Posted on 03/31/2015 7:40:04 AM PDT by Kaslin
In masterful article by Kristi Culpepper, a muni-bond expert who works for the state of Kentucky, Chicago’s bond financing scheme is exposed as a house of cards that postpone debt payments in return for higher interest payments over time.
Amongst the questionable strategies exposed by Culpepper include using long-term financing to cover day-to-day expenses, using bonds to pay pension obligations and misappropriating returns from the interest rate swap portfolio as an “ATM” for the city.
And the winners are: Chicago city employees—union employees, for whose paychecks and benefit the scheme of providing short term-cash in return for high interest payments is run.
“So, Chicago’s structural budget gap is a political,” says Culpepper, “not economic, creature. Rather than cut expenditures to a level that could be supported by recurring revenues, the city mostly used non-recurring resources to fill the gap from one fiscal year to the next. This is not surprising. Most of Chicago’s Corporate Fund budget goes to salaries and benefits for its employees, and 90% of the city’s employees belong to around 40 different unions. Attempts to adjust expenditures tend to have well organized opposition.”
In addition, Culpepper says that some general obligation bond proceeds have been used to provide “discretionary” expense for Chicago aldermen.
While cities generally use general obligation (GO) bonds to finance asset purchases Culpepper observes, Chicago uses it to cover shortfalls in cash flow.
In 2013, she points out, a Chicago Tribune analysis showed that $400 million in GO proceeds went to settlements and judgments, alone.
“In bond documents,” Culpepper gives as an example, “city officials deemed the back pay the city owed [police] an extraordinary expense and paid $164 million of it with tax-exempt bonds. The city ultimately will need to pay bondholders $280 million to cover the loan.”
And that the alderman go along with the scheme says the Culpepper piece, “probably has something to do with the ‘Aldermen’s Menu,’ which allows the aldermen to use a portion of the proceeds from the city’s general obligation bond issues to pay for whatever they want for their district.
The author pegs that not unsubstantial expense at $54.2 million to $102 million from 2003 to 2012.
And while Chicago-- and likely, Illinois-- taxpayers, in the best case scenario, will be forced to pay billions of dollars for things “that have little of tangible value,” the worst case scenario is that some combination of investors in the approximately $7.2 billion of outstanding GOs will get screwed in various ways:
First, if you hold the tax-exempt portion of these deals and the Internal Revenue Service ever gets around to scrutinizing them, your bonds probably won’t be tax exempt for long. Many of these uses of bond proceeds are not eligible for tax-exempt financing under the federal tax code. These bonds have received extraordinarily aggressive tax opinions?—?including, incidentally, from the same law firm that drafted Illinois’s swap legislation, which I will get to momentarily.
Second, Chicago taxpayers are on the hook for billions of dollars of long-term debt and have little of tangible value to show for it. There is a good chance that residents do not understand the nature of their government’s borrowing activities, since these were complex offerings. (Well, unless they read what I have written here…) As debt service payments increasingly compete with other political priorities for funding, this revelation might eventually erode the city’s willingness to pay.
Remember, a whole gaggle of Chicago types moved into DC with Obama. And while US Treasuries are less complicated than muni-bonds, the stench from the Chicago sleaze will come through… you know, one day, when the media wants to actually inform us what really happened under Obama as they now seem to do with former Mayor Daley and current Mayor Rahm Emanuel, Obama's former White House chief of staff.
You can find my newest columns at DearComrade.TV
City of the Big Slumped Shoulders.
You and I would be arrested for this sort of check-kiting scheme.
I heard Chicago finances are in bad shape.
I heard they leased out city parking meters to a private company. This company paid the city estimated revenues from parking meters for the next 75 years. In exchange for this company getting the parking revenue from parking meters as payback.
And I heard that the city went through that 75 year windfall in about three years.
They really should have an impartial outside CPA firm, from outside Chicago, with no vested interest, perform an audit. And let the chips fall where they may.
The best part is that selling long-term, tax free muni bonds and using the money for general revenue is illegal.
Think anyone will go to jail for this? Nah, I don't think so either.
Just about every layer of government in this country in every state is so mired in a cesspool of illegal privilege and corruption that it's really difficult to see how to get out of it without stringing up a large number of "public" officials and their "business" associates.
I thought you might have been mistaken about the 75 years part, so I looked it up. By golly, you're right. And the interesting part is that, going forward, the city must pay the company whenever an existing meter's profits are threatened.
So if the city has to remove a meter, or closed a metered street for repairs, the city must pay the company. I'll bet that's where the real profits will be.
Spending the future estimated income today, as Chicago is doing, is going to be a disaster long term. There will be a day of reckoning in the windy city. I’m sure Rahm hopes to kick the can down the road till he’s out of office.
The Chicago Mayor’s prayer goes, “Give us this day our Daley bread...”
Money for nothing
And the checks for free
Can kicking went into hyperdrive under Rahm. He has his own slant on the money printing scam.
when the balloon bust, the unions and the city leaders are expecting the Feds to protect their pensions. I would not be surprised to see liberals in Washington start pushing a “save our pensions” law in the near future. They will claim this is for the private and public sector and it would be un American to let an employee who worked all of their life in a job not receive the benefits they were promised....
I’ve said it before.
When all those EBT cards stop working on the south and west sides of Chicago I’m going to watch the rosy glow in the eastern sky as they go up in flames. I am going to pour myself 3 fingers of the finest distiller beverage from my bar. I’ll go into my backyard, light a cigar, and laugh and laugh and laugh.
Daley did the same thing with the Skyway. Look up the details of that deal. It’s mind bogglingly stupid.
I can run any organization as long as I can borrow money.
Think about it Democrats. Your Democrat leaders have no problem giving more taxpayer money to financial fat cats so long as they can stay in power.
So, which party is it again that is for the rich?
Roger that. On a clear night, I’ll be able to watch the glow of Spokane burning from the deck. That city has a large enough population of the entitled classes to make that a distinct possibility. Around here, not so much.
Too bad none of the idiots at Crains will ever read this. And they wouldn’t understand it of they did.
L
Bonding is eternal taxation---- the insider deals bonding companies made w/ pols to get their bonding business would tell a tale of greedy pols accumulating riches through massive govt corruption.
If these bonding deals were effectuated by way of referendum at the ballot box----and misled investors into buying tax-fee muni bonds----the SEC would be interested.
EMAIL enforcement@sec.gov
Ya gotta wonder how much the cunning onetime Wall Streeter wired offshore when Obama put Rahm--in a dual role---as his COS....... AND in charge of the entire US Treasury.
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BACKSTORY---THE KINGPINS OF CHICAGO CRIMINAL POLITICS IN OUR WH wasted no time.....they had a stranglehold on the Census, AND the US Treasury, from day one.
The minute Obama/Valerie/Rahm/Axelrod/Geithner, and that Practiced bunch of Chicago criminals, landed in the WH they did two things that were apparently crucial to their evil plans
(a) they took control of the US Census;
(b) Obama placed his COS Rahm Emanuel in control of the US Dept of the Treasury (cabinet-level agency oversees IRS).
THE SMOKING GUN---WSJ REPORT--On Jan 20, 2009 Timothy Geithner was appointed Obama's Secy of the Treasury. But within three weeks, the Obama White House tightened its grip on Treasury. Obama put his COS, Rahm Emanuel, in charge of Treasury---Rahm Emanuel's dual role was an unusual move.
When he got to Treasury, WH COS Rahm Emanuel was so involved in the inner workings of the Treasury that the phrase "Rahm wants it" had become an unofficial mantra among subservient govt staffers, prostrate in obeisance, scurrying to accede to Rahm's wishes, according to Treasury government officials. Reported by WSJ / 05/31/09
More here: http://online.wsj.com/article/SB124113406528875137.html
Tax-exempt municipal bond investors (including public education bond investors)-- have legal grounds to sue if they were deceived about deceptive bond offerings.
In many cases, bond issues are approved by voters---at the ballot box--so that voters may have also been misled WRT uses of fraudulent bond offerings.
Also culpable are:
<><> bonding companies underwriting possible fraudulent bond issues;
<><> banks holding possibly fraudulent bond proceeds;
<><> State's modus operandi in allocating tax-exempt bond proceeds,
<><> the sub rosa acceptance of bond proceeds.
<><> state vendors accepting possible fraudulent bond proceeds.
<><> publicly-funded state agencies advocating the uses of fraudulent bond proceeds.
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The SEC, FBI, banking overight agencies and IRS, would be interested in the activities of state entities WRT bonding.
EMAIL---FBI TIPS PAGE https://tips.fbi.gov
EMAIL--enforcement@SEC.gov
Contact the IRS Fraud Unit
EMAIL Banking oversight agencies
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The Chamber of Commerce should hope that taxpayers do not find out which banks are facilitating this.
<><> Which banks are designated the repositories of municipal tax dollars.
<><> Which banks are dispensing tax-exempt bond proceeds.
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REFERENCE SOURCE: web site / occ.gov
The Office of the Comptroller of the Currency processes questions and complaints concerning consumer issues within the jurisdiction of the OCC through our Consumer Assistance Group (CAG) (and sends misdirected complaints to the appropriate federal or state regulator).
OCC processes complaints involving national banks and federal savings associations with more than $10 billion in assets on behalf of the CFPB, while the CFPB builds its capacity to handle complaints. Under this approach, the CFPB will begin by handling credit card related complaints involving national banks and federal savings associations with assets of $10 billion or more and will expand its complaint process to other products and services offered as the new bureau builds that capacity through March 2012.
Consumers can contact the bureau through its Web site, consumerfinance.gov, or by phone at 855-411-2372. Consumers may use the FFIEC site to identify a financial institution's primary regulator, or may use the FDIC institution directory to identify which institutions have more than $10 billon in assets.
For specific problems with a financial institution other than a national bank, contact the customer assistance:
(1) State Banking Department WRT a state bank
(2) Federal Deposit Insurance Corporation (FDIC), or,
(3) the Federal Reserve for federally chartered banks.
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NOTE WELL Under the Bank Secrecy Act, banks are required to establish, implement and maintain programs designed to detect and report suspicious activity indicative of money laundering and other financial crimes. “The Bank Secrecy Act was enacted to protect the public from harm by identifying and detecting money laundering from criminal enterprises, terrorism, tax evasion or other unlawful activities,” the special agent in charge for Internal Revenue Service Criminal Investigation, explained.
Shady banking transactions could be prosecuted under the (1) Bank Secrecy ACT, (2) RICO, and, (3) the Hobbs Act (by impairing the state's economic viability).
SUBJECT: Collusion, conspiracy, bribery
IN RE: financial irregularities
REFERENCE: fraud, falsified documents, wire transfers, accounting fraud, etc.
NARRATIVE Taxpayers demand to know the scope and dimension of multiple conspiracies by to collude in sub rosa deals to personally profit and/or facilitate via tax-exempt bonding schemes.
OF INTEREST TO LAW ENFORCEMENT The FBI should interrogate individuals for evidence of multiple schemes to falsify official documents to further fraudulent schemes. The FBI should investigate any and all official documents submitted to the courts.
Crimes might include---conspiracy, collusion, falsifying official documents (a felony), money laundering, tax evasion, extortion, theft, misuse of public facilities.
Tax returns.....especially entries for "interest income".....should be rigorously scrutinized.
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