If there is one thing to learn from observing Illinois politics, it’s that delaying a problem is a far cry from solving it. Yet, for many of our elected officials, it is tempting to kick the can further down the road, instead of picking it up and taking the bold action that our state needs.
Governor Rauner, under mounting pressure from community organizations, social service providers, and labor unions, struck a deal with Wall Street banks to restructure a portion of Illinois’s state debt tied to toxic interest rate swaps. According to vague Rauner press statements and documents disclosed by the state earlier this month, the deal will transfer a $600 million state bond to four unnamed banks. (We recently learned that Wells Fargo was on a list of 6 banks which may benefit from the deal). Combined with the renegotiation of state credit rating triggers on the attached toxic swaps, this new deal may delay a massive $870 million payment to Wall Street banks – at least until after the 2018 general election.
Rauner’s new debt deal is set to go into effect on November 7th, 2016. Then the state will spend two years paying back the $600 million bond, plus interest to these four unnamed banks. If any of the $600 million is not paid off or remarketed before November 8th, 2018 (the day after the gubernatorial election), the interest rate on the bond will jump up “significantly”.
The Rauner administration has declared these negotiations successful. While the new deals do allow the state to pay the piper later, they offer no actual savings to Illinois taxpayers. Illinois taxpayers don’t need more delays (with hidden costs down the road), we need our money back.
Illinois taxpayers have already handed over $214 million in fees to the banks who hold the swap deals attached to the bonds in question. There is ample evidence that these swap deals are in violation of the fair dealings rule, and therefore that these payments could be recovered by the state. The unnamed banks who will benefit from the new Rauner deal could be among the banks which have already taken $214 million in profits from Illinois – money that could be going to fund badly needed services instead.
Instead of delaying our payments to Wall Street, the state of Illinois needs to take strong legal action to recover the money we already paid them. It has been done by elected officials in other places. Jefferson County, Alabama recovered $697 million through their efforts. The Illinois Attorney General can bring a suit to protect taxpayers, and recover these funds. And Governor Rauner can assist in that effort by refusing to sign away the state’s right to pursue legal action against the banks, a mistake made by Mayor Emanuel when he terminated Chicago’s swaps.