The City of Oakland should find a way to get out of its interest rate swap agreement with Goldman Sachs, a deal that costs the city $4 million annually, according to a city staff report. The problem before the city council now is figuring out the best way to do that without costing the city more money.
The Oakland City Council’s Finance and Management Committee received a report from the city administrator’s office on Tuesday afternoon detailing options for the city’s bond debt deal with the investment bank, and recommending that the city enter into negotiations to terminate the deal “at a below market cost” by the end of the next fiscal year. Under the current terms, ending the deal would cost the city about $15.5 million, the current negative market value of the swap.
The city and Goldman Sachs agreed to a rate-swap deal in 1997 relating to $187 million in city debt. The deal allowed the city to convert floating interest rates on municipal bonds into a fixed rate of 5.6 percent. But when the financial markets crashed in 2008, the city was left on the short end of the deal. The city has already paid out $26 million more than it owed; the underlying bond was paid off by the city in 2008.
The deal, which runs until 2021, has angered community members and city officials because big banks like Goldman Sachs were bailed out with billions in taxpayer money in 2008, yet even with Oakland struggling financially, the bank had been unwilling to renegotiate the deal to give the city some relief.
Last June, Oakland city councilmember Rebecca Kaplan (At-large) wrote a letter to Goldman Sachs CEO Lloyd Blankfein asking to renegotiate the deal because companies like Goldman Sachs have a responsibility to “operate in a manner that would be beneficial to the public” after using “taxpayer dollars in order to salvage private, for-profit corporations.” The union that represents city workers, SEIU 1021, began researching the deal around the same time, and by October a coalition of community groups, now called the “Oakland Coalition to Stop Goldman Sachs” had formed to discuss how the city may get out of the deal.
The discussion finally made it to City Hall on Tuesday, and the Sgt. Mark Dunakin Room on the first floor of the building was packed with members of the Coalition to Stop Goldman Sachs. During the meeting, many in the crowd held up bright signs that read, “Stop the swap, invest in the poor not the rich.” A long line of speakers approached the podium to reject the staff recommendation if it meant paying Goldman more money, and urged that the deal be ended immediately, at no further cost to the city. Many asked councilmembers to examine what other cities with similar agreements have done; for example, in Los Angeles the city government refused to negotiate any new deals with Goldman Sachs if the investment bank didn’t waive a cancellation fee.
“Don’t go quietly, make a stink about the injustice about these swaps,” said coalition member Beth Kean. “Stand with us against Goldman Sachs.”
Councilmembers Patricia Kernighan (District 2) and Jane Brunner (District 1) agreed that more research needs to be done by city staff into what other cities have done to get out of their rate swap deals before Oakland decides whether or not to pull out of the deal.
Councilmember Desley Brooks (District 6) suggested a more drastic approach: just stop paying. “I don’t think we’ll get the attention of Goldman Sachs if we’re just going in and having a conversation,” Brooks said.
Councilmember Ignacio De La Fuente (District 5) agreed with Brooks, saying he’d like to see a proposal to negotiate with Goldman Sachs that would get the city out of the deal immediately.
The committee then voted to reject the staff recommendation, and requested more information on other cities’ deals with Goldman Sachs and what sort of consequences the city would face if it stopped making payments.
“All of us are ready to push the envelope, but we have to understand the risk,” De La Fuente said.
Deborah Santana, an ethnic studies professor at Mills College and a coalition member, said in an interview after the meeting that while members aren’t happy negotiations with the bank aren’t moving forward now, she’s hopeful that when they do happen, the city will not be saddled with additional costs.
“The public pressure is what impressed some of the members of the committee, that they needed to do more than just accept this offer from one of their bureaucrats,” Santana said. “If not for the public pressure, they would not have rejected the proposal.”