What’s happening in Springfield is more suited to a bad late night comedy sketch. The budget impasse continues on, social service providers are going without pay, and just this past week, our state was hit with another credit downgrade. And now things could get even worse.
If Springfield does not take action and renew letters of credit linked to a series of complex financial deals connected to state bond payments, Illinois taxpayers could end up dishing out $870 million to Wall Street banks in November.
The word crisis has been used a lot in Illinois recently. But for Illinois taxpayers combining a year long budget impasse, increasing violence, and crumbling state infrastructure with an avoidable payout of hundreds of millions to Wall Street banks because of Springfield inaction goes beyond crisis – it would be a catastrophe.
So how did we get here?
A decade ago, big banks sold a product called interest rate swaps to state and local governments across the country, including 19 of these deals to the State of Illinois. Although these deals were marketed by the banks as instruments to save taxpayers money they quickly became toxic drains on our public coffers once Wall Street crashed the economy in 2008.
The state of Illinois has already lost over $684 million to a small clique of very large banks. The list of banks involved in the Illinois swap deals include massive Wall Street financial institutions such as JP Morgan Chase, Bank of America, Goldman Sachs, and Citibank. Many of these same banks have recently been found guilty of, or are being accused of illegal lending practices. The Chicago Teachers Pension Fund, the Chicago Policemens’ Annuity and Benefit Fund, and the City of Philadelphia have brought a class action lawsuit alleging that these banks colluded and conspired to fix the interest rate swap market – padding their pockets at the expense of taxpayers.
On Monday, the Illinois House Revenue & Finance Committee, chaired by Representative John Bradley (117-D), held a hearing to investigate these interest rate swap deals and understand the legal and regulatory options available to the state of Illinois. Experts, including City of Chicago Treasurer Kurt Summers, testified that options are available to the state. Summers stated, “We are asking the question of whether this financial market was ever fair. If we are successful, then all Illinois residents and taxpayers will benefit. We will send a message that this sort of bad behavior will no longer be tolerated by the people of Illinois. We will only accept a fair and level playing field for the investment of public money.”
Governor Rauner and the state legislature, who have increasingly been looking at these issues, need to choose Illinois taxpayers instead of passively allowing Wall Street banks to line their pockets at our expense.