Risky business: Your City Treasurer vote can affect your wallet

Date: 
02/18/2019
MoneyWallet

As a City of Chicago resident, casting your ballot for City Treasurer is of vital importance to your wallet and the fiscal health of the City. 

With responsibility for Chicago's $8 billion investment portfolio, the treasurer is the custodian and manager of all cash and investments for the City of Chicago, the four City employee pension funds and the Chicago Teacher’s Pension Fund. All are funded with taxpayer dollars

MConyearsErvin

Melissa Conyears-Ervin

Two candidates are causing red flags to wave as they appear to be viewing the treasurer's primary duties focus on socio-economic actions rather than financial management. And, they are eyeing the possibility of creating a City (public) bank to fund their proposed efforts. Such a bank could cost residents dearly.

Those two candidates are Melissa Conyears-Ervin and Ameya Pawar.

Conyears-Ervin is currently the 10th District member of the Illinois House of Representatives. Her husband, 28th Ward Alderman Jason Ervin is Vice Chair of City Council's Committee on Budget.

APawar

Ameya Pawar

Pawar is a two term Alderman of the 47th Ward. and a Fall 2018 Pritzker Fellow at the University of Chicago’s Institute of Politics. In addition, Pawar is the Executive Director of One Illinois, a new non-profit news outlet where, according to News India Times, he is focused on bridging the divides across race, class and geography in Illinois. He declared to run in the governor's race in January 2017 and dropped out in October, saying that he did not have enough funds.  

PGariepy

Peter Gariepy

The third candidate is Peter Gariepy, a Certified Public Accountant, currently working in the private sector. He ran for Cook County Treasurer in 2018. While he agrees that it is important to expand where monies are placed and continue with Kurt Summers' new policies to address the financial needs of some Chicago residents, his interests also include protecting taxpayer dollars as well as shielding the beleaguered pension funds from risky investments. 

The City's description for City Treasurer

The City Treasurer’s Office is the custodian and manager of all cash and investments for the City of Chicago, the four City employee pension funds, and the Chicago Teacher’s Pension Fund. Additionally, the Treasurer’s Office manages a number of programs that promote financial education and small business growth in Chicago’s neighborhoods. The Treasurer is one of three city-wide elected officials in the City of Chicago, with the Mayor and the Clerk being the others. 

The City Treasurer has three main functions:

    • Banker: The City Treasurer is responsible for maintaining all records and accounts associated with the City’s operating funds, as well as the escrow accounts held with various trustee banks.
    • Investor: The City Treasurer is the Chief Investment Officer for the City and is responsible for managing the City’s investment portfolio.
    • Advocate: The City Treasurer is authorized to conduct educational programs, provide counseling, and disseminate information regarding financial education, small business support, and access to banking for residents of the City. 

Background
To better understand this office and on what you will base casting your February 26 ballot, here is more information about the current status of the City and Treasurer's office, the financial challenges of Chicago and what a City (public) bank is. 

Current Status
“I think we’ve changed this office from being a sleepy little investment office on the first floor of City Hall to saying, ‘Look, we have a large pool of capital that traditionally hasn’t been leveraged in ways to help drive investment in neighborhoods, to help drive public policy, to help drive and leverage outside interest in areas that have struggled from disinvestment for decades,’” Kurt Summers, Chicago's City Treasurer, said at Washington University in St. Louis last summer. 

Confirming some of those changes, Scott Waguespack, 32nd Ward Alderman and Chair of the Progressive Caucus said, "John Arena [45th Ward Alderman] and I worked on an ordinance that would drive better investments in different types of investment categories like greener investments, looking at types of companies that are socially in the right direction with where the State or City want to go to for the population. Kurt Summers produced a policy about investments [Mar. 1, 2018] that follows that direction." 

Financial obligations
Each Chicago household is on the hook for $82,000 in local government debt which includes pension as well as long-term and retiree health care.

Below shows the official actuarial numbers versus numbers under Governmental Accounting Standards Board (GASB) Statements 67, 68, fiscal year 2016, according to Illinois Policy*.

TotLocDebt

From Illinois Policy, the chart below shows the contribution required to meet Chicago pension fund obligations and what actually has been contributed between 2008 and 2017**.

PenOblig

The highlighted rows show the spike in contributions required over the next decade.PensObligSpike

City Bank
Both Conyears-Ervin and Pawar view a city (public) bank as an integral part of achieving their goal for more individuals and small businesses having borrowing opportunities at low interest rates for affordable housing, startup business, education, etc.

"The benefits of a public bank are its ability to support economic development efforts in the city and in overall economic growth," says Mayoral Candidate Amara Enyia in Chicago's Not Broke. "A public bank in Chicago would put our money to work for ALL of our residents and still return a sizable profit to the city."

That may be the good news, but on the flip-side, the deposits would NOT be insured by the FDIC (Federal Deposit Insurance Corporation).

There is only one public bank in the country. It was created 100 years ago and it is in North Dakota. They are successful but are not advocating for others to follow.

In 2015 there was a bill, HB0107, introduced in Springfield to establish a state bank where the State would the "insuring" party. That would spread the liability to all residents in Illinois.

Many withdrew their support when the bill was changed to include Mike Madigan, Speaker of the Illinois House of Representatives, as part of that entity, according to Tom Tresser, who was part of the HB0107 push and who organized and edited Chicago is Not Broke.

However Conyears-Ervin and Pawar are promoting a city public bank with the City of Chicago as the financial backer, using pension funds to cover the initial setup of $4 billion. (Establishing a state-wide bank would be approximately $9.8 billion.)

The bank would have to be a chartered by the State, since a City has no authority to create a bank.

If this type of banking sounds familiar, think Bedford Falls, NY, George Bailey and having a "wonderful life." That financial institution was a savings and loan (S&L).

"The Savings and Loan Crisis was the most significant bank collapse since the Great Depression of 1929. By 1989, more than 1,000 of the nation's savings and loans had failed," as reported in The Balance.

Risky investments
An example of "risky" is the 2006 Vanecko deal. Then mayor Richard M. Daley's nephew Robert G. Vanecko, and his business partner Allison S. Davis, a developer who gave campaign money to Daley and who was appointed by the mayor to head the Chicago Plan Commission, got a $68 million "loan" from the city workers' pension fund, costing the fund $54 million. On top of that, there were actual costs to the City in litigation and other expenses of over $4 million. 

As a bank, lending money to individuals and small businesses is considered a risky proposition too. According to data from the U.S. Bureau of Labor Statistics, about 20% of small businesses fail within their first year. By the end of their fifth year, roughly 50% of small businesses fail, while approximately 35% survive after 10 years. 

Loan failures via the Small Business Administration program were one in six between 2006 and 2015.  Percentage wise that looks like the chart below.

sbaloans

 Losses on these investments inevitably come out of residents' pockets.

Future for this office
"We're looking for a treasurer who would utilize the best practices and continue increasing investments without putting what limited funds we have at risk," says Waguespack. "Transparency and a balance of power regarding City money is vital."

Risking investments and current headlines regarding the most current wave of corruption being uncovered give testimony to the accuracy of that statement. 

Interviews
All three candidates were on CLTV with Paul Lisnek and WTTW with Carol Marin and at a four community event

 

*Source: Comprehensive Annual Financial Reports of : City of Chicago, Chicago Public Schools, Chicago Transit Authority, Chicago Park District, Cook County, Cook County Forest Preserves, Metropolitan Water Reclamation District; actuarial reports of all associated pension funds; U.S. Census Bureau

**Source: City of Chicago Fiscal Year 2018 Financial Analysis

***Source: U.S. Small Business Administration with data analysis by NerdWallet showing the 10-year default rate as a percentage in the final year of the period (Example, the 10-year rate for 1991-2000 is shown as a percentage in 2000). Data were rounded to nearest 0.1%.

 

Related:

Comments

Post new comment

The content of this field is kept private and will not be shown publicly.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Insert images and media with <pp_img> or <pp_media>. See formatting options for syntax.

More information about formatting options