May 7 (Bloomberg) -- Former President Bill Clinton towers over Chicago Mayor Rahm Emanuel at a south side union hall, paying tribute to the skill that helped define his one-time White House adviser.
“He’s a genius at raising money,” Clinton tells the audience of construction workers and business leaders gathered in early March for the unveiling of a centerpiece of Emanuel’s plan to rebuild Chicago: a public-private partnership to upgrade buildings, transportation and utilities.
For Emanuel, the famously foulmouthed and aggressive aide to two Democratic presidents, Clinton and Barack Obama, restoring the city’s crumbling underpinnings is becoming the ultimate fundraiser, Bloomberg Markets magazine reports in its June issue. The mayor says he has $1.7 billion in private commitments for the partnership and that new user fees and spending cuts will help pay for $7.2 billion of rebuilding.
Emanuel, who took office in May 2011, is the most politically connected mayor in America. He will need those relationships and more to dig his city out of its fiscal hole. Like many U.S. localities hurt by the recession and not yet feeling much relief from the nation’s tepid recovery, Chicago faces a litany of economic challenges. It suffers from a shrinking population and the effects of financial profligacy inherited from Emanuel’s predecessor, Richard M. Daley, who ruled the city for 22 years until 2011.
Emanuel, 52, has repeatedly called the 2000s a “lost decade” and warns that the city can’t afford another one.
While all U.S. cities began the decade with one recession and ended it with another, Chicago, under Daley, squandered cash reserves meant to build a long-term fiscal cushion, says Michael Pagano, dean of the College of Urban Planning and Public Affairs at the University of Illinois at Chicago.
The most ill-fated Daley decision that Emanuel must contend with is the former mayor’s 75-year deal with Morgan Stanley that pledged the city’s parking-meter revenue. Chicago sold the rights to the meters for almost $1 billion less than Daley’s own inspector general said they were worth. Daley then used most of the proceeds to plug immediate budget holes. “It postponed the day of reckoning for Chicago, and now it’s come with a vengeance,” Pagano says.
Chicago retains its ranking as the third-largest U.S. city, although its population dwindled by 192,000 in a decade, to 2.7 million as of 2010, census figures show. That’s the largest drop by far among the top 10 metropolises. Its four municipal pension funds face a combined unfunded liability of $14.7 billion, equal to $5,473 for every man, woman and child in the city. The public school system projects a second year of $700 million deficits.
These conditions feed Emanuel’s restlessness and impatience. The 5-foot, 8-inch (1.7-meter) politician has a tendency to begin sentences with “Look,” and end them with “OK?” On a late-February morning at City Hall, Emanuel drops in on a committee hearing on technology for people with disabilities. “Happy to be here,” he says. He never sits. Four minutes later, he’s out the door, saying to his appointees, only partly in jest, “Don’t screw it up.”
The Chicago that Emanuel inherited in May 2011 boasts towering new residential buildings and a glittering lakefront park meant to spur tourism -- a goal the new mayor shares with his predecessor. In 2010, the U.S. Department of Commerce ranked Chicago No. 10 among U.S. cities visited by overseas travelers, behind smaller places such as Miami; Orlando, Florida; and Boston.
Emanuel aims to move the city to No. 5 by 2020 and grab at least an additional 1 percent of the estimated $140 billion that foreign visitors to the U.S. spend annually.
“A billion dollars is at play for every point,” Emanuel says in an interview in his fifth-floor City Hall office. “And when I say a billion dollars, that’s a lot of jobs.”
Emanuel’s jawboning of the White House assured that the city would host the North Atlantic Treaty Organization summit on May 20-21 (though Obama moved a companion Group of Eight meeting to Camp David). He sees the event as an opportunity for Chicago to showcase its architecture, restaurants, lakefront and museums to more than 2,000 journalists covering it.
“All of this is about a marketing strategy to bring the tourism here, so people have an up-to-date, modern, contemporary image of what Chicago has to offer,” he says.
The city’s 46th mayor is a departure from the Chicago template. The Daleys -- Richard M. and his father, Richard J. -- were lifelong residents who ruled Chicago for 43 of the past 57 years. They symbolized the Byzantine ward political system, the neighborhood-level machine that for decades determined who got elected and who, in turn, got city jobs.
While Emanuel worked as the younger Daley’s fundraiser in his successful 1989 mayoral campaign, his city roots are comparatively shallow. The second of three sons born to Jewish parents -- his father, Benjamin, is a pediatrician, and his mother, Marsha, is a social worker -- Emanuel moved out of the city with his family and grew up in nearby Wilmette.
He studied liberal arts, including ballet, at Sarah Lawrence College in New York’s Westchester County, where he earned a bachelor’s degree. He went on to get a master’s degree in speech and communication from Northwestern University in Evanston, another Chicago suburb. In June 2011, in recognition of his background in dance, the renowned Joffrey Ballet named him honorary chairman of its board of directors.
Unlike the Daleys, Emanuel learned his political skills in Washington. He describes himself as a “pragmatic progressive” who eschews the “ideological left-center crap.” He doesn’t like labels. “I think it’s all bull,” he says. “The real debate is whether you move forward or not.”
Taking on Labor
In his first year in office, Emanuel took on a traditional Democratic support group, organized labor. He demanded, for example, that teachers work longer hours, a part of his plan to improve Chicago schools, and he reached an agreement on work-rule changes with sanitation workers last week. While Emanuel’s approval rating stood at 79 percent in an internal poll done in January, some groups are unhappy, including the police.
“He promised 1,000 new police officers, and he did it by shifting around existing officers to do new duties,” says Pat Camden, spokesman for Chicago Lodge 7 of the Fraternal Order of Police. “This idea of doing more with less doesn’t necessarily work with the police department.”
In the first three months of this year, the union says, homicides in Chicago jumped by 66 percent, to 111 from 67 a year earlier.
Emanuel’s biggest challenge is to find new sources of revenue. That includes reaching out to the investment community where he worked for three years. After leaving the White House in 1998, Emanuel took a job with one of Clinton’s top fundraisers, buyout baron Bruce Wasserstein. As a mergers and acquisitions adviser in the Chicago office of Wasserstein Perella & Co., Emanuel tapped the contacts he had made in government to close deals.
He earned at least $17 million at the firm, congressional disclosure records show -- more than he took home in 14 years as a White House aide and three-term member of the House of Representatives.
At a time when politicians play up their private-sector bona fides and disparage time within the Beltway, Emanuel is almost dismissive of his years at Wasserstein. “Look, I don’t think I could be mayor if I hadn’t worked for two great presidents,” he says. “What’s more influential for me being a mayor was my time in public service than my time in the private sector.”
While campaigning for mayor, Emanuel promised voters a sharp change from Daley’s style of doing things. He vowed greater transparency in government, saying he would make contracts available for viewing and put the names and salaries of every city employee online.
Yet in his first major bond sale, held in October -- $500 million of general obligation bonds and $250 million of debt backed by sales tax receipts -- the mayor stuck with the practice of privately negotiating the terms of the sale rather than bidding the deal competitively on the open market. Municipal borrowers from Buffalo, New York, to Dallas say they have saved on borrowing costs by opening such sales to competitive bids.
Chicago plans to sell more debt later this month. Asked if those bonds would be competitively bid, the former investment banker deferred to Lois Scott, his finance director. “I take my guidance from Lois,” he says. Scott says she is not considering competitive bids for this sale and that negotiated sales have provided the best outcomes for the city.
During his mayoral campaign, Emanuel used the slogan “No more business as usual.” It was a clear reference to the deal Daley struck in 2008 to sell the city’s parking-meter revenue to a group led by Morgan Stanley. Chicago got a $1.16 billion upfront payment from Morgan Stanley, an amount derided as a poor deal by Daley’s inspector general, David Hoffman.
“The city received about $974 million less for the parking-meter system than it was worth,” Hoffman concluded in a 2009 report.
The following year, a Chicago Tribune poll showed that four out of five surveyed opposed the deal and 53 percent didn’t want Daley to seek another term. Two months later, Daley, now 70, announced he wouldn’t run.
Emanuel is no fan of privatization. During the campaign, he opposed the sale of Chicago’s second airport, Midway, which Daley had been exploring. Emanuel takes pains in an interview to note that his plans to rebuild Chicago don’t involve selling any city property.
What he’s doing is cutting services. His $6.3 billion budget for 2012 trimmed spending by $410 million by, among other things, shaving public library hours and closing six mental-health clinics and three police stations.
Emanuel has yet to fully address the city’s biggest fiscal challenge: Chicago’s pension shortfall rose fivefold from 2001 to 2010. The mayor is putting the onus on the state government to craft the solution. In an April 26 letter to legislative leaders, he echoed measures Governor Pat Quinn had already called for, including increases in the retirement age and employee contributions.
Time is running short. The same day he sent the letter, Moody’s Investors Service changed its outlook on Chicago bonds to negative from stable, citing the unresolved pension matter. That liability hangs over Chicago and “threatens the city’s solvency,” because retirement costs eventually will strip the city of its ability to pay its bills, says Laurence Msall, president of the Civic Federation, a nonpartisan government research group.
‘Walking a Tightrope’
Emanuel also has not yet spelled out the details of the $7.2 billion building-and-repair plan, which he announced in late March. “I’m not opposed to this,” says Richard Ciccarone, chief research officer at McDonnell Investment Management LLC, which oversees $14 billion in assets. “But on the other hand, where are you going to get the money? The city’s already walking a tightrope with big liabilities.”
Emanuel says he’ll be able to pay for improvements with spending cuts, user fees, budget efficiencies and the Clinton-inaugurated investment trust. “I wouldn’t go out there if we didn’t know where the money is,” Emanuel says. The city council approved the trust after some aldermen said the program lacked sufficient oversight.
Riding in the back of a black Chevrolet Tahoe, his seat belt unbuckled, Emanuel spends his time between appointments on his mobile phone. On a late-February day while touring the south side, he thanks an official for supporting a recent education program. He calls a state senator whose district was hit by tornadoes. Then he’s on the line with an adviser, railing against opponents of school system changes.
The phone rings again. It’s U.S. Transportation Secretary Ray LaHood, a Republican in Obama’s cabinet and a friend of Emanuel’s from their days together in the House. Before the vehicle pulls up to a produce warehouse and distributor, Emanuel assures LaHood that he will appear at an event in Peoria, Illinois, the transportation secretary’s hometown.
He sets one condition. “It can’t be politics,” Emanuel says into the phone. “I don’t want to be accused of running for governor.”
Emanuel has grown wary of anything that provides fodder for speculation about whether he may eventually run for governor or senator or even president. He’s already fended off questions on national television about whether he will seek the country’s highest office.
The rookie mayor knows political success can be ephemeral. The Democratic majority he engineered in the House in 2006 was gone four years later. Emanuel says he’s no longer as much the political animal as he was in those days.
“There is another part of my brain, and that gets lost a lot,” he says. “I’m as fascinated and interested in the policy piece of governance as I am about the politics.”
Asked again in the quiet of his City Hall chamber whether he aspires to higher office, Emanuel smiles and answers with a gesture, raising the middle finger of his left hand. “I’ll never be able to communicate it,” he says, laughing and leaning forward with his finger still extended. “I’m not running for another office. I’m staying focused on being mayor.” Only then does he lower his finger.
To contact the reporter on this story: Tim Jones in Chicago at email@example.com
To contact the editor responsible for this story: Stephen Merelman at firstname.lastname@example.org