Rahm's latest plan to stave off Chicago financial collapse under fire – from Dems
Chicago and the State of Illinois are lurching toward insolvency, burdened by enormous pension liabilities, political payoffs from past generations that kept the Democrat Machine in power for generations. Rahm Emanuel knows this and is doing his best to come up with financial schemes to keep paying bills. His latest effort at borrowing to keep the Chicago Public Schools (already almost a billion dollars behind in paying its expenses – particularly pension fund contributions) afloat is being called a "payday loan" even by Democrats, as the Dems scramble to blame Republican governor Bruce Rauner for the collapse of the Blue Model.
Fran Spielman reports for the Chicago Sun-Times:
Under fire for authorizing a "payday loan," Mayor Rahm Emanuel on Friday defended his plan to let the Chicago Public Schools borrow $389 million secured by late block grants owed by the state.
"You have a situation…created by the state of Illinois to create a maximum amount of pressure on the public schools, specifically Chicago," Emanuel said.
"It's a short-term solution to a short-term problem created consciously, woefully by the governor to create political pressure. That's how we're handling it. That's the most appropriate way to deal with it."
Aldermen don't see it that way. They likened it to the skipped pension payments that got CPS into this mess and Emanuel vowed to end.
"Daley didn't pay pensions. This is borrowing instead of not paying. You're still robbing Peter to pay Paul and putting a Band-Aid on it," said South Side Ald. Anthony Beale (9th).
"We're borrowing money hoping that, eventually, the state comes through. If the state doesn't come through, we're gonna be in worse shape tomorrow than we are today. It's gonna cost to borrow money. Taxpayers are still losing."
Illinois is as broke as Chicago. If this were a business, Rahm would be borrowing against his "accounts receivable" – also known as "factoring." That is a common practice among financially troubled businesses to keep the doors open. Rahm is trying to find a factor that will lend almost $400 mil against the promise of a broke state to come up with the cash.
The source of the borrowing has not yet been determined, nor has the interest rate. That must wait until the borrowing goes out to bid. The maximum interest rate allowed by state law is nine percent.
Chief Financial Officer Carole Brown said the short-term loan will be limited to $389 million because the school system's "lending partners" were willing to finance only about "85 percent of the outstanding receivable" of state grants. The rest will come from savings generated by mid-year budget cuts, Brown said, with a hazy explanation that raised more questions than it answered.
Nine percent is a handsome return in a low-interest environment. If Rahm is unable to borrow at that price, it will be a sign that the financial crisis is getting closer. But I suspect that he already has sources of funds and that the bet is that the feds will come up with a loan if the effort fails.
Chicago has already sold off major assets, including the right to collect money from parking meters. There are fewer and fewer sources of funds available.
The crash is coming. The Dems are just looking for opportunities to blame Republicans for the consequences of their bribes to unionized public employees.