Annual Financial Analysis
Debt

Debt

This section examines the City’s total outstanding debt, including general obligation bonds, revenue bonds, and short-term debt instruments. It also outlines the City’s debt service payments over the past ten years and future years. Additional information can be found at the Department of Finance investor site.

Long-Term Debt

The City funds certain operating and capital expenditures from the proceeds of bonds. Debt service on each type of bond is paid from a specific source of revenue.

  • General obligation (GO) bonds, backed with property tax revenue, are issued to pay for capital projects, equipment, settlements and judgments, and certain working capital expenses.

  • Non-Property Tax Funded GO Bonds, make up a small subset of the City’s general obligation debt. These bonds are backed by the City’s full faith and credit, and are funded with other sources of revenue, and issued for specific purposes. For example, revenue from the 911 surcharge is used, in part, to pay debt service on general obligation bonds used for the construction of the City’s 911 call center.

  • Sales tax revenue bonds, backed by sales tax revenue, are issued to pay for general City infrastructure projects.

  • Motor fuel tax revenue bonds, backed by motor fuel tax revenue, are issued to pay for road and highway projects.

  • TIF bonds, backed by TIF revenue, are issued to pay for redevelopment and infrastructure projects in TIF districts.

  • Water and sewer revenue bonds, backed by revenue from water and sewer fees, are issued every other year to pay for capital projects for the water and sewer systems, respectively.

  • O’Hare and Midway revenue bonds, backed by revenue from airport operations, are issued to pay for airfield and terminal improvements and related facilities.

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Outstanding Long-Term Debt

The City’s debt level increased steadily for the past 10 years. The bulk of debt included in the table above was used to fund capital projects across the City. In addition, a portion of general obligation bonds fund certain equipment purchases, such as technology equipment, vehicles, fire safety equipment, and similar items.

Historically, the City used general obligation proceeds to pay certain working capital expenses such as water fountain maintenance, garbage carts, retroactive salary payments (resulting from union contract re-negotiations), along with costs incurred in connection with settlements and judgments against the City. Over the past five years, the City has moved away from the practice of using long-term bonds to pay for working capital. Since 2012, $41 million in working capital expenses and $161 million in retroactive salary increases have been paid with operating revenues. In addition, the City has increased its operating budget for settlements and judgments by 40 percent since 2013, decreasing the amount of settlements and judgments that are funded with long-term debt. The City will continue the practice of moving working capital expenses onto the operating budget.

Long-Term Debt Service Payments

As discussed in the Property Tax section, a substantial portion of the City’s property tax dollars are used to pay debt service. In the past, as debt service payments continued to grow, the City used general obligation bonds to fund a practice known as “scoop and toss”. “Scoop and toss” is restructuring a portion of existing near-term general obligation debt payments to decrease current debt service payments, making debt service costs grow in later years. In 2016, the City began the first phase of its plan to eliminate “scoop and toss” by 2019. The GO debt service payment schedule shown above includes $100 million to phase out “scoop and toss” in 20161.

In May 2015, Moody’s, Fitch, and Standard & Poor’s rating agencies lowered their credit ratings of the City’s GO debt and other debt, citing the impact the ruling by the Illinois Supreme Court on the State of Illinois pension reform plan would have on the City’s pension reform plan and the growing unfunded pension liability. These downgrades triggered events of default on the City’s lines of credit, resulting in the City terminating one line of credit and negotiating forbearance agreements with the remaining banks supporting the City’s lines of credit/commercial paper and interest rate swaps. The City’s pension funds are discussed further in the Pension section

Variable Rate Debt and Swaps

Starting in 2014, the City took steps to reduce taxpayer risk associated with swaps and variable rate debt by converting all taxpayer-backed variable rate debt to stable, fixed rate debt and terminating the corresponding swaps. These actions included:

  • In September 2014, the City terminated the GO Bonds, Series 2002B Neighborhoods Alive swaps at a termination fee of $36.3 million, and converted the underlying $176.2 million of GO Bonds, Series 2002B variable rate debt to fixed rate debt.

  • In May 2015, the City converted $170.1 million of GO Bonds, Series 2003B from variable rate debt to fixed rate debt and terminated the corresponding swaps at a termination fee of $30.95 million.

  • In May and early June 2015, the City converted $111.7 million in variable rate Sales Tax Revenue Refunding Bonds, Series 2002 and terminated the corresponding swaps for a fee of $28.9 million. The City also converted $327.7 million of GO Bonds, Series 2005D and 2007E, F, and G and terminated the corresponding swaps at a fee of $124.8 million.

  • In October 2015, the City converted $332.2 million in Second Lien Wastewater Transmission Revenue from variable rate to fixed rate and terminated the corresponding swaps at a cost of $70.2 million.

  • In December 2015 and January 2016, the City redeemed $22.3 million of Chicago Senior Lien Tax Increment Allocation Bonds (Near North TIF) and terminated the associated swap at a cost of $2.2 million.

  • In May 2016, the City converted $444.6 million in Second Lien Water Revenue Bonds, Series 2000 and 2004 and terminated the associated swaps for a termination fee of $101.8 million.

The conversion of water revenue bonds and termination of the corresponding swaps was the final piece of the City’s commitment to mitigate risks on behalf of taxpayers within its variable rate and swap portfolios. The only remaining variable rate bonds and swaps are for airport debt, which is paid for by airline fees and other airport charges.

Short-Term Debt

In addition to the long-term debt discussed above, the City issues certain types of short-term debt to address various operating, liquidity, and capital needs.

  • Commercial paper notes and/or bank lines of credit are used to satisfy interim cash flow and liquidity needs of the City; for example, lines of credit are issued to fund operations for the City’s libraries for a short period until property tax revenues are collected.

  • The City currently has commercial paper and/or lines of credit programs for O’Hare, Midway and GO debt. These financial tools are used to satisfy short-term funding needs until long-term bonds are issued.

  • In 2015, the City drew on its General Obligation Commercial Paper Notes and Lines of Credit to pay the fees associated with terminating the swaps, as discussed above, prior to converting the associated variable rate debt to fixed rate debt.

  • In January 2015, the City used $75 million of short-term financing to pay the retroactive salary increases for members of the Fraternal Order of Police owed under their most recent collective bargaining agreement. The use of short-term financing was part of the City’s commitment to not use long-term borrowing for retroactive pay increases. The current balance of this borrowing is $31 million, and the City will pay down the remaining amount in the coming year2.

  • During the period between 2005 and 2011, approximately $29.6 million in commercial paper was issued to fund the maintenance and operation of Millennium Park; the City allocated $2 million in 2013, $5.5 million in 2014, $2.25 million in 2015, and another $5 million in 2016 towards paying off this Millennium Park debt. The City plans to continue to make payments each year going forward until the commercial paper is fully paid off.

  • Short-term financing is also used to fund the consolidation and reorganization of City offices and facilities to maximize efficiency, increase the City’s utilization of its owned space, and save money on lease expenses. Rental savings from the consolidations pay off the short-term borrowing used to pay for renovations and relocations.

As of December 31, 2015, the outstanding balance for the City’s General Obligation Commercial Notes and General Obligation Lines of Credit was $239.1 million. In February 2016, the City issued $220 million of commercial paper to meet a State law requirement that the City deposit the difference between the contributions to PABF and FABF required under law in effect at the time and current law. As of June 2016, the City has paid down $315.6 million, including all the $220 million drawn in February 2016. The current outstanding line of credit balance is below $130 million.

  1. The “scoop and toss” payments for 2017, 2018, and 2019 are not included in the chart as those amounts are not yet finalized. 

  2. Retroactive payments owed as the result of other recent collective bargaining agreements were paid directly from operating revenues.