better record.  Like Mayors Jane Byrne and Richard M. Daley before him, Emanuel has used budget tricks — the 14-month CPS budget now in place is a prime example — and delayed tough decisions.  Garcia has been part of reform administrations that have tamed budget problems. Garcia wasn’t yet in the City Council, but he was a key political ally of Harold Washington when he slashed the city workforce by 15 percent.  The payroll was probably inflated with patronage workers, but I remember Sid Ordower, an old progressive and longtime Washington backer, complaining, “He’s firing workers!” Emanuel has attacked Garcia for his support of Washington’s 1986 property tax increase, echoing the claims of the machine faction that opposed Washington.  (That was the council meeting where Ald. Bernie Stone called Luis Gutierrez a “little pipsqueak” and gave David Orr a shove; police escorted Stone out of the chamber.) The Vrdolyak faction, a majority before the special elections of that year, had repeatedly cut property taxes in order to force Washington into an election-year increase.  But the business community and the newspapers all maintained the hike was necessary. Garcia took the hard vote, just months before a re-election campaign. Washington faced declining federal funds under President Ronald Reagan; 20-odd years later, Toni Preckwinkle had to keep a campaign promise to reduce the sales tax.  She laid off hundreds of county workers and closed hundreds of additional vacant positions.  She also proposed a pension reform bill (it stalled in Springfield) that unions said was worse than Emanuel’s. The County Board didn’t vote on Preckwinkle’s pension plan, but on the other hand, Garcia didn’t speak out against it.  That was one factor in his failure to win support from AFSCME in the recent mayoral election.

Both Emanuel and Garcia are being vague about what they will do about the revenue crunch that will come with next year’s pension fund deadlines.  There are a few clear differences, however.  Garcia says a financial transaction tax should be on the table, and he supports a progressive state income tax.  These aren’t politically viable in the short term, but they say something about the candidate’s political priorities — and they provide a contrast with the regressive fees and fines that Emanuel has piled on residents. Garcia also calls for declaring a TIF surplus using it for a “good-faith down payment” on a pension solution.  This is a serious proposal.  TIFs take in nearly half a billion dollars a year.  A report last year showed that TIF diversions far exceed the city’s annual pension costs. Emanuel has given lip-service to TIF reform and put some documents online (though he’s hidden key information). But he continues to use TIF as a slush fund to reward big campaign donors and to fund pet projects. Garcia tells Crain’s he’s not anti-business, he’s just opposed to “any kind of pay-to-play activity.”

That may be a good place to start.

“Not true and they knew it”: What Rahm Emanuel’s Wall Street craze cost Chicago

Chicago's struggling public school system had a golden chance to reap billions. Here's where it went wrong (Update)

David Dayen Follow

Rahm Emanuel (Credit: AP/Charles Rex Arbogast)

The city of Chicago and its public school system could recoup potentially billions of dollars in overpayments from complicated, unjust deals inked with Wall Street banks, if they pursued legal action or demanded enforcement from federal regulators. But Rahm Emanuel, the current mayor, has refused to chase this opportunity, despite the city’s drastic fiscal outlook and the effect on citizens. By contrast, his opponent in the April 7 mayoral run-off election, Jesus “Chuy” Garcia, appears far more likely to take action against a powerful financial sector Emanuel has relied on for campaign contributions.

Beginning over a decade ago, Wall Street banks sold municipalities, school districts, water systems and public hospitals across the country on obscure financial instruments, pitching them as a way to borrow more cheaply than plain-vanilla municipal bonds. But just as homeowners were swindled into loans they couldn’t afford during the housing bubble, local governments suffered a similar fate.

For example, cities issued variable-rate bonds called auction-rate securities, which reset interest rates, sometimes on a weekly basis, based on the lowest rate investors accept for the bonds at auction. After the financial crisis, these municipal debt auctions collapsed, triggering penalty interest rates as high as 20 percent. Though many borrowers had insurance, the crisis wiped out the bond insurers as well, offering no relief.

Banks offered an escape hatch from volatility, selling cities on derivatives called interest rate swap agreements. Investment banks would trade payments with cities, paying an indexed floating rate while cities paid a fixed rate. But when interest rates crashed, cities ended up with far higher fixed payments. The swaps locked borrowers into overpayments for up to 35 years, just as they felt severe financial distress from the Great Recession.

A growing group of public interest activists, lawyers and experts believe that Wall Street violated securities laws by failing to disclose risks on these instruments. “The banks made a fundamental representation, that it was a cheaper way to borrow,” said Brad Miller, a former Congressman and Of Counsel at Grais and Ellsworth, who has focused on these deals. “That was not true and they knew it.”

Chicago was a serial user of this type of exotic borrowing. The Chicago Tribune found that between 2003 and 2007, Chicago Public Schools (CPS) issued $1 billion in auction-rate securities, more than the entire state of California. Goldman Sachs wrote in a letter to CPS that the deals had “no downside.” But over the life of the auction-rate securities, CPS will pay $100 million more than they would have on fixed-rate bonds.

That’s just a sliver of what Chicago financed with Wall Street. “The Tribune investigation was on auction-rate securities,” said Saqib Bhatti, director of the Roosevelt Institute’s ReFund America Project. “There are only four of those. CPS has 10 or 12 other swaps, and the city of Chicago has 25 more.” Banks like JPMorgan Chase, Bank of America, and Deutsche Bank made the deals with the city.

ReFund America estimates that the City of Chicago and Chicago Public Schools have already paid $1.2 billion on swaps, and roughly $106 million annually since 2008. For context, last year Chicago closed nearly 50 schools in underserved areas, for a total savings of only $25 million a year.

Like an underwater homeowner, cities cannot refinance the swaps: the only way out is to pay termination fees, which represent the net present value of all future payments. Wall Street basically lied to Chicago and other cities to trap them, with no escape from the predatory terms.

But advocates list several remedies. First, cities could sue the banks, alleging misrepresentation under state and federal “fair dealing” rules. Illinois state law does not apply any statute of limitations on cities filing claims, so everything Chicago financed would be applicable. Chicago could also file an arbitration claim with the Financial Industry Regulatory Authority (FINRA), which handles disputes over market integrity rules for public finance. The Baldwin County, Alabama sewer system successfully used an arbitration process to force RegionsBank to return all their swap payments. Arbitration does have a six-year time limit, but it’s unclear exactly when the clock starts ticking.

Finally, the Securities and Exchange Commission (SEC) has authority to enforce fair dealing rules against Wall Street banks, disgorging their ill-gotten gains to affected borrowers. Chicago could pressure the SEC to finally undertake an enforcement action on behalf of borrowers, the same way they have on behalf of investors. There’s evidence that Bank of America violated fair dealing by failing to tell CPS about an auction-rate securities market meltdown. ‘This is a totally egregious violation,” said Marcus Stanley of the coalition Americans for Financial Reform. “If the SEC doesn’t take action, the signal is dealers can go hog wild to mislead you in any way they want.”

The Emanuel Administration did not negotiate these deals, but their public statements have been meandering. First, Chicago Public Schools professed to the Chicago Tribune they suffered no losses, a claim experts found risible. Then CPS argued they received sound financial advice on the deals that had unforeseen consequences, a seeming contradiction. “They said, if you understood these transactions, you would know how these risks were inherent to them,” said Marcus Stanley. “If that’s the case, how did you fail to foresee it?” Incidentally, David Vitale, the man who purchased all those auction-rate securities at Chicago Public Schools, got a promotion under Emanuel, becoming president of the school board.

The city responded to union-led demands for legal action against bank dealers by having a former enforcement chief for the SEC’s Chicago office conduct a full review of the option. The review concluded “there’s no claim to be filed.” The Mayor’s office also provided Salon this statement:

“Mayor Emanuel inherited a debt portfolio of $20.3 billion heavily weighted in variable rate bonds and swaps. Since day one in office, as part of his efforts to right the City’s financial ship, the Mayor has aggressively taken steps to manage this portfolio, including terminating 7 swaps totaling more than $1 billion and renegotiating another 12 swaps valued at $1.3 billion, substantially reducing taxpayer risk resulting from these inherited swaps.  The City has also not entered into any swaps on any new debt.”

ReFund America’s Saqib Bhatti notes that the city paid termination fees on those close-outs. “You’re not reducing the risk, you’re realizing the risk,” he said. Also, while the Emanuel Administration may not have made swap agreements on new debt, they did enter into at least four interest rate swaps on top of the old swaps, layering risk on top of risk.

Emanuel has publicly stated that it’s simply too late to recoup any money from bad swap deals, because “there’s a thing called a contract.” Of course, Bhatti and his colleagues allege there was a breach of contract, which can trigger legal remedies. In addition, “the same administration so quick to say a contract’s a contract was quick to throw the teachers’ contract out the window when they had a chance,” Bhatti said, referring to a bruising 2012 city teacher’s strike and Emanuel’s proposal to cut retirement benefits. “To them, a deal’s a deal except when it’s not.”

The swap problem became more acute when Chicago received a ratings downgrade last month from Moody’s to Baa2, just above junk status. This triggered an immediate $58 million in termination payments on four interest rate swaps. If the rating drops one more notch, it activates another $39 million in triggers, and $90 million more on the next downgrade. Combined with CPS downgrades, over $400 million could come immediately due. The city said earlier this month that they reached agreement to avoid $20 million in payments, but it’s not clear whether that money has been eliminated or merely delayed, with the swap remaining in place.

Ex-Congressman Brad Miller believes that Chicago doesn’t want to pursue legal action because the administrators who made the deals all still work for the city. “It requires the city finance people to say we were played for chumps,” Miller said. “They would have to admit their own mistakes.”

And then there’s the issue of Emanuel’s ties to Wall Street. Investment bankers, including those managing city pension funds, have delivered millions of dollars to Emanuel’s re-election campaign. While the Mayor’s office insisted Emanuel would pursue any opportunities to save taxpayers money, highlighting an ordinance to protect tenants in bank-owned foreclosed properties, advocates frustrated by the inaction on swaps remain skeptical. “This requires taking on the most powerful interest group in the country, which has been an enormous support for Rahm,” Brad Miller said.

Chuy Garcia has not explicitly said he would take action over interest rate swaps and other municipal finance deals. His recent fiscal sustainability paper released last Friday referred to the debt downgrade triggers, but not whether he would seek a lawsuit, arbitration or SEC enforcement.

However, Garcia is backed by the Chicago Teachers Union, which has actively agitated for fighting the swaps. The Mayor in Chicago appoints the entire school board, and the current group completely opposes making claims. Garcia could never count on reimbursement from the swap deals in the city budget, but he could appoint new school board members willing to take a harder line.

Some cities have tried to act. Oakland and Los Angeles filed city council resolutions to renegotiate swap. Others moved their money away from banks that ripped them off on borrowing. Overall, success has varied; you typically don’t hear about the cases where banks give back money, because they settle them confidentially.

But a big city like Chicago, which does billions in business with Wall Street annually, adding their voices to the chorus could make a huge difference.  “We need to have a large movement of cities taking legal action against the banks,” Saqib Bhatti said. “Public officials throw their hands up and say there’s no options but to cut services. We have to split the narrative, and put these deals back on the table when there is unethical and illegal behavior.”

Update, 3/17/15, 10:30 am: An earlier version of this story said that the Baldwin County, Alabama sewer system used the FINRA arbitration system to win awards on swaps deals. They actually used a separate arbitration process through the American Arbitration Association. The relevant sentence has been updated.

If you are not clear why we must #DumpRahm. #NoRahmLove and Vote #Chuy2015

I received this letter from a friend, neighbor and colleague (for attachments, see comments)

There are many reasons we should vote for Garcia and not Emanuel in the upcoming election. For instance, political writer Don Rose detailed in the attached 1/20/15  article entitled “ Patronage, Politics and Charter Schools ” how Emanuel’s practices have profited key supporters of his connected with charter schools, thereby benefiting him at the expense of the Chicago Public Schools (CPS).  Similarly, as noted in a the attached 3/20/15 article in the Chicago Business Journal entitled “Magic Johnson drawn in to Chicago Public Schools custodians controversy” reports that a year after the contract privatizing custodial services for CPS " 90 percent of principals who responded to a survey believe their schools are dirtier than they were before those deals." and also noted in the same article that the Chicago Tribune reported that a Magic Johnson company got a $80,000,000 portion of the contract and in return made a $250,000 donation to Emanuel's campaign.

Additionally, numerous articles have been published in the Reader about Emanuel's use of  Tax Increment Finance (TIF)--(which allows designation of  certain areas of the city as "blighted" and freezes Real Estate Freeze Taxes that go to any local taxing entities --such as the Chicago Public Schools--at the time of such designation  and further allows future increases in property taxes in those areas to then go into a TIF fund controlled by the Mayor to bring improvements for those "blighted areas")--to fund such projects as: using $55 million to buy land in support of building a new Marriott hotel and a basketball stadium for DePaul University near McCormick Place; and 60 million for street improvements and CTA track repairs in the river south area near the loop.  In fact, as pointed out in the most recent article in the 3/26/15 edition of the Reader entitled "Who wins and loses in Rahm's TIF game?” "...about 48 percent of what he has committed to spend in TIF funds over the last four years has gone to the same favored communities, an area stretching roughly from the Gold Coast on the North to McCormick Place on the South and from the United Center on the West to the Lake." and that “roughly $900 million in property taxes that could have gone to the public schools over the last four years if the TIF districts weren’t collecting the money.”

Finally,  the attached  3/5/15 article  by Curtis Black entitled  “Get real’ about Emanuel and Garcia records on finances”  lays out in detail the disastrous  effect that Emanuel's fiscal policies have had on both the City's and the CPS's financial positions (on top of very poor fiscal decisions by the prior administration).  As stated in summary by Curtis Black "The reality is, Emanuel has a record of fiscal recklessness, and Garcia has been a key member of the two most fiscally responsible administrations in recent history. Emanuel is posing as the mayor who got Chicago’s fiscal house in order.  The record says otherwise."  Black, in part of the article, details the disastrous effect of the use of "interest rate swaps" on the future financial condition of both the City and CPS and how Emanuel continued this practice began by the Daley administration which benefitted mainly the securities companies that sold the contracts. Black also details how other administrations that Garcia was a part of dealt with municipal debt in a different and far less disastrous ways.  Similarly, a second article (also attached) published on 3/17/15 by DAVID DAYEN   entitled “ Not true and they knew it”: What Rahm Emanuel’s Wall Street craze cost Chicago ” provides even more information about these swaps , such as how their contract requires the City and CPS to pay a prepayment penalty--which  is all the interest under the contract rather than all the money borrowed at the time of the payoff  (a provision that was frequently challenged as a "predatory" provision in  many home mortgage loans) and how challenges to them could be but are not being raised by Emanuel who instead claims there is nothing that can be done and refuses to try any challenges that might be available.