Ellyn Fortino, Progress Illinois
The Chicago City Council’s Finance Committee advanced a proposed ordinance Monday aimed at strengthening the city’s financial transparency and accountability, the same day it authorized $600 million in new borrowing.
Members of the Progressive Reform Caucus worked on the “debt transactions accountability ordinance” in partnership with the Emanuel administration. The measure, which could go up for a full city council vote Wednesday, would require the city to provide extended public notice and hold special hearings before entering into non-fixed rate debt transactions, like the controversial interest rate swap agreements.
“A lot of aldermen say they don’t have time, they don’t have ample opportunity to look at these deals,” Progressive Caucus Chair Scott Waguespack (32nd) told reporters. “And what we’re proposing here, for hopeful passage on Wednesday, is that the additional meetings that are specifically focused on that particular transaction will allow them to stay focused on that, instead of it falling into this morass of other things that we look at.”
Before the Chicago City Council considers any such debt transactions, the proposal requires the city’s Chief Financial Officer to produce a report prepared by an independent registered municipal advisor evaluating each proposed transaction’s cost and associated risks. The report would also have to evaluate whether the proposed transaction is in the best financial interest of the city and taxpayers. Under the ordinance, the City Council Office of Financial Analysis would have to present a similar report to aldermen.
CFO Carole Brown said the ordinance would provide the Chicago City Council with greater “transparency and [the] enhanced deliberative process it needs when we contemplate new financing structures, or structures that the council views as riskier for Chicago’s taxpayers like variable rate debt.”
Brown also announced Monday that the city was successful last week in completing its conversion of variable rate water revenue bonds into fixed rate debt.
“I wanted to let you know that we converted the final piece of variable rate debt to fixed rate debt,” she told aldermen. “We eliminated the associated swaps, completing the work of the financial reforms that the mayor laid out last April.”
The city’s corporate, water and waste water fund debt is now 100 percent fixed rate, according to Brown. The city reportedly saved about $3 million in negotiating its interest rate swap termination fees.
“We have had many conversations about why converting the variable rate debt was the right thing to do at this time, and the transparency and accountability ordinance provides for more opportunities for debate around specific transactions prior to the city entering into a deal,” Brown told aldermen.
Under the ordinance, certain proposed debt transactions covered would be required to go before two special city council hearings, including one before the Finance Committee and another held specifically to gather public input.
Progressive Ald. John Arena (45th) said the measure would apply to any non-fixed rate financial product.
“Like a swap, if you will,” he said, adding that the ordinance would also cover general obligation bonds with variable rates.
In the past, such transactions were “voted on without any kind of input from the different actors,” Waguespack said.
If passed, the ordinance is meant to prevent the city from entering into future “bad debt deals.”
“This ordinance acknowledges that we can’t continue to pass the buck on our debts with toxic swaps and scoop and toss deals,” Progressive Caucus member Ald. Toni Foulkes (16th) said in a statement. “We must take responsibility for our city’s financial health, and we must start by insisting on transparency and accountability in all economic decisions made with taxpayer dollars.”
Read Progress Illinois’ past reporting on how interest rate swaps work and their impact on the finances of the state of Illinois, city of Chicago and Chicago Public Schools system.