Idea of the Week: Municipalities and Unions Take on Municipal Bankers
Mar 12, 2010
The City of Los Angeles has demanded that the Bank of New York Mellon renegotiate certain pre-recession interest rate swap deals or face exclusion from any future business with the City. Facing budget deficits, looming layoffs, and swap deals rendered uneconomic in light of current low interest rates, Los Angeles is demanding that its bankers release it from current swap agreements without penalty.
The champion of the effort to renegotiate the swap deals is City Council member Richard Alarcon, a former California Assemblyman from Council District 7, who is spearheading a full-scale campaign against bankers to the city of Los Angeles. The campaign is being supported by the Services Employees International Union (SEIU) and local community groups. In addition to penalty-free release from swap deals, the SEIU is asking bankers who deal with Los Angeles to stop foreclosures, modify mortgages that exceed current market price, provide loans to local governments at the rate the banks are able to borrow from the Fed, to restore small business lending and to stop "abusive" fees. See here.
Councilman Alarcon has announced that he is planning to introduce a resolution calling on other municipalities to renegotiate their swap agreements at the National League of Cities’ "City Conference," which is opening in Washington, DC this coming weekend. Alarcon says he wants to work with other cities using his plan as a "national model" for how cities can divest their investments from financial institutions that fail to accommodate their communities. Alarcon’s plan would also create comprehensive reporting requirements for all banks doing business with Los Angeles. Los Angeles, the nation’s second largest city, has considerable clout. The City has approximately $30 billion in investments, $25 billion in its pension funds, and the remaining $5 billion in its own portfolio.