Chicago Law Would Restrict Bond Deals With Bailout Recipients

CHICAGO - Chicago would bar financial institutions from inclusion in city bond deals if they seek aid from the federal government's bailout plan but don't strictly limit executive compensation under an ordinance introduced yesterday to the City Council.

In other action yesterday, the city's finance department introduced a measure seeking authorization to issue up to $1.1 billion of new money and general obligation refunding bonds. The council also unanimously approved Mayor Richard Daley's proposed $2.521 billion lease of Midway Airport to private operators for 99 years but only after council members voiced a litany of concerns.

Under the legislation proposed by Alderman Edward Burke, chairman of the council's Finance Committee which reviews all city bond deals, and Alderwoman Leslie Hairston, firms that benefit from the bailout would be required to limit to $400,000 the salary, bonus or any other financial incentives paid to its executive officers. If not, the firms could not underwrite city bond deals or serve as municipal depositories. The measure also would ban the city treasurer from purchasing securities from any firms that don't comply.

The measure would apply to any financial institution and its affiliates that sell any of its troubled assets to the Treasury Department as part of the Emergency Economic Stabilization Act of 2008.

"The public outrage over exorbitant pay packages received by the chief executive officers of failed companies is reflected in this proposal," Burke said. "In short, the city of Chicago is not going to roll out the welcome mat for any financial institution that accepts money from this unprecedented federal bailout, yet turns around and hands out huge amounts of money to its executives."

The two council members cited industry reports that show executives of Standard & Poor's 500 companies on average received $14.2 million in compensation last year.

If approved as worded, the new rules would likely eliminate many of the remaining Wall Street broker-dealers from city bond deals while providing a boost to regional and minority- and women-owned firms. Chicago chief financial officer Paul Volpe was not immediately available to comment on the potential impact such a rule would have on future city bond sales. The measure will receive a hearing before the Finance Committee at an upcoming meeting.

Chicago was the second largest issuer in the Midwest last year, selling $2 billion of debt in 30 deals using a range of Wall Street, regional and minority-owned firms. Chicago had exceeded that figure through the first six months of the year with $2.1 billion issued in nine deals due to a large number of restructurings. The city also has at least three more deals to price this year. The city issues its debt through negotiated sales. The ban also stands to impact the choices of other local issuers such as the Public Building Commission, the Chicago Board of Education, and the Chicago Park District that follow the city's lead.

On the Midway lease, some council members raised a range of concerns over the transaction that included complaints over the lack of time they had to review the lease and whether the city could receive a higher bid if it waited until the current fiscal crisis subsides. Others sought assurance that they will have a say in how the net proceeds of about $1 billion are divvied up.

"Everybody is mesmerized by that number" of $2.5 billion, said council member Thomas Allen. "Let's at least understand that nobody understands what this number means, what the potential pool of applicants could have been or could be two years out. That's an important aspect ... [T]his is not the silver bullet that is going to solve our problems."

With council approval, the lease is now forwarded to the Federal Aviation Administration which must allow a 60-day public comment period before approving. The Transportation Security Administration also must approve it.

The city last week announced it had accepted the $2.5 billion bid from Midway Investment and Development Co. LLC - made up of YVR Airport Services Ltd., Citi Infrastructure Investors, and John Hancock Life Insurance Co. - to operate the airport. The city first announced four years ago that it would explore the privatization of Midway under a federal pilot program that permits up to five airports to be converted from public to private hands.

Volpe has called the price a "good value" for the city compared to the prices paid in recent airport leases signed overseas. The city sought council approval quickly because it hopes to win federal approval before a new administration takes office early next year over concerns that the change could delay the transaction.

Nearly $1.2 billion of the proceeds will go to defease existing Midway debt, with another $225 million earmarked for a fund to pay for police and fire services at the airport, another $126 million for pending airport projects and $19 million for adviser fees.

That leaves about $1 billion for the city to spend, of which 90% must go towards infrastructure work or to fund city pensions. The city can spend the remaining $100 million as it wishes. Daley is under pressure to use a chunk to help eliminate a $420 million in the 2009 budget that will be unveiled next week.

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