Is Governor Rauner counting on being bailed out by former Chicago Mayor Richard Daley?
Last month, the Rauner administration dished out $100,000 to hire law firm Katten Muchin Rosenman to look at the state’s interest rate “swap” deals that could cost taxpayers $870 million in November. Katten Muchin Rosenman, best known for their advisory roles in the Chicago parking meter debacle and other infrastructure privatization deals, is also the law firm that former Mayor Richard Daley went to work for after leaving office.
What is the worst that could happen? Illinois could follow the lead of Chicago Mayor Rahm Emanuel.
Earlier this year, Emanuel voluntarily terminated some of the swap deals held by the City of Chicago by giving into bank demands and paying out 100 cents on the dollar. His administration argued that this helped eliminate risk from the city’s portfolio. In reality, he eliminated the risk that we would have to pay millions in penalties down the line, by forcing the city to “voluntarily” pay out those same millions now. He turned the risk of future losses into real losses today.
Instead of following the Emanuel path, Governor Rauner should choose to ask for an extension of the letters of credit we hold, which would give the state more time to explore its regulatory and litigation options.
Successfully navigating these complex swap deals in the best interest of taxpayers is made even more difficult by serious conflicts of interests. Chicago restructured a swap deal with Barclays on May 15, 2015, the same day that the city announced that Carole Brown would soon leave Barclays to become the city’s new Chief Financial Officer. Just months later in March 2016, Brown voluntarily terminated that set of swaps, which cost taxpayers more than $100 million.
Governor Rauner is setting up the state for similar conflicts of interests by hiring Katten Muchin Rosenman. Bill Daley, brother of Richard Daley who works at Katten Muchin Rosenman, was the former Midwestern Chair of JPMorgan Chase. Chase has both an interest rate swap deal and letter of credit with the state of Illinois – which means that the actions of one Daley could make the former employer of another Daley a lot of money, all at the expense of taxpayers.
There’s a lot on the line. $870 million could either go toward investing in Illinois’s children or to Wall Street banks. Governor Rauner needs to get this right.