The Chicago Teachers Union (CTU) on January 12 urged Chicago’s City Council to take legal action against predatory lenders whose alleged illegal conduct could cost the city and its schools as much as $1.4 billion.
According to CTU and the Chicago Tribune, Bank of America and other financial institutions marketed risky derivative deals called interest rate swaps as safe insurance against potential interest rate increases on school bonds.
The Chicago Public School district is currently facing a budget deficit that could cause the layoff of 5000 teachers and other public school employees. CTU is negotiating with school district on a new collective bargaining agreement and is fighting the proposed layoffs.
The head of the school district was appointed by and reports to Chicago Mayor Rahm Emanuel.
A week earlier, CTU’s House of Delegates overwhelmingly voted for a resolution calling for the resignation of Mayor Emanuel.
The resolution criticized Emanuel’s divestment in public education, which the resolution says “(has harmed) Chicago’s public schools and working-class neighborhoods” and his actions in trying to cover up the facts in the police shooting of Laquan McDonald, a 17 year-old African American high school student shot and killed by a white Chicago police officer as McDonald was walking away from the officer.
In calling on the City Council to take legal action against financial institutions that sold the questionable interest rate swaps, CTU President Karen Lewis said that the union had strong evidence showing that Bank of America and others broke the law.
The interest rate swaps were essentially bets on the volatility of the auction-rate bond market, where the school district sold some of its variable rate bonds.
If the market’s interest rates increased, the swaps would protect the school district from paying higher interest rates. If, however, interest rates declined, the school district would owe the swaps’ sellers hundreds of millions of dollars in penalties
CTU has obtained internal e-mails from 2007 showing that Bank of America had knowledge that the auction-rate market was about to crater causing interest rates to drop precipitously. The bank, however, did not share this information with the school district putting the district on the hook for $450 million in penalty payments.
Furthermore, according to the union, Bank of America and other banks “illegally (colluded) to manipulate the interest rates.”
“We should take legal action to cancel the deals, get out of penalties and claw back losses,” said CTU President Karen Lewis. “The standard industry practice was for banks to emphasize the potential upside of these deals, but downplay the risks. This is a violation of the ‘fair dealing’ rule that governs municipal finance.”
In addition to the $450 in swaps penalties, CTU wants $850 million in swap payments returned.
According to the Chicago Tribune, the swap deals “contributed to (the school district’s) ongoing financial troubles.”
In response to these financial troubles, Mayor Emanuel has closed 50 schools mostly in predominately African American and Latino neighborhoods despite the strenuous objections of parents and community members, laid off teachers and other school employees, which caused overcrowding in classrooms, and under funded wrap around services to students such as counseling, libraries, and psychological support.
The union in its resolution calling for Mayor Emanuel’s resignation said that Emanuel’s cuts to school wrap around services contributed to McDonald’s death.
While McDonald posed no threat to the officer who shot him, McDonald was a troubled young man.
He spent most of his life in foster care and suffered from severe psychological trauma.
According to CTU’s resolution, McDonald’s fate “may have been altered had his mental health needs been met both in and out of school.”
In addition to not adequately funding school counseling services, Emanuel also closed six of city’s 12 mental health clinics.
CTU’s call for Mayor Emanuel’s resignation and its call for legal action to recover more than $1 billion resulting from questionable swaps deals, comes at a time when the union is negotiating a new collective bargaining agreement with the school district.
CTU is aiming to stop the proposed layoffs, improve teaching and learning conditions in schools, and improve the district’s wrap around services, especially in low-income communities.
Union members took the first step toward improving Chicago public education when 88 percent of the membership voted in December to authorize a strike unless the new collective bargaining agreement allows for investment rather than divestment in Chicago’s public schools.
After the vote, CTU Vice President Jesse Sharkey urged the mayor and his school CEO to “listen to what teachers and educators are trying to tell you: do not cut the schools anymore, do not make the layoffs that you have threatened; instead, respect educators and give us the tools we need to do our jobs.”
“Chicago Teachers Union members do not want to strike, but we do demand that you listen to us,” added Sharkey.