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Mayor Emanuel Didn't Have The Best Week

By Chuck Sudo in News on Nov 15, 2014 4:30PM

Photo credit: City of Chicago/Brooke Collins

In case you haven’t noticed, city departments are tending to basic things these days such as pothole repair, upkeep of parks and street resurfacing. Halsted Street is a whirlwind of construction from North Avenue to 26th Street as crews work to resurface it before even more bitter cold weather arrives to create new potholes.

All this flurry of activity can only mean one thing: with the February mayoral election looming, Rahm Emanuel is acting like a Democrat again. Will freshly resurfaced Halsted Street bring voters to the polls in four months to vote for Emanuel? Probably—the electorate is a fickle lot.

The larger question, though, is what will it take to get voters disenchanted with four years of Emanuel to the polls? The mayor is still rocking some low approval ratings and he could be susceptible to a talented and motivated opponent who can force him to veer away from his “Building a New Chicago/Chicago is a world-class city” slogans. Maybe those candidates can latch on to some damning press Emanuel received this week.

One story, published in International Business Times, bucks the national perception of Emanuel as a kickass, shake ‘em up mayor. David Sirota writes Emanuel’s campaign fund and Emanuel-friendly PACs received over $600,000 contributions since 2011 from executives at investment firms responsible for managing the city’s pension funds.

The legal and ethical questions posed by these donations are huge.

As Sirota notes, the donations could be in violation of both Securities and Exchange Commission provisions banning companies that manage pension funds from contributing to the campaigns of elected officials with authority over those funds and a 2011 executive order Emanuel signed into law expressly prohibiting city contractors and subcontractors from doing business with city officials.

Former SEC chairman Arthur Levitt told Sirota, “The acceptance of contributions by city officials from advisers managing city funds, in my book, smells like bribery.” Now, Emanuel isn’t alone here—politicians and investment firms have been getting into unholy marriages for years—but this is another example of Emanuel violating the one solid campaign promise he made four years ago: transparency in government.

That’s only the tip of the iceberg. The Tribune writes the Emanuel administration has dabbled in risky interest rate swaps four times during his time in office, despite the mayor publicly declaring he’s avoided the practice. We explained how these interest rate swaps work a couple of months ago.

Three of the four swaps are floating-rate bonds issued during the Daley administration in which the city traded a solid financial arrangement for an unstable one.

Records show that the four swaps entered by the Emanuel administration are linked to existing debt — floating-rate bonds issued in 2003, 2005 and 2007, under Daley. The records obtained by the Tribune show new contracts with new banks, layered on top of existing swaps, in effect creating double swaps on the old debt.

The mayor's spokespeople insist he did not authorize new credit swaps, describe the instances listed by the Tribune as "modifications to the original underlying swaps, all of which were inherited by this administration" (blame Daley without expressly naming him) and accused the Trib of "parsing words."

Someone's parsing, that's for certain. Regardless, Daley's messes are now Emanuel's, such as the parking meter deal and $1 billion in auction-rate securities issued by Chicago Public Schools between 2003 and 2007 that were coupled with interest rate swaps in an attempt to lower the school district's borrowing costs. It was a gamble, one that could cost cash-strapped CPS $100 million more in interest fees than had they stayed with fixed-rate bonds.

The bonds were championed by then-CPS' chief administrative officer David Vitale, who now is Emanuel's hand-picked chair of the Chicago School Board. Vitale, when pressed by the Trib on why he supported the deal, said he was aware of the risks.

"I have 30 years in the business," said Vitale, a former bank executive and former president and CEO of the Chicago Board of Trade. "I'm not a neophyte."

Emanuel essentially said there was nothing the city could do to recoup the losses from the auction-rate securities gambit as "there's this thing called a contract." That was when the mayor crowed he hadn't dabbled in interest rate swaps since taking office.

So while worrying about garbage collection and pothole patching should be on the minds of voters four months from now, so should this, as these practices pose a greater threat to Chicago's longterm fiscal health.

Two problems arise with that, however.

The first is will the media continue to press Emanuel and city officials on these practices that have proven time and again to be detrimental to municipal budgets across the country? The second is how can someone running against Emanuel be able to take these scandals—for that's what they are—and plainly explain why they suck to voters who don't want a second Emanuel term?

Ald. Bob Fioretti (2nd) is trying. Fioretti called for the SEC to investigate the campaign contributions to see what rules and codes were broken, for Inspector General Joseph Ferguson's office to audit the donations and recommend changes to local rules and ethics codes, for City Council to exercise oversight over these contributions and for Emanuel to return all the donations in question (which amounts to little for a man with an $8.3 million war chest) and explain why a former investment banker could let this happen under his watch.

"This week we have seen back-to-back financial failures from Mr. Emanuel, and blatant violations of the public trust," Fioretti said. "He is profiting from pay-to-play with your children's education funds and pensioners safety net."

That kind of rhetoric is a start.