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A public official chosen by President Obama’s former chief of staff to oversee the finances of a major U.S. city faces more than a decade in jail for operating a huge kickback and money-laundering scheme as Ohio’s deputy state treasurer.
Nevertheless Chicago Mayor Rahm Emanuel, Obama’s good pal and one-time White House chief of staff, hired the corrupt official, Amer Ahmad, to be Chicago Comptroller. If you recall, Emanuel left his presidential job to become mayor of the Windy City in 2011. Before joining the Obama administration Emanuel served three terms in the U.S. House of Representatives and as a senior advisor in the Bill Clinton White House.
Yet, Emanuel claims through aides that he had no idea he was hiring a crook to supervise the city’s finances, though the mayor refuses to comment on his friend’s bribery scandal. A Chicago newspaper reports that City Hall hired a law firm to vet Ahmad and it confirmed no criminal wrongdoing by the former Ohio deputy state treasurer. Ahmad, who resigned abruptly as Chicago Comptroller in July, joined the Emanuel administration in 2011.
This week in a Cincinnati federal court Ahmad pleaded guilty to bribery and conspiracy to commit bribery, money laundering and wire fraud. The feds say he used his Ohio government job to secure “lucrative state business” for his high school buddy in exchange for more than half a million dollars in kickbacks. Besides facing up to 15 years in prison, Ahmad agreed to pay more than $3.2 million in restitution and $500,000 in fines, according to his plea agreement.
Attached to the plea document is the federal complaint outlining Ahmad’s illicit kickback scheme. Even though he was Ohio’s Chief Financial Officer and Deputy Treasurer, Ahmad was the president of one company and partial owner of another, the complaint says. Those are the businesses that were used to funnel the state money. The purpose of the conspiracy was clear, the complaint says; for the defendants to enrich themselves, their friends and associates.
This is hardly the first scandal to rock the Emanuel administration in its short tenure at the helm of Chicago City Hall. Emanuel got in trouble for unlawfully accessing the private information of Chicago public employees in an effort to get their support for his mayoral candidacy. Union leaders were up in arms and city employees accused him of invading their privacy. Then, the co-chair of Emanuel’s mayoral campaign, a high-level state employee, quit abruptly for illegally using public resources to conduct political business.
For his many transgressions, Emanuel has also appeared on Judicial Watch’s annual most corrupt politicians list. In 2010 Emanuel teamed up with his then Deputy Chief of Staff Jim Messina to interfere with Senate elections in two states by offering federal appointments to persuade candidates not favored by Obama to abandon their campaigns. Emanuel was also Obama’s chief negotiator with convicted Illinois Governor Rod Blagojevich as he tried to illegally sell Obama’s former Senate seat to the highest bidder, according to sworn testimony during Blagojevich’s federal trial. Judicial Watch covered both of Blagojevich’s trials in Chicago federal court. The jury deadlocked in the first trial and convicted him of 17 corruption charges in the second. The disgraced politician is serving a 14-year sentence in a Colorado federal prison.
by John Rubino on December 8, 2013 · 26 comments
The main difference between well-run and badly-run countries is certainty. In well-run countries, money is worth pretty much the same from one year to the next, the police come when called and protect rather than prey on the caller, and contracts, including pensions and other retirement plans, behave as advertised. In badly-run countries, not so much.
With the contract part of this story, Americans have been living in two different countries, depending on whether they’re in the private or public sectors. Private sector workers discovered years ago that things like pensions and employment contracts are just so much scrap paper. But until recently the public sector had been spared such nasty surprises. Baby boomer teachers, firefighters and college professors have spent lifetimes doing their jobs and watching their pensions accrue. They’ve known for decades that when they retire they’ll get X amount per year for life and have X amount of their health care covered. This certainty makes them perhaps the last segment of US society to retain a belief that the system works.
But that changed earlier this month, when Detroit’s bankruptcy judge declared that pensions can be cut along with everything else:
A federal judge’s ruling clears the way for Detroit to proceed with the largest municipal bankruptcy in U.S. history
For 90 minutes Tuesday, as snow fell on protesters outside, Judge Steven Rhodes laid out his rationale for allowing Detroit to seek the biggest municipal bankruptcy in American history.
“This is indeed a momentous day,” Rhodes told the hushed courtroom. “We have a finding that this proud and once prosperous city cannot pay its debts.”
By the time the soft-spoken federal judge had finished, it was clear that from worker pensions to the city’s art treasures, nothing in Detroit is completely safe in Chapter 9 bankruptcy.
The effect of his ruling is likely to touch all corners of the city and could serve as a legal precedent for other municipalities reckoning with unsustainable debt. Here are three of the most important takeaways:
Pensions Aren’t Sacred. Lawyers for the city’s 48 organized-labor groups argued strenuously that Michigan law protected state employees’ pensions. Rhodes disagreed, noting that the state’s constitution classified pensions as a contractual obligation on cities’ part, not something requiring special treatment.
That means the city can treat pensions like any other potentially voidable contract. Expect it to do so. On Tuesday afternoon Detroit’s emergency manager, Kevyn Orr, said he couldn’t fix the city’s financial problems simply by restructuring the debt owed to banks. “It can’t be done without impacting pensions,” Orr said.
“For the image of labor, Detroit is a catastrophe,” said Gary Chaison, a professor of industrial relations at Clark University in Worcester, Mass. “The aristocrats of labor have become the paupers of labor. What affected yesterday’s manufacturing workers is now affecting policemen and firefighters. Nobody is safe.”
Detroit is just the first of many. Pension plans across the country have failed to put away enough to cover their obligations while hiding that fact from beneficiaries and bondholders:
Pity the municipal bondholder. Between Detroit’s bankruptcy and the rising concerns over unfunded pensions in Illinois and elsewhere, it has been a rough year for many muni bond investors. While the Standard & Poor’s municipal bond index has recovered from its September lows, it is still off 2.7 percent for the year.
A big problem for investors in this $3.7 trillion municipal market — mostly individuals — is that financial disclosures by states, cities and other issuers of tax-exempt debt can be decidedly inadequate.
Securities laws require issuers of municipal debt to provide the information investors need to make informed decisions when buying or selling these instruments. But lax disclosure practices remain, making it hard to spot signs of problems like those hobbling some states and cities. Disclosures about the soundness of public pensions, for example, can be essential to weighing the health of municipal bond issuers that are responsible for funding them.
Investors aren’t the only ones who need more information. This was on full display last week, when a judge in Detroit suggested in a groundbreaking ruling that the city’s pensioners would not get priority in the city’s bankruptcy, and their retirement pay could be considered an unsecured obligation.
John R. Mousseau, executive vice president and director of fixed income at Cumberland Advisers, a money management firm in Sarasota, Fla., said: “Detroit’s pensioners may be as eligible to take a haircut as the city’s bondholders or vendors. This development should demand more disclosure.”
But better disclosure practices among tax-exempt issuers are slow in coming, investors say.
If issuers make material misstatements or omit information, they can face civil or criminal penalties. The Securities and Exchange Commission has brought eight cases contending disclosure failings by municipal issuers this year.
A large case last March involved accusations that the state of Illinois misled investors about its unfunded pension. From 2005 to 2009, a period when the state issued $2.2 billion in bonds, the S.E.C. said Illinois failed to warn investors about the pension system’s woes and “the resulting risks to the state’s financial condition.”
Among the details missing from the state’s offering statements and filings, the commission said, were those relating to the contributions made by the state to its various pension funds. The commission said investors were not told that the state was contributing far less to the pensions than was required each year. Last week, the Illinois Legislature voted to shore up the pensions by raising the retirement age for some workers and lowering cost-of-living adjustments. The state is facing a pension shortfall of $97 billion.
Illinois settled with the S.E.C., but the agency did not impose fines or penalties. The S.E.C. doesn’t typically exact penalties in such cases, its officials said, because the money would come out of a state or city budget, making matters worse.
A crucial metric that should be found in issuers’ offering statements and filings is one cited by the S.E.C. in the Illinois case: the shortfall in annual contributions that are needed to keep a pension fully funded. Known as annual required contributions, or ARC, many states fail to meet them.
This has the effect of masking an issuer’s financial troubles, Mr. Tobe said. “There almost needs to be a bold statement saying the state is not paying 100 percent of its ARC payments,” he said.
He cites a December 2011 offering statement for $72 million of bonds issued by the University of Illinois. Nowhere does it detail the shortfalls in state contributions to the university system’s pension fund in recent years. Investors seeking this information must go to the Illinois State Universities Retirement System website.
It has been generally understood for a while that pension plans use unrealistic return assumptions to hide the fact that their governments aren’t contributing enough each year. But it’s interesting that even with a raging bull market in equities – which have of late returned a lot more than the typical pension target of 8% – many plans are becoming even more underfunded. Part of this is due to the fact that the bonds in pension fund portfolios have gone down in the past year, offsetting gains in equities. And part is due to governments failing to contribute as much as they’ve promised they would.
Stocks, based on most historical measures, are ripe for a correction, and bonds, even after a recent uptick in rates, yield next-to-nothing. So the average pension fund, instead of making its optimistic 8% return target, might actually lose money in the next couple of years. In that case, their underfunding would be too horrendous to hide.
With a growing number of cities (and some states) devoting unsustainable portions of their operating budgets to paying former rather than current workers, Detroit might become the template for dozens of other cities in 2014 and beyond. And millions of people who thought they’d nailed down a middle class retirement in a well-run country will find out they’re not in that country any more.
The city of Washington, Illinois, was hit hard by a “large and extremely dangerous” tornado [Reuters]
|Severe storms and violent tornadoes have killed at least two people and injured about 40 and flattening large parts of the city of Washington, Illinois, as they battered the US Midwest on Sunday, officials said.
The storm created tornadoes in Bone Gap and Miller City, Illinois, in Mount Carmel, Noblesville and Vincennes in Indiana, and in Paducah, Kentucky, the National Weather Service said on Sunday.
The storm system is threatening up to 53 million people across the Midwest.
The storm also forced the Chicago Bears to halt their game against the Baltimore Ravens and encourage fans at Soldier Field to seek shelter as the storm roared in.
Chicago’s two major airports also briefly stopped traffic with the metropolitan area was under a tornado watch.
The city of Washington, Illinois, was hit hard by what the National Weather Service called a “large and extremely dangerous” tornado.
Thirty-one people injured by the storm that hit Washington were being treated at St Francis Medical Center, one of the main hospitals in nearby Peoria, according to hospital spokeswoman Amy Paul. Eight had traumatic injuries.
Two people were killed in Washington County, Illinois, about 320km south of Peoria, said Illinois Emergency Management Agency spokeswoman Patti Thompson.
The agency estimated that at least 70 homes were destroyed across the state.
Stephen Wilson, a spokesman for Peoria’s Proctor Hospital, said six or seven patients were being treated with minor injuries. “Mostly cuts, bruises, some broken bones,” he said.
Photos from Washington, Illinois, showed buildings reduced to rubble and homes torn in half in the city of 15,000 people about 233km southwest of Chicago.
“We have reports of homes being flattened, roofs being torn off,” Sara Sparkman, a spokeswoman for the health department of Tazewell County, Illinois, where Washington is located, said in a telephone interview.
Many of the injuries appeared to have been caused by collapsing structures.
The Illinois National Guard sent a 10-person fire-fighting and search-and-rescue team to Washington to help with the recovery effort.
Illinois State Police spokeswoman Monique Bond said mobile homes were toppled, roofs torn from homes, and trees uprooted.
She said officials believe some people may be trapped in their basements under debris.
The American Red Cross worked with emergency management officials to set up shelters and provide assistance to displaced residents, even as rescue workers searched for more people who might have been caught and trapped in the storm’s path.
Tornado warnings were in effect for parts of Indiana and Kentucky. Weather officials urged residents of areas with tornado warnings in place to take cover in interior, low-floor rooms of study buildings.
The NWS’s Storm Prediction Center said the storm moved dangerously fast, tracking eastward at 97 kilometre per hour.
- ‘They’ve bought everyone’s silence’: Drillers paying out fracking settlements to land owners on one condition – keeping quiet (business.financialpost.com)
- Confidentiality Agreements Prevent Fracking Contamination Claims From Being Made Public (stateimpact.npr.org)
- Fracking on Federal Lands Said to Get Scaled-Back Rule Proposal (bloomberg.com)
- Make sure fracking is done right (cnn.com)
- Illinois must adopt ‘fracking’ rules, hire experts (timesleader.com)
- Ill. Passes Nation’s Toughest Fracking… – ABC News (abcnews.go.com)
- Storm takes aim at Texas, Midwest (click2houston.com)
- Major storm bringing potentially dangerous commute to upper-Midwest (cbsnews.com)
- Storm promises messy, dangerous commute in Midwest (cnsnews.com)
- Midwest about to be hit with concert storm (vividseats.com)