Mayor Rahm Emanuel is losing the quarterback of his financial team as he attempts to fend off bankruptcy at the Chicago Public Schools and solve a combined $30 billion pension crisis that has dropped Chicago’s bond rating to two levels above junk status.
Chief Financial Officer Lois Scott is leaving City Hall to return to the private sector she left four years ago to help Emanuel tackle Chicago’s enormous financial challenges.
“I knew it wasn’t going to be a sprint or a marathon. I saw it as a relay race. I ran as hard as I knew how to run. Now, it’s time for me to pass the baton,” said Scott, 54.
“When I came in, we had a gaping wound. The city was using hundreds of millions of dollars in reserves to pay expenses. We had to stop the bleeding . . . I’m confident the mayor and his financial team are [now] in a good place. We’ve outlined a game plan for all of the issues the city will face in a second term. . . . I have great confidence in the mayor to work with the city’s partners in labor and in the Legislature to develop the ultimate plan.”
In an emailed statement, Emanuel said he asked Scott to stay one year and she “ended up staying for four . . . building a stronger financial future” for Chicago.
“That kind of commitment to going above and beyond . . . has been the hallmark of her tenure. . . . Chicago has without question benefited from her strong financial expertise,” the mayor was quoted as saying.
Scott’s decision to call it quits continues a post-election shuffle of the mayor’s cabinet that already has CTA President Forrest Claypool, the mayor’s trusted friend, in line to replace departing chief of staff Lisa Schrader.
Earlier this week, Emanuel unveiled a Scott-crafted plan to move away from risky financial practices that former Mayor Richard M. Daley used to “mask” the true cost of city government.
The moves will help insulate the city’s bond rating from yet another drop, particularly if the Illinois Supreme Court overturns a state pension-reform bill and sets the stage for a similar ruling in the case involving city pension reforms.
But ending those practices will add $105 million to the city’s operating shortfall, intensifying pressure to cut spending and raise taxes that was bad enough already because of the pension crisis. There’s also a $230 million penalty to get out from under swaps that will be folded into the refinancing to avoid putting added pressure on the city budget.
The plan turned out to be Scott’s swan song. She’s leaving City Hall before the final chapter of Chicago’s financial comeback story is written.
By December, the city must decide how to meet a state-mandated, $550 million payment to shore up police and fire pension funds and negotiate cost-saving reforms with police and fire unions. The Chicago Public Schools are facing a$1.1 billion budget shortfall and a $9.5 billion pension crisis.
The timing of Scott’s departure is not good. But what’s more surprising is that she stayed on after enduring media attacks that Emanuel once likened to the “drive-by hits” that drove him out of the “crap town” that is Washington, D.C.
At the time, Scott was under fire for recommending Emanuel’s now-convicted former City Comptroller Amer Ahmad and for having business dealings with him in Ohio.
The financial services firm that Scott co-founded and sold before joining the Emanuel administration got bond business from the Ohio treasurer’s office during Ahmad’s tenure as its deputy.
Ohio’s former treasurer, Ahmad’s former boss, got Chicago bond business after Scott recommended that Emanuel hire Ahmad.
On Friday, Scott answered questions about her relationship with Ahmad for the first time.
She said she was “disappointed and shocked” when the man she did business with in Ohio and recommended in Chicago was indicted, then convicted in a $500,000 kickback and money-laundering scheme in Ohio that lifted the veil on the selection of firms that ride the gravy train of city bond business.
“Over the course of a career, you work with thousands of people. Some turn out to be better human beings than you expected. Some aren’t. Some surprise you for who they are that you didn’t know,” Scott said.
She added, “There were many people I suggested that the mayor might want to get to know. There are many people who recommended Amer who are far more important than I am.”
Even without the Ahmad fiasco, Scott’s track record at City Hall was mixed.
She helped Emanuel implement groundbreaking reforms that dramatically reduced the city’s structural deficit. She helped the mayor negotiate reforms to save three government employee pension funds.
But the mountain of city debt got higher under her watch. The Infrastructure Trust she touted as a vehicle to bankroll “transformative” projects the city could not otherwise afford got off to a painfully slow start.
And the deal she championed to privatize Midway Airport got stuck on the runway.
It could have left Chicago with $500 million to shore up pensions. Instead, it ended up costing taxpayers $3.5 million. That’s how much money Emanuel spent on a clout-heavy team of advisers, only to pull the plug after one of only two bidding teams dropped out.
Although Scott was the mayor’s chief liaison to Wall Street rating agencies, she could not prevent the precipitous drop in the city’s bond rating.
In a new report issued Friday, Moody’s Investors said that, even if a Chicago pension-reform bill is upheld, the city’s unfunded pension liabilities will continue to balloon, forcing city officials to “significantly grow revenue and/or cut spending over the next ten years.”
On Friday, Scott acknowledged that the Infrastructure Trust “hasn’t had as much of an impact as we had hoped.”
She expressed no regret about the failed plan to privatize Midway, arguing that the rigid review process “set a new standard” and “came to the right decision.”
As for the ratings drop, she argued that, with every bond issue, there has been a “growing disparity” between how the rating agencies and investors view Chicago’s credit.
“The city has thousands of new investors. They believe in our economic future,” she said.