Chicago, IL –(ENEWSPF)–January 19, 2016. Even though the Rauner Administration is skipping payments that the State of Illinois is legally required to make to social service providers under federal law, the state nevertheless pays banks like Bank of America and JPMorgan Chase $6 million per month for interest rate swap deals. That is the conclusion of a new report by the ReFund America Project called Turned Around: How the Swaps that Were Supposed to Save Illinois Millions Became Toxic.
The report shows that the State of Illinois is embroiled in the same toxic swaps that have been blamed for the financial problems facing the City of Chicago and Chicago Public Schools. Illinois has spent $618 million on these swaps already, and the total cost to taxpayers could climb to $1.45 billion by the time these deals end in 2033. However, if the budget impasse continues and the state’s credit rating tumbles further, Illinois taxpayers could be hit with $124 million in termination penalties on some of its swaps as early as this November. The report recommends that the state should take legal action to get out of the deals without penalties and to recover past taxpayer losses.
“This report shows that these toxic swaps have been an unmitigated disaster for the state, failing in almost every way,” said Saqib Bhatti, Director of the ReFund America Project and one of the co-authors of the report. “If state officials knew then what we know now, it would have been financially irresponsible for them to have signed these deals. We believe the banks that pitched these deals to the state misrepresented the risks, and we are calling on the Governor to take legal action against them to get back our money so that we can properly fund services in Illinois.”
“This reports shows that toxic swaps have been draining money out of the state’s budget for years. That Illinois continues to pay the banks for these swap deals at a time when there is no state budget – and many vital social services are missing their funding – raises real questions about the state’s moral priorities,” said Carrie Sloan of Refund America Project, the report’s co-author. “Right now the state is choosing to keep paying bankers for possibly fraudulent deals, at the expense of children, domestic violence victims, the homeless, and college students, among others. Instead, we urge Illinois to take every action available to it to end the deals without paying penalties, recover monies, and enact a fair budget.”
“Every day in Brighton Park I see people seeking assistance for programs like LIHEAP; on the first day alone of the program, we were able to help 115 families. Teen Reach has served about 200 students in Brighton Park every year. We’ve offered programs for academic support, character development, enrichment, health and wellness, STEM-based, fine arts, service learning projects, and more. These programs also kept students off the streets and in a safe space to learn and grow. The budget impasse is putting all of these vital programs in jeopardy. During this time of crisis we should be protecting working families not bank profits,” stated Marcos Ceniceros with the Brighton Park Neighborhood Council, a member organization of Grassroots Collaborative.
Evan Cauble-Johnson, Chief Development Officer at Inspiration Corporation, an agency that provides job training and employment placement, supportive housing, and other services to Chicago’s homeless and low-income residents stated, “Having accumulated more than $100,000 in unpaid receivables from the State, our agency has been forced to access lines of credit to maintain services, and we are beginning to question how long we can continue to operate our housing program without a budget. If we do not see payments for another month, we will almost certainly be forced to enact contingency plans that would immediately cut services to more than 80 households, many of them families with children.”
Key Findings from the Report:
Even though the State of Illinois has been skipping some legally-required payments to social service providers because of the budget stalemate, it has nevertheless made paid banks $6 million per month for interest rate swaps.
Illinois paid banks $618 million on these swap deals through the end of fiscal year 2015, and the State Comptroller’s office estimates the state will pay another $832 million over the remaining life of the deals, through October 2033, bringing the total taxpayer cost to $1.45 billion.
These swaps did not work as they were supposed to, and actually cost the state millions more than traditional fixed-rate bonds would have.
If Illinois’s credit rating continues to decline, which is likely given the ongoing budget stalemate, it could trigger termination clauses on some of the state’s swaps and force taxpayers to pay $124 million in penalties to the banks. This could happen as early as this November.
Illinois taxpayers could indirectly be on the hook for $636 million in swap termination penalties owed by the City of Chicago and Chicago Public Schools. At the same time the Emanuel Administration is paying these swap penalties, the Mayor is seeking $800 million in state assistance for the city, schools, and Chicago Transit Authority budgets.
The banks that marketed and sold interest rate swaps to cities and states typically misrepresented the risks associated with the deals, in violation of the federal fair dealing rule and the Illinois state law of fraudulent concealment. The state should take legal action to get out of the deals without penalties and to recover taxpayer losses. This would allow the state to stop paying banks $68 million a year, recover up to $618 million in past swap payments, and eliminate the threat of termination penalties as the state’s financial health continues to deteriorate.
The full report can be found at: http://www.refundproject.org/#turned-around
Grassroots Collaborative is Action Now, American Friends Service Committee – Great Lakes Region, Brighton Park Neighborhood Council, Chicago Coalition for the Homeless, Chicago Teachers Union, Enlace Chicago, Illinois Hunger Coalition, Jane Addams Senior Caucus, ONE Northside, Service Employees International Union Healthcare Illinois Indiana
- See more at: http://enewspf.com/2016/01/19/new-report-governor-rauner-spends-millions-on-bad-bank-deals-while-cutting-social-services-and-college-grants/#sthash.zqr6CpRt.dpuf