OAKLAND (CBS 5) - Oakland is currently paying $4 million a year in interest to Goldman Sachs for bonds at a locked-in rate that has them overpaying by millions compared current rates. City officials have said that needs to change.
Oakland is locked in at a fixed rate of nearly 6 percent for the bonds as part of a deal the city reached more than a decade ago to hedge against rising interest rates. The bank currently pays an interest rate of about .15 Percent on such loans. Oakland officials want out of the deal, but Goldman is asking for a $15.5 million termination fee.
"We continue to lose services because of banks like Goldman Sachs who understand how to take advantage of programs to relieve their debt crisis but they don't understand how to work with cities like ours," said Oakland City Council member Desley Brooks.
The agreement is called an interest rate swap, and a spokeswoman for Goldman Sachs said the deal is about timing.
"If we are at the lowest level of interest rates today that means that every fixed loan that happened before this…it would be advantageous to the borrower to tear that up and re-borrow today when interest rates are lower...I don't think it's a fair thing to ask," said CEO Lloyd Blankfein.
Oakland Mayor Jean Quan skirted our questions Tuesday about the city's muli-million dollar problem saying that the city would "be doing something later on that."
The problem is not unique to Oakland. A group called Refund Transit Coalition has identified 12 major cities including Los Angeles, New York and Chicago that have similar interest rate swaps.
"The banks had lawyers and financial people at the table. They made tremendous mistakes they put our country in jeopardy financially and yet we bailed them out…we want the same," said Brooks.
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