Mayor Rahm Emanuel Friday named former CTA chairman Carole Brown as the city’s new chief financial officer, putting her in the driver’s seat as Chicago nears its fiscal cliff.
Brown headed the CTA board under former Mayor Richard M. Daley.
She replaces outgoing chief financial officer Lois Scott, who leaves the job next week.
“Carole Brown brings decades of financial experience to the City of Chicago,” Emanuel said in a statement. “Carole’s experience and reputation as a tough, but honest financial manager will be a valuable asset as we continue to create a conducive environment for job creation and economic growth for the City of Chicago.”
Brown inherits the fiscal turmoil facing the city.
The Illinois Supreme Court’s decision last week overturning pension reform placed Emanuel’s plan to reform two of four city pension funds in similar jeopardy. That triggered the dominos that fell this week as several credit-rating agencies downgraded the city’s credit rating.
It started on Tuesday when Moody’s Investors Service dropped Chicago’s bond rating to junk status.
On Thursday, Standard & Poor’s lowered the city’s credit rating to three notches above junk status.
And on Friday, Fitch Ratings joined the other two major credit-ratings firms and downgraded the city’s creditworthiness to three notches above junk status.
In a news release, Fitch said, “The downgrade reflects increased fiscal pressures on the city following last week’s Illinois Supreme Court decision severely limiting the ability to modify pension benefits in the state and a subsequent downgrade of the city’s credit to below investment grade.”
Outgoing CFO Scott, reacting to Fitch’s downgrade, said in a statement, “Today’s downgrade by Fitch is the result of heightened pressures on the City’s portfolio, prompted by the recent reversal of the Illinois pension reform bill and subsequent downgrades. However, Fitch does not believe that the court decision has a direct effect on the prospects for the city’s pension reform for the municipal and laborers’ funds, and recognizes that the city has many strengths – from its role as an economic hub for the Midwest to improving employment address and adequate reserves – to address the challenges it faces.”
Brown, a longtime investment banker, will have to negotiate with the banks to call off the wolves. Banks will have the ability to call back $2.2 billion in debt, Moody’s said earlier this week.
The Moody’s downgrade is expected to cost the city hundreds of millions of dollars in increased borrowing costs and penalties forcing the city to either cut spending or raise taxes.
And unless the Illinois General Assembly lifts the hammer, Brown must also find a way to meet a state-mandated $550 million payment due in December to shore up police and fire pension funds.
Laurence Msall, the president of the Civic Federation, pointed to Brown’s experience as an investment banker and as the former CTA chairwoman.
“She brings a wealth of financial and real government experience, but she faces the greatest fiscal challenge in the city’s history,” Msall said. “She will need to work both with existing creditors and credit-rating agencies to present both a short term and a long term plan that’s both credible and stabilizing to the city’s ongoing financial challenges.”
Brown is currently a manager director at Barclays, leading the firm’s Midwest municipal practice and serving as senior investment banker for municipal clients.
She is a Harvard University graduate with a master’s degree from Northwestern University’s Kellogg School of Management. Her inner circle includes Valerie Jarrett, senior adviser to President Barack Obama; Desiree Rogers, the CEO of Johnson Publishing, and former CTA board member Sue Leonis.
And Brown is no stranger to Emanuel’s administration, serving on the mayor’s panel to reform special taxing districts and on the selection committee that deadlocked over the appointment of an independent City Council budget analyst.
During her tenure as chairman of the CTA board from 2002 through 2009, she helped “the CTA address structural deficits through efficiencies and reforms, finance billions of dollars in deferred maintenance, rail improvements, and capital construction. She also helped oversee development of the Pink Line and the first Blue Line reconstruction project,” the city said in a press release.
But it wasn’t all a smooth ride.
Brown, who worked as senior vice president of Lehman Brothers while heading the CTA board, was berated by former Ald. Dorothy Tillman for defending her employer after the company became the first city contractor to admit past ties to slavery.
Tillman demanded Brown step aside as CTA chairwoman or apologize for allowing herself to be used to sanitize the reputation of a company built on the backs of her own people.
Brown could not be reached Friday, but in a press release she said, “I am grateful to Mayor Emanuel for offering me this opportunity to serve Chicago residents, and I am eager to begin working with the mayor’s financial team to address the city’s financial challenges.”