CHICAGO, February 10, 2016
To the President and Members of the City Council:
Your Committee on the Budget and Government Operations, having had under consideration a proposed Order concerning interest rate swap agreements; and having had the same under advisement, begs leave to report and recommend that Your Honorable Body Refer the proposed Order and report transmitted herewith to the City Council Committee on Finance.
This recommendation was concurred in by a viva voce vote ofthe members of the Committee.
Budget
ORDER
WHEREAS, in 2015, Moody's Investors Service downgraded to Bal from Baa2 the rating on the City of Chicago's $8.1 billion of outstanding general obligation debt; $542 million of outstanding sales tax revenue debt; and $268 million of outstanding and authorized motor fuel tax revenue debt.
WHEREAS, previous interest rate swap deals have resulted in over $1.1 billion in payments from the City of Chicago and Chicago Public Schools to financial institutions.
WHEREAS, in December of 2015, several ordinances were submitted to the City Council ofthe City of Chicago that would issue over $3 billion in bonds.
WHEREAS, included in these ordinances, is the early termination of several interest rate swap agreements.
WHEREAS, termination penalties for interest rate swap agreements are the net present value of all future payments on the swaps.
WHEREAS, the City of Chicago and Chicago Public Schools have already paid at least $331 million in interest rate swap termination agreement penalties, and will be on the hook for another $301 million in termination penalties if these additional swaps are terminated.
WHEREAS, the proposed payments will have the City of Chicago pay approximately $402 million in interest rate swap agreement termination penalties.
WHEREAS, Chicago taxpayers will be forced to pay interest on the proposed bonds the City of Chicago would issue to make these payments
WHEREAS, in 2015, the City Council ofthe City of Chicago voted in favor of a budget that includes a record $589 million increase in property tax payments.
WHEREAS, several ofthe banks that entered into interest rate swap agreements with the City of Chicago have admitted to illegally manipulating the variable interest rates on which the swaps were based, magnifying the City's losses on these deals, and have paid hundreds of millions in penalties and fines to federal and global banking regulators.
WHEREAS, the City of Chicago has previously signed agreements pertaining to some of its interest rate swaps giving up the City's right to take legal action and released financial institutions of any liabilities arising from their failure to fairly deal with the City.
WHEREAS, other public and private entities in the United States have taken legal action in similar cases and avoided or lowered termination penalties for interest rate swap agreements and were repaid payments previously made to financial institutions. NOW THEREFORE,
BE IT ORDERED, that the City Council ofthe City of Chicago does hereby direct the City of Chicago Department of Law to explore all possible legal action that would result in the. lowering or termination of early termination penalties and the recovery of past losses on all outstanding interest rate swap agreements.
BE IT ORDERED, that the City Council ofthe City of Chicago does hereby direct the City of Chicago Department of Law to explore all possible legal action that would result in repayment of early termination penalties and past losses for previously terminated interest rate swap agreements.
BE IT ORDERED, that the City Council ofthe City of Chicago does hereby direct the City of Chicago Department of Law to explore all possible legal action that would result in an injunction against ongoing payments on all current interest rate swap agreements while legal action and negotiations with the counterparty financial institutions are ongoing.
BE IT FURTHER ORDERED, that the City Council ofthe City of Chicago does hereby direct the City of Chicago Department of Law to publish its findings so they may be reviewed by third parties as recommended by the City Council of the City of Chicago.
Alderman Derrick Curtis, 18th Ward
Alderman Matt O'Shea, 19m Ward
Alderman Proco Joe Mrfreno, 1st Ward Alderman Brian Hopkins, 2nd Ward
Alderman Pat Dowell, 3rd Ward
Alderman Will Burns, 4th Ward
'man Howard B. Brookins, Jr., 21st Wafcl
Alderman Willie B. Cochran, 20cn Ward
Alderman Leslie Hairston, 5 Ward
Alderman Ricardo Munoz, 22nd Ward
Alderman Roderick Sawyer, 6th Ward
Alderman Michael Zalewski, 23rd Ward
Alderman Michael Scott, Jr., 24tn Ward
Alderman Gregory I. Mitchell, 7 Ward
Alderrhan Michelle Harris, 8th Ward
Alderman Patrick D. Thompson, 11 Ward
Alderman Roberto Maldonado, 26 Ward
Alderman Daniel S. Solis, 25th Ward
Alderman Walter Burnett, Jr., 27tn Ward
Alderman Jason Ervin, 28th Ward
(3<Ce -7^.Ar-r, (IP :
Alderman George A. Cardenas, 12 Ward
Alderman Christopher Taliaferro, 29 Ward
Alderman Marty Quinn, 13 Ward
Aldermah ArieJ E. R^bjjyKJS, 3CT Ward
(iderrnanjailly Santiago, 31st Ward
Alderman Edward M. Burke, 14 Ward
Alderman Raymond Lopez, 15 Ward
Alderman Scott Waguespack, 32nd Ward
Alderman Toni Foulkes, 16th Ward
Alderman Deborah L. Mell, 33rd Ward
Alderman David Moore, 17th Ward
Alderman Carrie M. Austin, 34th Ward