Oakland City Council votes to terminate swap agreement with Goldman Sachs

Audience members at the council meeting showed their opposition to the swap deal with Goldman Sachs

Audience members at the council meeting showed their opposition to the swap deal with Goldman Sachs

After months of discussions, protests from community organizations and residents, on Tuesday night the Oakland City Council voted to end its relationship with Goldman Sachs.

In the absence of councilmember Patricia Kernighan (District 2), the remaining members of the council voted 7-0 in favor of passing a resolution that authorizes the City Administrator to negotiate the termination of a swap agreement that the City of Oakland entered into with Goldman Sachs in 1998. The resolution stipulates in part that “if Goldman Sachs refuses to terminate the swap agreement without termination fees or penalty within 60 days, then they will be excluded from any future business with the City of Oakland.”

The 1998 rate-swap agreement between the city and Goldman Sachs allowed the city to convert $187 million in bond debt from a floating interest rate to a fixed rate of 5.6 percent. Since the stock market crash and the related drop in interest rates, the city has paid $4.2 million annually the bonds, $26 million more than it owed on its original debt. The firm has declined to rescind the deal unless the city pays $15.5 million in fees and penalties.

At the start of the session, the city clerk announced that the Goldman Sachs matter would be continued until the next meeting, which meant that the public could speak on the issue but a vote would not take place. Shortly after the announcement, there was some debate among the councilmembers that resulted in the withdrawal of a prior request by councilmember Jane Brunner (District 1), a supporter of the resolution, to continue the matter until additional legal materials were reviewed the councilmembers. That meant a vote could go forward.

More than fifty people signed up to speak to the council about terminating the swap agreement. Oakland resident Carl Anderson suggested the council “choose their words carefully” when drafting future contracts and submitted a letter suggesting terms to use in new agreements. Bahar Tolou, the spokesperson for the Refund California Coalition, an organization that opposes the swap deal, submitted an “initial opinion” and a “legal citation” written by two law firms regarding the swap agreement, which declared that city has the right to decide what companies they want to conduct business with, and that the city can reject Goldman Sachs for future city contracts.

Residents and teachers took turns at the podium expressing their concerns about the welfare of the city and its residents. “We can find a way to stop doing business with companies that do not act responsibly and do not play fairly,” said Carol Wolfley, a retired public school teacher.

Resident Cheryl Walton cited a passage from the Bible about kindness for poor brothers and went on to remind councilmembers that cities across the country stood in solidarity against Apartheid by refusing to conduct business with companies in South Africa. She said that it should also be legal to take a similar stand against an investment company. “It is your moral obligation to have done your research, to guide your decision-making tonight, to provide leadership and transparency and to make accountable yourselves and city staff to us, your constituents,” Walton said. “We are demanding you to hear our cries, hear our voices, act appropriately, be a leader in the swap business and stand up for Oakland.”

Councilmembers Brunner, Rebecca Kaplan (At-large) and Libby Schaaf (District 4) summarized the council’s position on the resolution before the council moved to a vote. “This goal is not only what we’re seeking to do in Oakland, but this is a growing movement to bring accountability and responsibility for people that took billions of taxpayer bailout dollars and who are now not willing to pay it forward,” Kaplan said.

Brunner, who brought the motion to the floor, also expressed her support for the proposal to resolve the contract with Goldman Sachs. ”There really is a double standard going on in this country,” Brunner said. “The federal government has bailed out the banks but it has not bailed out the cities. They are letting city after city suffer and some, not us, are going bankrupt. It’s time to stop this. I am proud to be on the city council that may be one of the first city councils that is going to do this.”

After additional comments from the council, the voted unanimously to pass the resolution to sever the swap deal with Goldman Sachs. The audience cheered loudly, waved signs and thanked the council before they began to gather their belongings to leave.

Also on the agenda was the second reading of the proposal for the Army Base project, a $1 billion “Working Waterfront” proposal that will link the City of Oakland and the Port of Oakland in a project that could create almost 5,000 jobs by creating a warehouse, trade and logistics center on the former base in West Oakland.

Adjustments to the initial proposal included clarifying the language on a section of the employment applications to be used at the site, which ask applicants if they have a criminal record. The terms of the contract will now explain under what circumstances an employer can ask about an applicant’s criminal record and what type of convictions might make a potential applicant ineligible for work on specific projects.

There were also modifications to the definition of a “large” employer, which was changed from a company that employs 50 workers to one that employs 40, expanding the number of companies that would be eligible to bid on future projects.

The amendments were unanimously approved by the council. Mayor Jean Quan called the base re-use plan a “project that will create jobs that will allow people to raise a family.”

Other items on the agenda included an action to issue pension obligation bonds. At the June 19 meeting the council’s vote was tied 4-to-4. The mayor broke the tie in favor of issuing the pension bonds.

A proposal to introduce a waste recycling amendment that would move more than 200 tons of waste through Oakland failed to pass. It was announced that the final item on the agenda, the second reading of the ordinance to increase councilmember’s salaries, is scheduled for the July 17 meeting.

4 Comments

  1. Underpinning all this well intentioned effort to terminate the swap is the assumption that if the swap were terminated, that millions of annual fees would be freed up to spend on our city’s vital needs.

    Not.

    None of the council members or staff bothered to correct that misunderstanding.

    Instead council and mayor engaged in one of the few things our officials do really well: pass feel good politically correct resolutions with no effect and bask in the glow of audience applause.

    As best anyone can figure out, the fees have been getting paid with the “tax overrides” that are only supposed to be used to fund the ancient cop/fire pension fund, PFRS.

    Those tax override collections are not even supposed to go to any other pension expenses except for PFRS.

    There is even a question whether they can be used for anything other directly funding PFRS even though for almost thirty years the overrides have also gone to repay pensiion bonds and possibly CALPERS contributions.

    The Goldman swap was originally done to hedge some of the old PFRS pension obligation bonds.

    At best, terminating this swap would free up some of the tax money five years from now when the balloon payments on the just approved PFRS bonds hit us like a fiscal comet.

    All the good intentioned residents and residents who thought that terminating the swap meant we had an extra 5Mill a year for vital services….

    Focusing on the swap and ignoring the proposed additional 250Mill of pension bonds meant we missed the immediate forest for the future trees.

    We need a full accounting now of how the city has spent close to a billion dollars of property tax overrides over the past 25 years, millions more of NY Life Annuity income and yet we still owe 400 million to the grossly underfunded PFRS pension fund.

    We need to do that before we proceed and borrow again another 250Million of PFRS pension bonds to fund an ancient pension with 1,100 elderly retirees.

    We need to know how many millions of fees we’ll be paying Wall Street firms to issue the new PFRS bonds and to invest those funds.

    Len Raphael, Temescal

  2. Quote from the Standard & Poor’s bond rating report in 2011:

    “According to management,
    the cost of the swap is also funded from the PFRS property tax and the city now has sufficient surplus revenue
    accumulated to pay the swap termination payment.”

    • New lawsuits by many cities, (not sure if against Barclays or the investment bank issuing the swap)will try to recover some of the past fees based on LIBOR manipulation.

      But again, at best that means there’s more money avail in the “excess tax override” account dedicated to pay the 400MillPFRS obligation. Would not free up any money from the general fund for at least 4 to 5 years.

      And even then, it wouldn’t “free up” general fund money for other uses, but would not grab as much general fund money at that time as it will have to no matter what happens (other than a long term stock market boom).

  3. Xu Xiaoya you might care about this money, she said: Do not worry teachers, we must call a good single senior, this money will be reimbursed to Qiang got.

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