Annual Financial Analysis
Debt

Debt

This section examines the City’s total outstanding debt, including general obligation and revenue bonds, short-term debt instruments and loans. It also outlines the City’s bonded debt service payments over the past ten years and future years. Additional information can be found at the City of Chicago Investor Relations website.

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.

Long-Term Bonded Debt

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The majority of debt included in the charts above was used to fund capital projects across the city, while the revenue supporting long-term bonded debt varies by credit type. The section below provides an overview of the sources and uses of the City’s long-term bonded debt. For additional details on uses of bond proceeds, see the Capital section of this document.

Property Tax Backed General Obligation (GO) Bonds

A significant portion of the City’s long-term general obligation bonds are backed by the full faith and credit of the City, and all taxable property within the City is subject to the levy of taxes to pay the principal and interest on general obligation bonds. Principal and interest on the bonds is payable from any moneys, revenues, receipts, income, assets or funds of the City legally available, including the proceeds of a direct annual tax levied by the City on all taxable property in the City. General Obligation bonds are issued by the City to fund capital improvements, equipment, and legal judgments and settlements.

For the last several years, proceeds from general obligation bonds have been used to restructure a portion of the near-term debt service on outstanding general obligation bonds reducing the property tax levy in those years, or “scoop and toss.” Scoop and toss reduces debt service in current years and extends the average maturity of the City’s debt. The City intends to eliminate scoop and toss by 2019. In addition to the property tax levy, the 2017 budget includes $123 million in additional operating revenue to make general obligation debt service payments

General obligation bonds are utilized to support facility improvements and construction, infrastructure and aldermanic menu projects. Historically, the City used general obligation proceeds to pay certain working capital expenses such as water fountain maintenance, garbage carts, library books, retroactive salary payments – resulting from union contract re-negotiations – along with costs incurred in connection with settlements and judgments against the City. Through strategic budget planning over the past five years, the City has continued to phase-out the use of long-term bond proceeds to pay for certain working capital expenses. Since 2012, $52 million in working capital expenses and $161 million in retroactive salary increases have been paid with operating revenues, and the City will continue the practice of moving working capital expenses onto the operating budget.

In addition, the City has increased its budget for settlements and judgments in every operating budget since 2013, decreasing the amount of settlements and judgments that are funded with long-term debt. The Administration has added money to the settlement and judgments budget each of the last five budgets along with utilizing additional revenue available at the end of each year to pay settlements and judgments, decreasing the amount of borrowing for the settlements and judgments. By 2019, the City no longer intends to borrow long-term bonds to pay for routine settlements and judgments.

Non-Property Tax Funded General Obligation Bonds

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

Sales Tax and Motor Fuel Tax Revenue Bonds

Sales tax revenue bonds are backed by sales tax revenue and are issued to fund general City infrastructure projects. Motor fuel tax revenue bonds are backed by motor fuel tax revenue and are issued to pay for road and highway projects.

Tax Increment Financing (TIF) bonds

TIF bonds backed by TIF revenue and are issued to pay for redevelopment and infrastructure projects in TIF districts. See the TIF section of this document for more information on this debt.

Water and Wastewater Revenue Bonds

Water revenue and wastewater revenue bonds are backed by revenue from water and sewer fees and are issued to fund capital projects for the water and sewer systems, respectively.

O’Hare and Midway Revenue Bonds

O’Hare International Airport and Midway International Airport revenue bonds are backed by revenue from landing fees, terminal rent, and other fees paid by airlines, as well as non-airline sources, such as passenger facility charges (set amount charged to each passenger flying to or from the airport) and customer facility charges (charge on rental car customers at O’Hare Airport). These revenue bonds are issued to pay for airfield and terminal improvements and related facilities.

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. The City currently has commercial paper and lines of credit programs for O’Hare, Midway and General Obligation debt. These financial tools are used to satisfy short-term funding needs until long-term bonds are issued as well as to satisfy interim cash flow and liquidity needs of the City.

General Obligation Short-Term Debt: The City maintains general obligation lines of credit. As of December 31, 2016, the outstanding balance was $124.3 million and the current outstanding balance as of July 2017 is $42.5 million.

  • The City utilizes the general obligation lines of credit to fund library operations in anticipation of receipt of the property tax revenue. In 2016, this amount was $77.1 million. The current amount outstanding is $40.2 million and will be repaid as second installment property tax receipts are received.

  • 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 the 2012-2017 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. In 2016, the City paid down the balance, resulting in the full $75 million paid with available operating revenue.

  • 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 to pay down the balance in 2013, $5.5 million in 2014, $2.25 million in 2015, and paid off the remaining $22.6 million in 2016 with available operating revenue.

  • 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 space it owns, and save money on lease expenses. Rental savings from the consolidations pay off the short-term borrowing used to pay for renovations and relocations. There is currently $2.4 million outstanding.

O’Hare International Airport Short-Term Debt: The City maintains commercial paper and line of credit programs to fund interim capital needs of the airport. As of December 31, 2016, there was an outstanding balance of $12.1 million on the commercial paper program and no outstanding balance on the line of credit. The current outstanding commercial paper and line of credit amounts as of July 2017 are $12.1 million and $30.0 million, respectively.

Midway International Airport Short-Term Debt: The City maintains a commercial paper program to fund interim capital needs of the airport. There is currently not an outstanding balance.

Loans and Notes

Along with issuing long term bonds, the City enters into loans and notes to address various capital needs.

• In 2009, the City purchased the former Michael Reese Hospital campus for $91 million in connection with the City’s bid for the 2016 Summer Olympics. In February 2017, the existing note between the City and MRL Financing, LLC was prepaid, and a new note was issued at a lower, fixed interest rate of 3.55 percent. The note is a general obligation of the City not supported by a tax levy. To date, the City has paid $32.1 million in principal and interest and the current amount outstanding on the note is $72.8 million. The amounts necessary to pay note interest costs are budgeted annually.

• The City applies for and receives funding from the Illinois Environment Protection Agency (IEPA) State Revolving Loan Funds Program. The City has entered into fixed rate loan agreements with the IEPA to fund water and sewer systems projects. The current outstanding principal is $212.3 million of water loans and $160.4 million of sewer loans.

• In 2013 the City closed on a Transportation Infrastructure Finance Innovation Act (TIFIA) loan from the U.S. Department of Transportation to complete the Chicago Riverwalk along the main branch of the Chicago River. To date, the City has used revenues received from Riverwalk boat and concession operations to pay $4.6 million in interest. The current outstanding principal is $87.8 million.

• Also in 2013, the City closed on a TIFIA loan from the U.S. Department of Transportation not to exceed $288.1 million to fund a portion of a new intermodal facility at O’Hare International Airport. The intermodal facility, scheduled to open in 2018, will combine car rentals, public parking, and airport transit system connections in a single facility. When interest and principal payments become due they will be paid by customer facility charge revenues.