Credit Swaps Update
I have to take this opportunity to brag about two things.
First, our city was just recognized for substantially improving its financial health. Moody's, who just issued the exciting upgrade, is a credit rating agency that assesses municipalities for things like economic and financial strength, its management practices, and its debt and pension obligations.
A better Moody's rating is important for Richmond because it provides an independent assessment of the city's financial health. This can impact our city’s ability to borrow money, attract investment, and maintain a strong reputation.
Make no mistake: we still have tons of work to do in this area. But since progressives have been on the City Council, we keep getting this good news. Thank you to our City Manager and City Staff on their hard work!
My second brag is on behalf of my progressive colleague and good friend, Councilmember Claudia Jimenez. A big part of why we just got this upgrade is because of her.
When digging into our city’s finances last year, Claudia noticed something: the city was using a risky and highly expensive financial instrument called credit swaps. As written in 2010 in the New York Times, “the promised benefits of these swaps have mutated into enormous, and sometimes smothering, expenses. Making matters worse, issuers who want out of the arrangements — swap contracts typically run for 30 years — must pay up in order to escape.”
Richmond began using this tool in 2005, when—as we all now know— the financial markets in our country were rewarding high risk behavior by big banks and creating increasingly complicated ways of making a lot of money. We saw the most catastrophic results of that during the financial crisis in 2008.
From The Lever.
In her analysis of the swaps, Councilmember Claudia Jimenez also learned that Richmond has paid over $60 million dollars in bank fees to engage in this practice.
Thanks to Claudia’s leadership on this issue, Richmond will now save an estimated $84 million dollars over the next 12 years. We no longer use credit swaps in Richmond, and our improved financial health is being recognized across the country.
Councilmember Claudia Jimenez often faces racist and sexist attacks. On social media, she is accused of not having her own ideas or being able to think for herself. Instead, people say it’s her husband doing the real work. I can’t help but think people say that because Claudia is a strong Latina woman and an immigrant.
But my progressive colleague is a savvy and persistent elected official, and she has my gratitude for this massive work and impressive financial analysis. Thanks to her efforts, Richmond is in a stronger and more stable place.
This is what the progressive approach to city finances looks like. It’s about having a healthy distrust of big banks and complicated financial deals. It’s about looking closely at who’s making bundles of money off our city and asking— do we really need this?