In 2012, the Chicago Sun Times reported:
City of Chicago’s cash cushion plummets,
debt triples, arrests drop, water use rises
July 26, 2013
“Mayor Rahm Emanuel closed the books on 2012 with $33.4 million in unallocated cash on hand — down from $167 million the year before — while adding to the mountain of debt piled on Chicago taxpayers, year-end audits show.
Last week, Moody’s Investors ordered an unprecedented triple-drop in the city’s bond rating, citing Chicago’s “very large and growing” pension liabilities, “significant” debt service payments, “unrelenting public safety demands” and historic reluctance to raise local taxes that has continued under Emanuel.
The 2012 city audits explain why. They show that an unallocated balance that was $167 million a year ago because of Emanuel’s aggressive cost-cutting efforts has dropped to $33.4 million.
Budget Director Alex Holt blamed the $133.6 million drop on “honest” budgeting and ending the long-standing practice of carrying “ghost” vacancies.
“We’re trying to be more transparent about what we’re really spending and taking in — not just carrying a bunch of people who took up money in the budget and left money on the table at the end of the year,” Holt said.”
It really wouldn’t be very hard to be completely transparent to the people of Chicago about what the government is “spending and taking in”. All they would have to do is just mention and explain what is written with the “audits” of the City, which are not named in this obfuscating media report. Those audits are federally required of all municipal corporations within the United States, and are officially called the Comprehensive Annual Financial Report (CAFR).
The only problem is… the CAFR also reveals how much the City of Chicago is saving and hiding from the public and from its own budget report in the form of massive investments. I also shows things most people would never believe are happening in America – that is, besides the fact that an Israeli solder and duel-citizen is acting as Mayor of one of the largest cities in America.
Instead, they use the fallacy of “honest budgeting”.
Now, anyone who knows what a budget report is can likely agree that a budget is not honest, but is in reality an educated guess on future operational expenses, income, and expenditures. In the majority of cases involving corporations, the person or persons doing the budgeting is generally seeking new and creative ways to justify more budget allowances for their corporation or department thereof. In the case of local municipal corporation governments, these creative accounting tricks are implemented on the budget report to justify more taxpayer dollars to be collected in the next fiscal year (or more taxpayer debt to be created through bonds) by ignoring what is reported in the actual audit report, called the CAFR. In short, the “budget report” is created by taking the Comprehensive Annual Financial Report (the audited financial statements of government), grabbing a black magic marker, and placing black marks over the long-term assets and investments of government accumulated for the years, decades, or centuries that the government has been municipally incorporated.
The budget report is what is created after all of the creative accounting and word magic have virtually pillaged the CAFR of all its investment wealth. And the “honest budget” is thus presented to the people as a declaration of distress, debt, and in some cases bankruptcy.
Here is the link for the 2011-2012 fiscal year Comprehensive Annual Financial Report for the City of Chicago:
Let’s examine how the Rahm Emanuel and his bureaucracy are using the hand-crafted and creatively accounted budget report to literally hide billions and billions of dollars from the public…
BUREAUCRAT. An official who works by fixed routine without exercising intelligent judgment. –Random House Dictionary
BUREAUCRACY. The abuse of official influence in the affairs of government; corruption… those persons who are employed in bureaus (and) abuse their authority by intrigue to promote their own benefit, or that of friends, rather than the public good. –Bouvier’s Law Dictionary, 1856
A good place to start is in the “Notes To Financial Statements” section, which is a more advanced description of the creative accounting principles and strategies utilized to hide all of Chicago’s wealth as reported in the budget report.
(Page 92) The 2012 Fiscal Year CAFR here explains not only how the government hides its massive stores of wealth, but also how it is privatizing much of its infrastructure by entering into Public Private Partnerships through long-term lease agreements with Banks and other private corporations:
(Note 16) Concession Agreements
The major fund entitled Service Concession and Reserve Fund is used for the purpose of accounting for the deferred inflows associated with governmental fund long-term lease and concession transactions. Deferred inflows are amortized over the life of the related lease and concession agreements. Proceeds from these transactions may be transferred from this fund in accordance with ordinances approved by City Council that define the use of proceeds.
Translation: City of Chicago enters into lease agreements with private corporations, accepts massive lump sum payments in the billions or millions of dollars from that private corporation, and then allows that private corporation to run that infrastructure asset of government for a set amount of years. The private corporation may then raise the fees attached to that infrastructure and earn triple the income over the decades allotted by the lease agreement. And the City thus looses out on future revenue that goes to private corporations. And this, as we are about to see, is why parking is so expensive in Chicago.
Continuing on Page 92 of the CAFR:
In February 2009, the City completed a $1.15 billion concession agreement to allow a private operator to manage and collect revenues from the City’s metered parking system for 75 years. The City received an upfront payment of $1.15 billion which was recognized as a deferred inflow that will be amortized and recognized as revenue over the term of the agreement. The City recognizes $15.3 million of revenue for each year through 2083.
In December 2006, the City completed a long-term concession and lease of the City’s downtown underground public parking system. The concession granted a private company the right to operate the garages and collect parking and related revenues for the 99-year term of the agreement. The City received an upfront payment of $563.0 million of which $347.8 million was simultaneously used to purchase three of the underground garages from the Chicago Park District. The City recognized a deferred inflow that will be amortized and recognized as revenue over the term of the lease. The City recognizes $5.7 million of revenue for each year through 2105.
In January 2005, the City completed a long-term concession and lease of the Skyway. The concession granted a private company the right to operate the Skyway and to collect toll revenue from the Skyway for the 99-year term of the agreement. The City received an upfront payment of $1.83 billion; a portion of the payment ($446.3 million) advance refunded all of the outstanding Skyway bonds. The City recognized a deferred inflow of $1.83 billion that will be amortized and recognized as revenue over the 99-year term of the agreement. The City recognizes $18.5 million of revenue related to this transaction for each year through 2103. Skyway land, bridges, other facilities and equipment continue to be reported on the Statement of Net Position and will be depreciated, as applicable, over their useful lives. The deferred inflow of the Skyway is reported in the Proprietary Funds Statement of Net Position.
To the people of Chicago, I suggest you read that again. And again…
Did you notice that the City of Chicago government purchased infrastructure from itself, by buying garages from Chicago Park District? In this way, it created what it loves best – a self-perpetuated debt.
The Chicago Park District website states:
“In 1959, the system expanded again, when the City of Chicago transferred more than 250 parks, playlots, natatoriums, and beaches to the Chicago Park District. Now the steward of 8,000+ acres of open space, totaling more than 570 parks, 31 beaches, 50 nature areas, and 2 world-class conservatories and host of thousands of special events, cultural, nature, sports and recreational programs, the Chicago Park District remains the nation’s leading provider of green space and recreation.”
Don’t confuse the park district as not a part of the City government. Instead of creating a debt by purchasing the parking garages, the City could have simply transferred them over to itself like it transferred so many parks and beaches in the past. But again, government loves to be in debt to itself, because that means it can hide its assets by claiming the assets must pay for the imaginary debt that it owes itself.
Here’s how the above concession and lease agreement scam works:
Step 1) Taxpayers pay taxes to build a public infrastructure project, in this case parking garages and meters.
Step 2) Government on behalf of taxpayers privatizes the operation of the infrastructure without actually selling the physical public property. A private corporation, often companies like J P Morgan Chase, will then operate and collect fees or the life of the lease agreement, and are allowed by the government to set the prices themselves.
Step 3) Taxpayers suddenly see higher taxes in the form of fees for that public service on what they still believe to be publicly run infrastructure. They don’t comprehend what happened simply because NO TAXPAYER APPROVAL IS NEEDED for this long-term lease and concession to take place. Why is no taxpayer vote needed? Because the City is acquiring future revenues on what would have been charged for that taxpayer infrastructure in the future (up to 99 years in the future). So its as if the City is still pretending to run the parking garage and meters by only allowing itself to collect the projected revenues each year while the Billions and billions of dollars it already collected get put into investment funds unavailable for taxpayer services. Taxpayers are left out of the whole process, except for paying the fees to a private corporation.
Step 4) Over the life of the lease agreement (for up to 99 years), a private corporation will collect 200-2,000% more tax revenue (fees) than it originally paid the City to acquire it. It will raise prices dramatically over that time to rake in incredible and guaranteed profits by law.
Step 5) The City sits on billions of dollars (which it does not report as an asset in the budget report, only in the CAFR) and invests it over that 99 year lease. And the profits and gains from those investments never really help the taxpayer or go to taxpayer services in any way, shape, or form. Often, the city loans out those billions to other municipalities or private corporations.
Step 6) With the money invested and gaining a return on investment, the City requires that those billions remain in an investment fund, not be touched for any other reason than to once a year make an allotment as a yearly payment to itself. And the taxpayers see income from the parking garage and never comprehend the organized crime that is taking place under their noses.
Step 7) The City, over that up to 99-year time period, will continuously claim that it is broke, simply because the billions and billions mentioned above are not included as assets on the budget report. This justifies requirements for new taxation from the already pillaged public, and very likely will be used as an excuse to declare bankruptcy – all because the money remains hidden from the taxpayer budget report. And guess what? The taxpayers will likely still pay the bills for maintenance upkeep and improvements on those privately run parking structures through their general taxes.
Now, does this sound like “honest” budgeting to you?
So in these three organized criminal enterprises alone, we have just honestly uncovered the fact that the City is hiding $3.54 billion from the taxpayer budget report – Money that right now, today, could be used to pay off much of the City’s long-term debt or used for taxpayer services. Or hell, it could be given back to those corrupt private corporations so that the people aren’t beholden to the will and whims of private corporations.
There’s one more thing on the next page that Chicago taxpayers should be aware of:
The 1996 Reauthorization Act, Title 49 United States Code §47134, authorized the Federal Aviation Administration (“FAA”) to establish the Airport Privatization Pilot Program (the “Pilot Program”), pursuant to which the FAA is authorized to permit public airport sponsors to sell or lease an airport. The 2012 Reauthorization Act increased the number of airports that could participate in the program from five to ten. Only one of the ten airports can be a “large hub” airport (having enplanements that equal or exceed one percent of the enplanements at all U.S. commercial airports). On September 2006, the City applied to the FAA under the Pilot Program with respect to Chicago Midway International Airport (“Midway”) with extensions requested periodically and most recently in April 2012. The City is currently pursuing bids for a lease of Midway under the provisions of the Pilot Program. The City is not under any obligation to accept any bids, and it is not possible at this time to predict whether or not the City will enter into a lease of Midway pursuant to the Pilot Program or when such a transaction might occur.
Again, the citizens and voters of Chicago will not be consulted here. No vote will be necessary. Sorry folks. You are out of the political loop now. The country is being privatized.
I wonder how many billions an airport will go for?
Imagine how invasive and tyrannical those unconstitutional searches and pat-downs are going to be when the airports are run by private corporations…
Unless you frightened subjects actually grow a pair and stop this from happening!
But I digress, for we are only scratching the surface here Chicago.
Let’s take a look at how municipal corporations around the country use the same financial accounting trick to hide their true financial position, including all investment funds, by magically erasing all of their wealth from the budget report.
Remember, the CAFR is created first, and only then is the budget created from what is leftover after all of the clever and creative accounting has already been done within the true CAFR audit.
(Page 31) Here we find the basic financial statements, listing assets, liabilities, and the net balance.
CITY OF CHICAGO, ILLINOIS STATEMENT OF NET POSITION
ASSETS AND DEFERRED OUTFLOWS
Total assets are listed at $31,095,607,000
$20 billion of that is listed as “Capital Assets” such as buildings, machinery, vehicles, etc.
Just over $10 billion is listed as other assets, including investments of about $7 billion.
As we pour over these basic line items, we see nothing but what is called “current assets” – the cash, investments, and other assets that the City of Chicago had on hand as of December 31, 2012.
But now we need to look at the liabilities section in order to see where that creative magic accounting happens…
LIABILITIES AND DEFERRED INFLOWS
We see here only about $3 or $4 billion in actual liabilities for the current fiscal year, including what is called “due within one year” on the City’s “long-term liabilities”. This is the normal operating expenses for the City in the average fiscal year.
But that’s were the honest budgeting ends. And here is where we find the bulk of the assets hidden within Chicago City’s investment funds…
Due in More Than One Year ……………… $28,354,779,000
Remember, in our assets section we see no reporting of any projected or future assets.
Yet in the liabilities section we see a line item representing all future liabilities in the form of amortized payments on bonds, loans, and other debt. And these future liabilities, in the end, effect the current assets as reported to the taxpayer on the budget report.
At the end of this chart of net position, we see how incredibly corrupt this little trick is:
NET POSITION (including in/out-flows)
Total Assets…………………… $31,095,607,000
Total Liabilities………………. $34,923,854,000
Total Net Position …………. $-3,828,247,000
So the City of Chicago has just magically erased over $28 billion dollars worth of cash, investment capital, and other asset wealth from the books by utilizing future amortized debt balances (that don’t yet exist in the fiscal year) against current assets. There is no mention of the future tax revenues that will pay for those future liabilities. And when the Chicago municipal corporation reports their total asset balance to the fine but clueless people of the City of Chicago, a 28 billion dollar lie will have been sponsored by none other than Mayor Rahm Emanuel himself… and for that matter every mayor across the United States.
Now then, what was that bunch of lies the Chicago Sun Times quoted Rahm Emanuel and his financial minions from?
“Mayor Rahm Emanuel closed the books on 2012 with $33.4 million in unallocated cash on hand — down from $167 million the year before — while adding to the mountain of debt piled on Chicago taxpayers, year-end audits show…
The 2012 city audits explain why. They show that an unallocated balance that was $167 million a year ago because of Emanuel’s aggressive cost-cutting efforts has dropped to $33.4 million.
Budget Director Alex Holt blamed the $133.6 million drop on “honest” budgeting…”
“We’re trying to be more transparent about what we’re really spending and taking in…”
How quaint. They are talking to the dumbed-down people in financial terms of millions while they play and invest behind our backs with BILLIONS!!!
This cursory look into the financial situation of Chicago has been very basic indeed. The CAFR is rich with multiple creative accounting schemes and best practices that are all approved by the private, non-governmental association (Government Financial Officers Association – GFOA) that makes these little rules (Generally Accepted Accounting Principals – GAAP) that allow all governments to hide massive amounts of investment wealth from their citizens. There are doubtlessly many more treasures to find, including the true investment fund balances compared to what is reported. They have so many tricks up their sleeves.
Take a look. Read the notes. You’ll be shocked at what you find…
The only question I have, now that the people of Chicago know that tomorrow their government could be completely out of debt and on the road to permanent independence and prosperity with unlimited potential simply by paying off all its future debt with its current assets (as most city’s in America could do) is…
What in God’s name are you going to do about it?
Please re-post this article with no permission needed from the author, and with no restrictions.
And please tune in to RepublicBroadcasting.org Mon-Fri 8-10pm Eastern for The Corporation Nation radio show for more information.
Listen to my recent interview with Walter Burien of CAFR1.com explaining the Comprehensive Annual Financial Report:
Other archives for the show can be found here:
–Clint Richardson (realitybloger.wordpress.com)
–Thursday, October 24th, 2013