CHICAGO Chicago Mayor Rahm Emanuel voiced support for his chief financial officer Lois Scott this week, following reports highlighting her past business ties to former comptroller Amer Ahmad, who faces federal corruption charges tied to his tenure as deputy Ohio Treasurer.
“Lois Scott is a very good public servant and is doing a great job, Emanuel said during questioning at an unrelated public appearance Tuesday. “She has had a tremendous career in the private sector and gave that up to join the city and serve the public. And she continues to do that with my full confidence.”
The Emanuel administration sought City Council approval for Scott’s appointment in 2011, lauding her long experience as a public finance banker and then independent financial advisor. That tide has shifted over the last month due to Ahmad’s indictment. Her background now has become the subject of questions over whether it poses a conflict of interest. None of the questioning or reports have accused Scott of any wrongdoing.
After Ahmad’s indictment last month on charges accusing him of kickback schemes involving Ohio Treasury contracts, reports here initially focused on how Ahmad got the city job and the city’s vetting process. The questions stemmed in part from reports in Ohio papers during the 2010 election campaign that linked Ahmad to firms that had won Treasury contracts. Ohio-s then-Treasurer Kevin Boyce went on to lose the race to Jose Mandel.
Scott has come under scrutiny because she was among the officials who recommended Ahmad for the post, as did Boyce and others all of whom have expressed surprise at news of the indictment. Recent reports have highlighted Scott’s ties to Ahmad through the financial advisory firm she co-founded Scott Balice Strategies. She sold the firm to Public Financial Management Inc. to take the CFO post, for which Emanuel personally recruited her after his 2011 election.
Scott’s firm had pursued work with the Ohio Treasurer’s office and advised on a $208 million deal that sold in October 2010. After Boyce lost the election and his term ended in early 2011, he took a job at Rice Financial Products Inc., while Ahmad joined KeyCorp.
In the public finance community, the connection was no secret, given that Scott’s former firm pursued and won work with many large Midwestern issuers. Scott Balice was the top-ranked adviser in Illinois in 2010, the year before she sold the firm. It ranked 2nd in the Midwest that year and 10th nationally, according to ThomsonReuters.
The city’s selection process for underwriters, led by Scott, has also drawn attention. Rice Financial Products was chosen to work on three city bond deals during Boyce’s tenure at the firm in 2011 and 2012.
The team for an O’Hare Airport deal was chosen before Emanuel took office. During Boyce’s time there, Rice was named a co-senior manager on a $276 million city sewer revenue deal and as a co-manager on a $400 million water revenue. Both priced after his departure from the firm during the spring of 2012.
Boyce and the Emanuel administration have said Boyce met with Scott on several occasions during a period when Boyce was on Rice Financial’s team that served the city. Boyce said in a recent interview with The Bond Buyer that the city was never his direct client and he did not receive any financial compensation for city deals. He currently works for Duncan-Williams Inc. in Ohio and is a Democratic Ohio state representative.
Rice Financial is a minority-owned firm that has long done business with the city. ThomsonReuters data shows the firm’s work with Chicago dropped slightly during Boyce’s tenure from the previous two years. The connection prompted some council members to suggest that Scott recuse herself from decisions on underwriting teams.
The city has long solely used negotiated sales to sell its bonds, with officials taking the position that such sales afford them more structuring flexibility and promote the submission of creative financing ideas from bankers. They also provide the city with the ability to use minority, women-owned, and veteran-owned firms. The city has a goal to use 25% minority-owned and 5% women-owned firms on deals.
Scott and her predecessors have argued that the price the city pays is no higher when it uses negotiated sales. Critics have argued that’s not the case and the city could lower borrowing costs and avoid the perception that any favoritism is show to firms with political ties if competitive sales were used.
None of the published reports have accused Scott of any wrongdoing. They have, however, brought scrutiny on a municipal finance sector in which political and business ties often go unnoticed by the mainstream press and few questions are ever raised by City Council members. Former city and state finance team members who worked with Scott as an advisor now work at a number of broker-dealers in Chicago.
Scott has won praise from fiscal watchdogs and from investors for improving the city’s disclosure and investor relationships. Like her predecessors, she has sought to spread around city bond business, market participants said. It’s unclear whether the Ahmad scandal will fade soon and ease the distraction for Scott and the administration as they work on a fiscal 2014 budget, faced with a looming crisis in 2015, when city pension contributions will skyrocket by $600 million absent state action on reforms. The city’s corporation counsel and inspector general are leading an investigation of Ahmad’s work during his tenure as comptroller.