Former investment banker-turned Chicago mayor Rahm Emanuel suffered a huge defeat in the recent Chicago municipal elections, despite getting the most votes. That's because while being an incumbent mayor with a $15 million campaign war chest, a 12 to 1 fundraising edge over Jesus “Chuy” Garcia, his closest opponent, and getting an in-person endorsement from the President of the United States just before the election, Emanuel couldn’t get a majority of the vote, and is now facing a runoff election against Garcia on April 7.
Now, Emanuel and his donors are in panic mode. Over a recent 3-day span, several of Chicago’s wealthiest individuals – including hedge fund billionaire Kenneth Griffin and Hyatt Hotels heir Penny Pritzker, who is also President Obama’s Secretary of Commerce – contributed a whopping $1.3 million to Rahm’s re-election fund.
And as the Chicago Tribune reported, more than half of the $30 million Rahm’s campaign raised by the close of 2014 came from a mere 348 individual donors. His biggest donors stepping up their game is an acknowledgement that if Rahm doesn’t prevail in the runoff, they stand to lose business. The same Tribune investigation found that roughly 60 percent of Rahm’s top donors later won tangible benefits – from pension work, to contracts, to zoning changes, board appointments, and the like.
So why is the favored candidate of big money and establishment politics suddenly in danger of losing re-election?
1. He shuttered half the city’s mental health clinics.
During a recent event with developers at Chicago’s Wicker Park Field House, Emanuel was confronted by Debbie Delgado and Matt Ginsberg, two members of the Chicago-based Mental Health Movement. Delgado, who depended on one of the city’s 12 mental health clinics after losing her son to gun violence, asked the Mayor why he closed 6 of those clinics, including the one closest to her family. Rahm told Ginsberg and Delgado -- who was wearing a t-shirt honoring Helen Morley, a woman who died just a month after telling him, “If you close my clinic I will die” -- that he would address their concerns in another room after the event.
According to the Mental Health Movement’s Facebook page, once Emanuel was away from the media cameras, he got in Ginsberg’s face and shouted, “YOU’RE GONNA RESPECT ME!” Ginsberg pointed out that despite Rahm’s spin, there was no expansion of psychiatric treatment, only $500,000 of the $2.3 million cut from the 6 mental health clinics went to private clinics, and that 3,000 people were still unable to find treatment. The mayor passed Delgado and Ginsberg to his PR person, who collected their information and never contacted them.
“We have no resources in the black community,” said Babur Realer, a Chicago parent and activist who recently protested the mental health clinic closings at city hall. “We need to fully fund schools, daycare, social services, and mental health clinics.”
Rahm’s closure of the 6 mental health clinics has led to the overcrowding of jails. In a Chicago Tribune op-ed, Cook County Sheriff Tom Dart said shutting down mental hospitals and clinics means more people with mental health conditions are forced onto the streets and into a life of petty crime.
“Currently, the largest mental health hospital in Illinois is not even a hospital — it's Cook County Jail, which I oversee as sheriff,” Dart wrote. “My office's conservative estimate is that one-third of the 10,000 inmates in custody suffer from serious mental illnesses.”
2. He refuses to adequately fund workers’ pensions.
Aside from cutting budgets for half of the city’s mental health clinics, Rahm Emanuel has also subjected city workers’ pensions to the austerity knife. Currently, Illinois’ pension fund for state employees is underfunded by $111 billion, and Chicago’s pension fund for municipal employees has $19.5 billion in unfunded liabilities. Emanuel has proposed phasing out subsidies to retirees’ healthcare deductibles and scaling down cost-of-living adjustments, saying that without the cuts, he would have to raise property taxes by 150 percent.
While teachers, firefighters, police officers, and other city workers have been living up to their end of the bargain and making annual payments amounting to 9.4 percent of their total annual salary, neither the city of Chicago nor the state of Illinois made any payments between 1995 and 2000. At the time, financial markets were delivering high returns on investments, and government officials in Chicago and Springfield decided to take “pension holidays,” in which money earmarked for the pension fund was instead spent on city services.
“For the Daley administration, this had the benefit of keeping city services funded and property taxes low,” said Fred Klonsky, a retired teacher and member of the Illinois Education Association. “But now, Rahm is saying that they’re not going to pay back the money they didn’t pay in, and will cut pension benefits instead, which they’ve already begun to do.”
So even if Chuy Garcia won in the mayoral runoff, how would the city pay back the $19.5 billion it owes to workers’ pension fund? According to Phillip Cantor, chair of the Science Department at Chicago’s North-Grand High School, a small sales tax on financial transactions at the Chicago Mercantile Exchange (CME) and the Chicago Board of Trade (CBOT) could fund the pension shortfall just one year after being enacted.
“When someone has to buy a pair of shoes for their kid, they’re paying a 10 percent sales tax. But when I buy $100,000 worth of stock or pork belly futures, I don’t pay any sales tax or transaction tax,” Cantor said. “We could charge a half percent on financial transactions and not have to talk about pensions ever again.”
Indeed, this solution was already proposed – Illinois state representative Mary Flowers’ HR 1554, introduced in 2013, would impose a 0.01 sales tax on all stock and derivatives transactions within the CME Group, which includes the CBOT. The tax is projected to bring in as much as $80 billion per year according to some estimates, and would even exclude transactions held in retirement or mutual fund accounts.
Klonsky, who is unable to accept Social Security benefits for himself or through his spouse due to his status as a retired state employee, depends entirely on his teachers’ pension as his sole source of retirement income. He says undoing Illinois’ flat income tax rate of 3.75 percent for all taxpayers regardless of what they earn, and instituting a progressive income tax, would go a long way to alleviating the crisis of workers’ underfunded pensions.
“A housekeeper at the Hyatt hotel in downtown Chicago pays the same income tax rate as the Pritzker family, who owns the Hyatt hotel,” Klonsky said. “This is a very, very wealthy state… If you want to fund a city or a state government’s services, you don’t do it by going after those who don’t have any money.”
3. He indirectly funneled pension and taxpayer money to campaign donors.
While Emanuel is proposing sweeping reforms to pensions, he’s routing money meant for schools and public infrastructure to sweetheart deals for private developers, many of whom are some of Rahm’s biggest donors.
In 2014, when Rahm announced his plan to raise property taxes and cut pension benefits, what almost everyone other than Ben Joravsky of the Chicago Reader failed to mention was that those property tax increases would add to the funds generated from Chicago’s 150 Tax-Increment Financing (TIF) districts -- a collection of bank accounts that are almost exclusively controlled by the mayor’s office. When Chicago property taxes are paid, one portion goes to fund city services, and a smaller portion goes to a TIF account, which was designed to be for the mayor to pursue economic development projects in blighted areas in need of jobs and new property tax revenues. But the TIF law is ridden with loopholes that allow the money to be spent on just about anything. In a nutshell, this means Rahm Emanuel effectively has a private slush fund of almost $1 billion in citizens' tax dollars at his disposal.
As independent Chicago watchdog group Good Jobs First reported in an April 2014 study, property tax diversions into TIF accounts have grown to a greater number than the city’s liability to the pension fund since 2007. In 2012, even though the city owed $385 million to workers’ pension accounts, it diverted $457 million in property tax revenues to TIF accounts. In May of that same year, Emanuel earmarked $29 million in TIF funds for the River Point office high-rise in the West Loop. Some of Rahm’s more controversial TIF-funded pet projects include a $55 million deal for a Marriott Hotel in the South Loop and $75 million spent on a basketball stadium for Depaul University, a private college that charges $30,000 a year in tuition.
According to David Sirota at PandoDaily, Rahm has roughly $800 million in TIF money that has yet to be spent, despite closing 50 public schools due to an alleged lack of funding. Rahm’s yes-men on the city council also shut down a proposal that would require him to let loose of some of the TIF surplus funds to divert to public schools and unfunded pension liabilities.
Sirota also reported that the recipients of Rahm’s TIF projects are intimately tied to Rahm’s political hopes. The owners of the parent company managing Mariano’s Fresh Market, which received $7 million in TIF funding, gave $25,000 to Rahm’s first campaign months before they were awarded the deal. Later, when a $7.5 million TIF-funded data center fell through, Madison Dearborn Partners (MDP) and JDI Realty, which received the grant, were never required to give the money back to the city. MDP employees and executives have given Rahm almost $300,000 in contributions since 2010.
Perhaps the most egregious example is the $29 million in TIF money allocated for office space in the West Loop. That building will house the new headquarters for DLA Piper – a law firm that’s given Rahm Emanuel more than $125,000, and a firm he uses to navigate TIF projects. As Sirota reported, DLA Piper was responsible for the $5 million allocation of TIF money that went to Vienna Beef.
4. He allegedly violated federal law and his own executive order.
While Rahm’s scheme to cut pensions while fattening TIF accounts is technically legal, his shifting of pension funds to financial firms that have donated to his campaign is not. Rahm has received at least $600,000 from financial firms that manage pension funds, and is allowing firms managed by his donors to take a cut from the Chicago Teachers Pension Fund (CTPF) when investments transfer through them. This flies in the face of federal laws prohibiting executives at firms managing city pension funds from donating to political campaigns. It’s also in violation of an executive order Rahm Emanuel himself issued in 2011, which was meant to stop campaign donors from getting city business.
“It’s a direct violation of SEC law,” Fred Klonsky said. “There’s no question that there’s an ethical lapse, but there could also be a legal violation.”
As Sirota reported in International Business Times, the pension transfers have a “double layer” of fees when transferring to other investment firms through financial companies and Rahm supporters like Madison Dearborn Partners and GTCR. These fees can equal up to 4 percent, which is 5 times more than what the average investor would pay on such a transaction.
Two of the firms managing pension funds through third parties include Madison Dearborn Partners and GTCR, which used to be chaired by current Illinois Governor Bruce Rauner. Neither firm managed pension money until Rahm took office. GTCR has even told the SEC that it sometimes shifts underperforming investments into funds in which city employee pensions have a stake so it can “earn fees.” Madison Dearborn previously asserted that it isn’t violating the SEC’s rules since it manages pension funds through third party firms, even though the SEC’s rules target companies diverting pension funds through third-party financial companies.
“Someone at the federal level has to investigate this. The board of trustees can’t investigate it,” Klonsky said. “But federal investigations are like a black hole.”
5. His closure of 50 schools has had disastrous consequences.
In 1995, the Illinois legislature passed a law allowing the mayor of Chicago to be the sole decider of who serves on the Chicago Board of Education (CBOE). During Emanuel’s first term as mayor, his appointed board closed 50 schools, affecting 12,000 students. 88 percent of those students were African-American, and 95 percent came from low-income households. Rahm’s decision to close the schools were initially based on his assessment that they were failing, and that there wasn’t enough money in the budget for Chicago Public Schools (CPS) to keep the schools open. But Phillip Cantor said that’s “simply untrue.”
“Rahm and Daley both took billions out of the tax base for TIF money,” Cantor said. “Schools are often the anchor of a community… Money was pulled out of all these community schools and put into the mayor’s pet development projects.”
After lots of fierce criticism from educators and parents, Rahm and the CBOE have since changed their tune to say that schools are considered “failing” not just based on test scores, but based on “underutilization” of space. At a community meeting in January, CBOE vice president Jesse Ruiz hinted that while the city is currently in year 2 of a 5-year moratorium on school closings, a third of Chicago’s high schools may be closed after that due to underutilized space.
Sarah Chambers, a special education teacher at Maria Saucedo Academy in Chicago, said the metrics for judging schools are “unfair,” and based on one standardized test score taken on one day out of the school year, without considering other factors like student poverty and health.
“I work in a high poverty school, and there are lots of times where students haven’t had anything to eat all day,” Chambers said. “Some of these kids have had family members shot and have post-traumatic stress disorder, and may have to miss school to go to a mental health clinic.”
Like many other school districts, funding for CPS comes largely from regressive property taxes. This naturally means schools in wealthier neighborhoods have more funding, and schools in poorer neighborhoods have less. The problem is exacerbated when more property tax dollars are siphoned off for TIF development projects. Chambers said the system for allocating funding to schools is flawed from the start.
“Tim Cawley [chief administrative officer at CPS] openly said a few years ago that when they think a school is going to be closed, they purposefully defund that school. So they set up that school to fail.”
One of the more persistent issues of the recent municipal elections was how to address the increasing gang violence in Chicago’s distressed neighborhoods. Chambers said Rahm Emanuel’s school closings have “without a doubt” contributed to the increasing violence in Chicago’s poorest neighborhoods.
“Our school hasn’t had many safety lockdowns. But just this year alone, we had 3 lockdowns within a month. In one case, there was a shooting outside right in front of our school in the middle of the day,” Chambers said. “Some neighborhoods don’t have schools at all. A number of kids at my school have to travel up to 10 miles… Kids having to cross gang lines every day to get to school is the biggest problem.”
A University of Illinois at Chicago study concluded that after 20 years of increasing inequalities in public education, Chicago should move to an elected school board. And in the last election, Chicago voters overwhelmingly passed a non-binding referendum in 37 city wards to return control of the school board back to the people. Even after Emanuel’s allies blocked a citywide referendum on school board control, the referendum still passed by margins of 83 to 93 percent in all 37 wards. However, getting an elected school board still ultimately falls on the state legislature.
6. He helped pave the way for Bruce Rauner’s election as Governor.
In between Emanuel’s time as one of Bill Clinton’s right-hand men and his first campaign for U.S. Congress, he made his money in banking – at one point, pulling in $16 million in just 2 years. His most lucrative deal was using his political clout to negotiate the sale of a security company on behalf of GTCR Golder Rauner, which was chaired by Bruce Rauner. The details of the sale is the epitome of the shady, corrupt, good-old-boy cronyism that most associate with Chicago politics.
After telecoms giant SBC Communications acquired Ameritech, another giant telecoms corporation, Bill Clinton’s FCC ordered SBC to sell SecurityLink, which was an asset of Ameritech’s that SBC acquired by default. SBC was chaired by William Daley, who was Secretary of Commerce under Bill Clinton, and the brother of Chicago mayor Richard Daley, who depended on Rahm Emanuel as his chief fundraiser. Rahm was able to use his clout to buy SecurityLink for $479 million on behalf of GTCR, $379 million of which was financed by SBC. Emanuel then flipped SecurityLink for $1 billion, netting his client a profit of more than $500 million.
“Bruce Rauner gave Rahm a toehold in the financial sector where Rahm could make a huge amount of money in a couple of years, and then Rahm didn’t have to worry about money anymore,” Phillip Cantor said.
Before Rauner, a Republican, was elected governor of Illinois, Rahm appointed him as the chief of Choose Chicago, the city’s tourism effort. And when Emanuel, a Democrat, was running for mayor of Chicago, he won with the help of Rauner’s donations. But now, the two politicians and vacation buddies have to pretend to be at odds with one another, now that Rauner -- who made $30,000 an hour and wants to lower the minimum wage – introduced a nuclear budget that cuts money from schools, healthcare, and other public services vital to Chicago. Rahm has promised to fight the cuts, but Fred Klonsky said Rahm’s rhetoric is just smoke and mirrors.
“The mayor has played this game – the first proposal is the nuclear option,” Klonsky said. “If you remember, Rahm’s first option was to close 300 neighborhood public schools. After the outrage settled down, he backed down to 49. Some people will go, ‘Thank God for that. He only closed 49.’”
“Rauner has this crazy slash and burn budget, knowing that full well the democrat-controlled legislature has a veto proof majority in both chambers,” Klonsky continued. “Rahm knows that, so he can take the position that the budget is a terrible thing, so it’s a politically safe position to take, and makes it sound like he’s standing up for the city.”
“[Rauner] gives to Democrats, and his wife is a Democrat,” Phillip Cantor said. “He only ran as a Republican to oppose Pat Quinn. He’s as much of a Republican as Bill Clinton.”
Klonsky said that despite the two politicians nominally representing opposing parties, the fact that they’re both deeply tied to the financial industry and are able to muster significant support for their campaigns from the same group of donors makes their governing styles interchangeable.
“It’s a new model for the way in which the corporate class governs,” Klonsky said. “This is corporate control of a government with no middle man.”