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Virtually Bankrupt Chicago Cuts Jobs and Delays Paychecks — But Banks Still Get Paid Millions

Activists protesting Gov. Bruce Rauner's proposed budget blocked the entrance to the Board of Trade on Nov. 2, 2015 (Stacy Rupolo)
Activists protesting Gov. Bruce Rauner's proposed budget blocked the entrance to the Board of Trade on Nov.
2, 2015 (Stacy Rupolo)

No State Budget, But Banks Still Get Paid Millions

By Curtis Black
While the state’s budget impasse is holding up funds for everyone from college students to domestic violence victims, Illinois continues to pay banks millions of dollars every month for complex borrowing deals that other local governments have challenged in court, according to a new report.

The state is currently paying $6 million a month for 19 interest rate swaps, according to the report from ReFund America Project. The swaps were sold as a way to save money by protecting taxpayers from rising interest rates. Illinois has paid over $600 million for the deals and could pay $1.45 billion for them before they are ended.

“There’s no money going to emergency services, nothing going to rape counseling or homeless services," said Nathan Ryan of Grassroots Collaborative, which endorsed the report. "But the checks are going out on time, in full, twice a month to these banks for these swaps.”

The report comes just as Chicago hits the pause button on buying out its remaining interest rate swaps. Many of them had termination penalties amounting to hundreds of millions of dollars, triggered when the city’s credit rating dropped to junk status. According to ReFund America, the state could be on the hook for $124 million in penalties by the end of the year if (as expected) its credit rating continues to drop.

Gov. Bruce Rauner’s office has said they are exploring options for negotiating settlements on the deals. The state and city should follow the lead of other local governments and take a more aggressive legal posture, said Saqib Bhatti, co-author of the report.

Last week Mayor Rahm Emanuel's administration scaled back a multi-billion-dollar borrowing proposal before the City Council, eliminating a $200-million bond sale to buy out the last interest rate swap in its portfolio, after the Progressive Caucus questioned the maneuver and requested more information.

To date Chicago has paid or authorized $296 million in termination penalties, on top of a half-billion dollars in swap payments through 2015, according to ReFund America. The $200 million bond that was proposed and postponed would have financed a swap penalty of $106 million over 30 years.

The aldermen requested a copy of the law department’s review of the swaps, which concluded the city has no legal recourse. Ald. John Arena (45th Ward) said the aldermen are looking at the review and may “ask the legal department to go further," including exploring the experiences of cities that have sued banks, alleging that the swap deals were fraudulent.

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