In 2015, the City of Oakland paid over $68 million dollars in interest rates on long-term debt.
This staggering figure continues a cycle of exploitation that goes back 20 years. In the 1990s, the City of Oakland entered into a bond deal that eventually gave way to an interest rate swap costing the city $4 million per year. Getting out of the deal would have cost $16 million in termination fees.
"Under the terms of the swap," Kevin Roose writes, "Oakland exchanged $187 million in floating-rate bonds for bonds with a fixed interest rate of 5.7 percent, in order to hedge against the possibility that interest rates would rise to 8 or 9 percent. But when rates fell to nearly zero instead, Oakland was stuck paying an above-market interest rate on its debt, at a cost of roughly $4 million a year, at a time when the city’s finances were in shambles."
The budget cuts that followed cost the city over 100 jobs, and damaged its human services, parks and recreation, libraries, and more.
Like nearly every other city in the nation, Oakland still relies on big, private banks to manage its money. Consequently, it still pays dearly in interest rates and fees--money that could restore the city's social services, libraries, and day-to-day expenses.
This article is part of PBI's ongoing project What Wall Street Costs America. Find out more about the project, and how you can participate in it, by visiting our project page.
Matt Levine, "How Much Did Goldman Screw the City of Oakland, Anyway?" Dealbreaker.com, August 1, 2012
Kevin Roose, "How Do You Run Goldman Sachs Out of Town?" New York Magazine, April 11, 2013
Carolyn Jones, "Oakland begins $28 million in budget cuts," San Francisco Chronicle, January 26, 2012
Share this blog post with your friends!