‘Get real’ about Emanuel and Garcia records on finances

It’s “time for Chuy to get real,” according to the Sun-Times editorial board.

I’d say it’s time for Chicago’s punditocracy to get real.

The chattering class wants Jesus “Chuy” Garcia to get specific about how he’s going to solve the city’s fiscal problems.  I don’t think he has to, and I don’t think he should.

The Tribune wants to know, “How would the city pay for his ideas?”  Crain’s says he is “going to have to deliver specific proposals that make fiscal and economic sense.”  Even Steve Bogira at the Chicago Reader wants details.

They want him to run on a platform of raising taxes.  They’re pressing him to shoot himself in the neck.

As I’ve noted, any politician facing a fiscal crisis is going to keep as many options open as possible. Especially in an exceedingly fluid situation, with credit ratings falling, court rulings pending and a state budget that’s completely up in the air.

The way to judge candidates is on their records and on the values and priorities they articulate.  And in this election, on those terms, there’s a clear contrast.

The reality is different than what you might have picked up from Emanuel supporters like Sen. Mark Kirk, the Republican, who thinks Chicago will collapse like Detroit did “if somebody who was really inexperienced and irresponsible replaced Rahm.”  According to Kirk, Chuy Garcia lacks “gravitas with the bond market.”

The allusion to Detroit underscores what Kirk seems to be talking about: Chuy isn’t white.  But, really, the bond market is going to take seriously anyone who happens to be mayor of Chicago.

The record shows something quite different than the rhetoric.  The reality is, Emanuel has a record of fiscal recklessness, and Garcia has been a key member of the two most fiscally responsible administrations in recent history.

Emanuel is posing as the mayor who got Chicago’s fiscal house in order.  The record says otherwise. He continued the Daley administration’s practice of using bond debt to fund operating expenses, and he repeatedly used “scoop and toss” bonds to put off paying down debt for another generation.

He denies that a long series of credit rating downgrades reflects negatively on his financial stewardship.  He’s in denial, you could say.

Moody’s most recent downgrade explicitly cites the pension reforms Emanuel passed last year as one reason for knocking the city’s credit rating down a notch.  Because even if the reforms stand up in court, the agency notes, the city’s unfunded pension liability will continue to grow.

That’s because Emanuel’s reforms, which cover two funds for city workers, include a five-year ramp up before the city moves from the current system, in which its pension contributions are based on a multiplier of employee contributions (the fundamental cause of the city’s pension crisis) to a system based on actuarial projections.  “Righting the ship” won’t start till 2020.

You can call that “bold leadership” if you like.  Or you can call it “kicking the can down the road again.”

That doesn’t even include police and fire funds.  State law requires the city to budget a payment of over $800 million to the two funds next year.  Otherwise the state is entitled to divert revenues that would normally go to the city into the pension funds.  Emanuel has budgeted less than half the required amount.

We’re talking about the fourth year of Emanuel’s mayoral term.  And it’s not like he wasn’t warned.  Mayor Daley appointed a commission on the pension crisis that issued a report in 2010.  The commission, which included business and labor leaders, noted that every year of delay increased longterm costs.  And it laid out a path to reform.

Noting that “current benefits are not in themselves unaffordable,” it recommended that new employees be kept in existing defined-benefit plans, that city and employee contributions be raised, that some benefit cost reductions (notably ending the overuse of early retirement to reduce the city workforce) be explored, and crucially, switching to an “actuarially-based funding formula.”

“This problem must be addressed as soon as possible,” according to the report.  Earlier in his term, though, Emanuel had other priorities: forcing teachers out on strike and closing schools.

When he did turn his attention to pensions, he chose to go after retirees benefits, though these are a negligible part of the problem, according to the Daley commission.  He chose to use the crisis to go after unionized workers.  Some observers believe his continuing dallying is designed to make the crisis even worse, the better to cow unions with.

The editorial writers overlook Emanuel’s record because he shares their values and priorities — most prominently, sticking it to unions.

The flip side, his obeisance to the business community — particularly the financial sector — is most clear in his treatment of interest rate swaps.  About $58 million in fees related to swaps came due with Moody’s most recent credit rating downgrade.  Another downgrade — which seems almost inevitable — will mean $133 million in swap payments will come due.

Emanuel says he’s eliminated hundreds of millions of dollars of risk by renegotiating or terminating swap contracts.  But what this means — and what it’s cost the city — isn’t clear.  In some cases, new swaps have been layered over old ones. In others, some consideration was given in order to change termination triggers by a credit grade or two; in others, millions of dollars in termination fees have been paid to get out of deals.

But you could get a much better deal with a little more chutzpah.  “Cities need to be standing up to the banks,” said Carrie Sloan of the ReFund America Project, which has been working with the Chicago Teachers Union on the issue.

That would mean filing a complaint with the Securities Exchange Commission or pursuing a remedy under state law.  The SEC has won refunds for private investors who complained that the same banks doing swaps with Chicago and Chicago Public Schools  misled them about risks on the kinds of variable-rate bonds to which swaps are tied.  The Chicago Tribune has detailed how Bank of America misled CPS in one such deal.

Such an approach has the potential of saving the city and school system tens of millions of dollars.  Emanuel would prefer small-bore fixes — just enough to claim that he’s doing something — that don’t threaten his donor base.

It’s funny.  By the standards of the business community, Garcia has the better record.  Like Mayors Jane Byrne and Richard M. Daley before him, Emanuel has used budget tricks — the 14-month CPS budget now in place is a prime example — and delayed tough decisions.  Garcia has been part of reform administrations that have tamed budget problems.

Garcia wasn’t yet in the City Council, but he was a key political ally of Harold Washington when he slashed the city workforce by 15 percent.  The payroll was probably inflated with patronage workers, but I remember Sid Ordower, an old progressive and longtime Washington backer, complaining, “He’s firing workers!”

Emanuel has attacked Garcia for his support of Washington’s 1986 property tax increase, echoing the claims of the machine faction that opposed Washington.  (That was the council meeting where Ald. Bernie Stone called Luis Gutierrez a “little pipsqueak” and gave David Orr a shove; police escorted Stone out of the chamber.)

The Vrdolyak faction, a majority before the special elections of that year, had repeatedly cut property taxes in order to force Washington into an election-year increase.  But the business community and the newspapers all maintained the hike was necessary. Garcia took the hard vote, just months before a re-election campaign.

Washington faced declining federal funds under President Ronald Reagan; 20-odd years later, Toni Preckwinkle had to keep a campaign promise to reduce the sales tax.  She laid off hundreds of county workers and closed hundreds of additional vacant positions.  She also proposed a pension reform bill (it stalled in Springfield) that unions said was worse than Emanuel’s.

The County Board didn’t vote on Preckwinkle’s pension plan, but on the other hand, Garcia didn’t speak out against it.  That was one factor in his failure to win support from AFSCME in the recent mayoral election.

Both Emanuel and Garcia are being vague about what they will do about the revenue crunch that will come with next year’s pension fund deadlines.  There are a few clear differences, however.  Garcia says a financial transaction tax should be on the table, and he supports a progressive state income tax.  These aren’t politically viable in the short term, but they say something about the candidate’s political priorities — and they provide a contrast with the regressive fees and fines that Emanuel has piled on residents.

Garcia also calls for declaring a TIF surplus using it for a “good-faith down payment” on a pension solution.  This is a serious proposal.  TIFs take in nearly half a billion dollars a year.  A report last year showed that TIF diversions far exceed the city’s annual pension costs.

Emanuel has given lip-service to TIF reform and put some documents online (though he’s hidden key information). But he continues to use TIF as a slush fund to reward big campaign donors and to fund pet projects.

Garcia tells Crain’s he’s not anti-business, he’s just opposed to “any kind of pay-to-play activity.”

That may be a good place to start.