Chicago

Rahm Emanuel Shelling Out Big To Settle City Lawsuits In Hopes Of Long-Term Savings

City Spent $169 Million In Lawsuit Settlements Under Rahm
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The City of Chicago has shelled out $169 million in lawsuit settlements under Mayor Rahm Emanuel -- nearly triple the amount paid in the final two years of former Mayor Richard Daley's tenure, according to a new report by the Sun-Times.

Cash-strapped and with crumbling credit, Stephen Patton, the city's corporation counsel, said Emanuel is looking to cut the city's losses and settle quickly on cases taxpayers would likely lose anyway.

“We’re settling cases we inherited ... In addition, we’ve accelerated the recognition of liability. So, we’re getting it on both ends. We’re clearing a lot of brush and bad things away from the past and doing something that will save money over the longer haul. But, it’s not saving us money short-term,” Patton told the Sun-Times noting Emanuel inherited 1,000 police cases when he took office.

Many of the city's most expensive lawsuits have stemmed from police brutality and misconduct cases like former Police Commander Jon Burge and Anthony Abbate, the police officer caught beating a bartender on tape in an attack that prompted a trial on the city's police "code of silence."

Several of the city's suits, however, involve repeat offenders within the department. A previous investigation by the Chicago Reporter found nearly a third of police misconduct cases from January 2009 and November 2011 -- before Emanuel's administration -- involved cops who had been previously named in investigations.

Misconduct by city workers has cost taxpayers a bundle as well.

Monday, a judge ordered the city to pay $2.4 million to a man injured by Dwight Washington, a municipal worker who was driving a city-owned truck while drunk. Washington, who is now in jail, plowed into a sidewalk and injured seven pedestrians in May 2011.

The city agreed to pay out $6.25 million last year to settle another case stemming from the same crash.

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Before You Go

American Cities Going Broke
13. Wenatchee, Wash. (01 of13)
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Credit Rating: Ba22011 general fund revenues: $22.4 million2011 general fund debt: $13.2 millionMedian income: $44,156In December 2011, the Greater Wenatchee Public Facilities District defaulted on $42 million of debt associated with the Town Toyota Center, a multi-purpose arena. In order to help pay off that debt, the city imposed a 0.2 percent regional sales tax in July 2012. Bonds also went on sale in September to further alleviate the debt. Despite these plans, Moody’s noted in its May downgrade that any long-term plan to pay off the city’s debt “would further stress city finances … operational flexibility and ability to invest in infrastructure.” Moody’s also pointed out the city faces financial risk associated with litigation following the arena’s default.Read more at 24/7 Wall St. (credit:AP)
12. Le Center, Minn.(02 of13)
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Credit Rating: Ba22011 general fund revenues: $1.1 million2011 general fund debt: $8.3 millionMedian income: $41,481On Feb. 1, Moody’s downgraded Le Center, Minnesota, from A1 to Ba2, with a negative long-term outlook. This small town, located in the south central part of the state, had to borrow to pay debt due in February 2012 , and received an extension on loan payments due December 2011. Besides the payment deferral, Moody’s cites the city’s very small tax base and “weak management practices” to explain the low rating. City management used unrealistic budgeting. In particular, it overestimated the amount of cash it would bring in from a new real estate project. The ratings agency projects that if these trends continue, the city will remain dependent on costly short-term loans to pay its debts.Read more at 24/7 Wall St. (credit:WikiMedia:)
11. Strafford County, N.H.(03 of13)
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Credit Rating: Ba22011 general fund revenues: $52.8 million2011 general fund debt: $19.9 millionMedian income: $57,809Strafford County’s financial state improved in fiscal 2011, when it eliminated a general fund deficit of $7.2 million from fiscal 2010 and ran a small surplus. Still, because of its tight budget, the county has had to regularly borrow money to cover short-term cash needs. Moody’s described Strafford’s ability to reduce its future borrowingas a “key factor” in determining its poor rating. According to Moody’s, Strafford County has no plans to issue any more long-term debt, and will shed an estimated 83.8% of its existing debt within 10 years. Moody’s altered its outlook from last year for the county from “negative” to “stable.”Read more at 24/7 Wall St. (credit:WikiMedia:)
10. Menasha, Wis.(04 of13)
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Credit Rating: Ba22011 general fund revenues: $16.2 million2011 general fund debt: $43.4 millionMedian income: $45,897In 2007, the city of Menasha defaulted on bonds it had issued to fund a steam plant. The utility operation closed down several years later. The fallout from this venture has left the city permanently in the red. As of 2011, it brought in just over $16 million in general fund revenue, but had $43.4 million in outstanding general fund debt. In 2010, nearly 20 percent of the city’s budget was devoted to paying off debt, which was the second-largest expense on the balance sheet in 2010. The city recently repossessed the abandoned steam plant, and is currently deciding whether to repurpose it or demolish it for scrap.Read more at 24/7 Wall St. (credit:WikiMedia:)
9. Harrison, N.J.(05 of13)
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Credit Rating: Ba22011 general fund revenues: $36.8 million2011 general fund debt: $113.8 millionMedian income: $51,193In 2006, Harrison guaranteed $39.4 million in bonds to buy land for the Red Bull Arena, the stadium used by the New York Red Bulls. The deal has not been profitable for Harrison. Condominium developments, expected to help pay off the stadium, were not finished as of last June. Additionally, for several years the Red Bulls refused to pay property taxes. In July, the franchise paid the town $5.6 million in overdue taxes after a judge ruled the arena was taxable. In late 2011 the state of New Jersey created a $1 million reserve fund to help pay off the city’s debt. Since last October, the town’s credit rating has improved from Ba3 with a negative outlook to Ba2 with a positive outlook.Read more at 24/7 Wall St. (credit:AP)
8. Salem, N.J.(06 of13)
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Credit Rating: Ba32011 general fund revenues: $8.0 million2011 general fund debt: $36.0 millionMedian income: $25,682In 2007, Salem guaranteed bonds to finance the construction of the Finlaw State Office Building. The project was a disaster. There were construction delays and the state leased the building for just 20 years, while the town will have debt repayments for 30 years. Lease revenue was not high enough to cover both maintenance fees and debt payments. As of May, the city had already spent all but $772,000 of the $1.8 million set aside in reserves to cover shortfalls in revenue from the project. If this fund is exhausted, the city, and possibly the taxpayers, will be on the hook for any debt payments that lease revenue does not cover. Moody’s describes the deal as “a liability which is disproportionate to the city’s size and ability to pay.”Read more at 24/7 Wall St. (credit:AP)
7. Riverdale, Ill.(07 of13)
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Credit Rating: B22011 general fund revenues: $12.9 million2011 general fund debt: $7.0 millionMedian income: $42,690Riverdale, a community of under 14,000 people about 20 minutes south of downtown Chicago, had its credit rating downgraded in October due to a growing deficit in its general operating fund. The village is expected to report a deficit of $1.5 million for fiscal 2012, bringing the total general fund balance to -$1.95 million, or 15.8 percent of projected revenue. Riverdale is also underfunding its four pension plans. Moody’s said Riverdale’s coffers are hurting due to “declining full valuation, taxpayer concentration, elevated unemployment and a net population loss.” According to the U.S. Census, the village population fell 10 percent from 2000 to 2010, while per capita income was only 61 percent of the U.S. average income.Read more at 24/7 Wall St. (credit:WikiMedia:)
6. Woonsocket, R.I. (08 of13)
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Credit Rating: B22011 general fund revenues: $80.6 million2011 general fund debt: $203.2 millionMedian income: $38,625In June 2012, Woonsocket faced a severe cash flow crisis, but managed to avoid disaster after Rhode Island’s budget oversight commission increased state aid. As of 2011, Woonsocket’s general fund had debt equivalent to 2.5 times its revenue that year. Moody’s report on the city’s speculative-grade rating cited the city’s continuing difficulties making spending cuts because of poor management and imprecise accounting.Read more at 24/7 Wall St. (credit:AP)
5. Central Falls, R.I.(09 of13)
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Credit Rating: B22011 general fund revenues: $17.9 million2011 general fund debt: $21.0 millionMedian income: $34,389Central Falls, a city of around 20,000 people located outside of Providence, filed for Chapter 9 bankruptcy in Aug. 2011. At the time, the city faced $80 million in unfunded pensions liabilities and retiree health benefits, or about than four-and-a-half times its annual general fund revenues of $17.9 million. During its time in bankruptcy, the Rhode Island legislature funded $2.6 million to help prevent severe cuts during bankruptcy. A judge approved of the city’s plan to emerge from bankruptcy in September 2012. As part of its plan to emerge from bankruptcy, the city will increase property taxes by 4 percent annually for the next five years. It will also cut pensions of workers who retired at a young age by up to 55 percent and will have a reduced workforce indefinitely.Read more at 24/7 Wall St. (credit:AP)
4. Detroit, Mich.(10 of13)
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Credit Rating: B32011 general fund revenues: $1,229.2 million2011 general fund debt: $2,508.3 millionMedian income: $28,357Since last October, Detroit’s credit rating has fallen significantly — from Ba3 to B3. According to Moody’s, the city “suffers from high unemployment, high poverty, low income, concentrated exposure to a dominant industry, and a depressed housing market.” In April, Michigan reached an agreement with Detroit that prevented the appointment of an emergency manager, who would manage the city’s finances and would have authority to remove the mayor and city council. Although Michigan raised $129 million in funds for Detroit in August, the city has only received $50 million — the rest is dependent on its ability to make financial reforms. On Oct.15, Moody’s noted that Detroit remains under review for a further downgrade, highlighting uncertainty surrounding possible amendments to the city’s fiscal 2013 budget.Read more at 24/7 Wall St. (credit:AP)
3. Pontiac, Mich.(11 of13)
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Credit Rating: Caa12011 general fund revenues: $36.2 million2011 general fund debt: $86.7 millionMedian income: $30,753Pontiac is the only city on this list to have a speculative rating predating the recession — since March 2006. Pontiac’s financial troubles, mostly the result of its reliance on the declining automotive industry, have been evident for years. As of June 2012, the city’s unemployment rate was a whopping 22.2 percent, or about 2.5 times the national rate. The city’s tax revenue continued to dwindle as its population diminished — the population of 59,515 as of the 2010 U.S. Census was 10.3% lower than in 2000. During 2012 alone, the city outsourced its police force to Oakland County and its fire department to Waterford township. Despite these moves, Moody’s projects that the city will close out fiscal 2012 with a deficit of $8.4 million due to retiree healthcare obligations and debt service expenditures. And if Pontiac doesn’t make reforms in regards to health care and debt service expenses, the deficit could rise to $14 million by the end of fiscal 2013.Read more at 24/7 Wall St. (credit:WikiMedia:)
2. Jefferson County, Ala.(12 of13)
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Credit Rating: Caa32011 general fund revenues: $311.1 million2011 general fund debt: $1,141.3 millionMedian income: $45,244In November 2011, Jefferson County, Alabama, filed for the largest municipal bankruptcy in U.S. history in terms of amount owed after county leaders and investors couldn’t reach agreements to refinance $3.1 billion in sewer bonds. The bonds have been in default since 2008. The county has continued to pay school and special tax bonds while in bankruptcy, although its sewer bonds remained in default. Moody’s placed a negative outlook for the bonds because “losses to bondholders once bankruptcy proceedings conclude could exceed the levels implied by the current ratings.”Read more at 24/7 Wall St. (credit:AP)
1. Stockton, Calif.(13 of13)
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Credit Rating: Caa32011 general fund revenues: $180.3 million2011 general fund debt: $248.5 millionMedian income: $47,946Stockton, with a population of nearly 292,000 people in 2010, became the most populous city to file for bankruptcy in June after the city was unable to close a $26 million deficit. According to Moody’s, the Caa3 rating given to Stockton’s debt assumes that bondholder losses will be greater than 20 percent. A weak economy has hit Stockton particularly hard. The unemployment rate was 15.4 percent in April, cutting the revenues coming into city coffers. Stockton’s current year budget, which began in July, called for suspending $10.2 million in debt payments and $11.2 million in employee compensation and retirement benefits.Read more at 24/7 Wall St. (credit:AP)
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