Bloomberg Businessweek / Elizabeth Campbell and Tim Jones
Kurt Summers Jr. leads a one-man roadshow across Chicago, preaching a message of hope and revival: Financial doom isn’t imminent, even as deficits persist and about $50,000 in unfunded pension costs hang over every city household.
“All those things make it feel like the sky is falling a bit,” Summers, who became treasurer Dec. 1 and is up for election in February, told residents last week in the South Side neighborhood of Pullman.
“These are very real problems,” said the 35-year-old former asset-management executive. “However, there’s another side of the equation.”
For Summers, the answer lies in the money he can allocate as overseer of $7.2 billion, including cash and bond proceeds. Following the cue of New York City and California, he wants Chicago to consider investing locally, though he won’t specify dollar amounts or projects he’d target.
It’s “not about the dollar we invest, it’s about the dollars that follow,” says the Chicago native, who grew up among gangs and poverty on the South Side. Summers, who’s unopposed going into the Feb. 24 election, plans meetings in all 77 of Chicago’s community areas by then to discuss his plan.
Investing within city limits is only part of his strategy. He also wants to reduce fees Chicago pays to its outside pension-fund managers.
While most big U.S. cities have struggled to restore revenue to pre-recession levels, the severity of Chicago’s challenge sets it apart, due in part to pension expenses. Moody’s Investors Service in March cut its $7.8 billion of general obligations to three steps above junk, the lowest among the 90 most populous U.S. cities, besides Detroit.
Investing locally carries risk, for which the third biggest U.S. city may have limited tolerance given its budget strains. The city projects a 2015 deficit of $297 million out of an $8.9 billion budget, limiting its ability to tie up tax and bond revenue for extended periods.
“The risk he takes politically is very few people are so smart that they pick all winners,” said Douglas Roberts, the former Michigan treasurer, who’s now director of the Institute for Public Policy and Social Research at Michigan State University. “He may pick 9 out of 10, but that 10th will always be used against you.”
Mayor Rahm Emanuel named Summers to replace Stephanie Neely, who resigned to move to the private sector. A graduate of Washington University in St. Louis and Harvard Business School, Summers was previously senior vice president of Grosvenor Capital Management, which oversaw about $47 billion as of Sept. 30.
A week into his job, he took a public stand against police using chokeholds on suspects.
“My office might say Summers for Treasurer, and my card says Kurt Summers, Treasurer, but we’re leaders for the people we’re here to represent,” Summers said in a Dec. 9 radio interview with the Reverend Al Sharpton.
“I still live on the South Side today, and I’ve got young black men that are my brothers and my cousins and my nephews,” he said. “This is about looking out for them.”
Last week, stop No. 17 of his tour brought Summers to a bank building’s conference room in Pullman, where he spoke to a couple dozen South Side residents.
The neighborhood mirrors the slide of industrial Chicago and decades of attempts to revive the area. The 19th-century engineer George Pullman designed and manufactured railroad sleeping cars in what was then a town that carried his name.
As railroads declined, residents pushed to bring new jobs, attracting a Wal-Mart in 2013, a discount clothing store, soap manufacturer and egg distributor. Summers’s presentation whetted the Pullman residents’ appetite for city money.
“There’s just a ton of vacant lots on the South Side,” said Tsadakeeyah Emmanuel, a 51-year-old chef who plans to open a vegan restaurant in April after getting a $9,000 loan from the city. “It becomes very obvious what communities have been and have not been invested in.”
The homegrown opportunities are part of Summers’s broader investment plan. The city’s operating fund and bonds make up about 85 percent of what he manages as treasurer. The rest of the assets comes from areas such as reserves.
“I’m not creating a goal or a quota,” Summers said in an interview.
In New York City, the retirement funds for police officers, firefighters, teachers, school administrators and civil employees have invested in affordable housing and economic development for decades. The California Public Employeesâ Retirement System started an initiative to invest in companies in parts of the state that traditionally have had limited access to capital, according to the fund’s website.
Money management is at the root of Chicago’s financial crisis. Under former Mayor Richard M. Daley, it skipped pension payments and spent billions of dollars in upfront cash from long-term highway and parking-meter leases.
Summers will have to balance his approach with his goal of maximizing returns.
“It is conceivable that you could find some local investment that would approximate what you could get elsewhere, so why not put the money to work here,” said Ralph Martire, executive director of the Chicago-based Center for Tax and Budget Accountability. “But it’s a little bit of a vague promise.”
More than 40 years ago, Chicago newspaper columnist Mike Royko suggested the city adopt a new motto — Ubi Est Mea, or Where’s Mine? — a tribute to the culture of cronyism and spreading the public wealth around.
“I don’t think you can do ‘Where’s Mine’ anymore,” Ted Stalnos, president of the Calumet Area Industrial Commission, which promotes economic development in the region, said in an interview at the Pullman meeting. “Investment has to follow some rationality now.”
For the metropolis of 2.7 million, the biggest fiscal concern rises above the neighborhood level. Its retirement plans had a $19.2 billion funding shortfall at the end of 2013, and the city must rely on state lawmakers to enact legislation for major pension changes.
The treasurer serves on the boards of the city’s four pensions, as well as that of the teachers fund. The pools have almost $25 billion under management combined. Summers has identified one area to reduce expenses — the plans for police, fire and teachers are being charged different fees by the same fund manager, he said.
Leveraging Chicago’s capital to invest locally will help its finances, Summers said.
“That impact on our local economy, by the way, has an impact on our ability to fund those unfunded liabilities and improve our tax base,” Summers said. It’s “a virtuous cycle when we take this approach.”
To contact the reporters on this story: Elizabeth Campbell in New York at firstname.lastname@example.org; Tim Jones in Chicago at email@example.com
To contact the editors responsible for this story: Stephen Merelman at firstname.lastname@example.org Mark Tannenbaum, Flynn McRoberts