By: Ted Dabrowski
Wirepoints has obtained the handout Chicago Mayor Rahm Emanuel used to sell his $10 billion Pension Obligation Bond plan to Chicago aldermen last week. It’s a revealing look into how Chicago’s City Council “vets” complex financial decisions. It’s also fascinating for what it does and doesn’t say.
It’s now easy to understand why some aldermen complained that what they received from the mayor was inadequate. The brief is super skinny for a transaction of such strategic importance. The presentation is titled “Fund Stabilization Bonds,” labeled as “Pre-Decisional” and is just six pages long. Of the five pages with information, three have static financial data on the status quo and only two contain any relevant data related to the bond offering.
You can’t help but think that either (1) Emanuel has such a low opinion of the aldermen he expects the presentation’s limited information to convince them, or (2) the aldermen don’t mind being shown as few details as possible so they can plead ignorance if the POB fails.
Either way, it’s a misleading presentation. It presents the bond scheme as a refinancing plan with no risk. What alderman can say no to $6 billion in savings, a reduction in tax hikes, and a drop in the cost of pension debt?
In fact, Emanuel might push for an even bigger borrowing. It’s all rather reminiscent of Rep. Robert Martwick’s (D-Chicago) reckless $107 billion pension bond proposal for the state. According to the Sun-Times:
“Last week, Chief Financial Officer Carole Brown told aldermen the city may sell even more than $10 billion in pension obligation bonds if there’s enough available city revenue to support it. Brown has not explained what the city’s fallback would be if the market tanks.”
We’ve attached Emanuel’s presentation here. There’s little to analyze and lots to critique in its omissions. No mention of the arbitrage risk. No stress tests. And no details of how the “savings” are generated.
Wirepoints also understands the aldermen received a Citibank research piece supporting the POB. That’s not surprising given the bank would be one of the lead managers of the bonds. Interestingly, the bank was openly critical of the media and other market experts that have criticised the plan.
Wirepoints will shortly release an analysis of the presentation and show aldermen what numbers they should really consider when deciding on the POB. Until then, here are the articles Wirepoints has already released on the POB plan:
- Aug. 5 – Rahm Emanuel’s latest can kick: Borrow $10 billion for Chicago pensions
- Aug. 15 – $125,000: The pension debt each Chicago household is really on the hook for
- Aug. 19 – How Emanuel is misleading you on the city’s debt – Crain’s
- Aug. 24 – Pension Obligation Bonds Are Like Big, Fat, Dangerous Margin Loans For Stock
- Aug. 26 – Chicago CFO’s Stupendously Bad Timing On Her Last Pension Obligation Bond
- Aug. 28 – Emanuel’s real motivations for Chicago’s $10 billion pension bond plan
- Aug. 29 – A plan to make “bad pension borrowing” good? Greg Hinz is mighty confused
- Aug. 30 – Liquidation Sale. That’s How To Think About Chicago’s Proposed Pension Bond
Make no mistake. This isn’t a scheme that makes things better for Chicagoans. It’s a gamble with Chicagoans’ money. It kicks the can down the road with Emanuel’s latest scoop and toss proposal. It sells off part of Chicago’s future revenues. And it will delay the push for real pension reforms.