The City’s financial policies provide a framework for the City’s overall fiscal management and outline standards for consistent and transparent budgetary practices. These fiscal policies are intended to secure the City’s fiscal integrity and health, encourage equitable allocation of costs and resources, and allow sufficient flexibility to consider new fiscal and budgetary strategies. The City consistently evaluates these policies to determine if they should be modified to accommodate changing circumstances and conditions.
The City maintains sufficient unrestricted fund balances to mitigate current and future risks, emergencies, or unanticipated budget shortfalls. As part of the City’s financial practices, the City established and maintains three sources of unrestricted budgetary fund balance, referred to collectively as budget stabilization funds or fund balance:
• Asset Lease and Concession Reserves: Revenues from the long-term lease of the Chicago Skyway and the concession agreement for the metered parking system comprise the City’s Asset Lease and Concession Reserves.
• Operating Liquidity Fund: The City created this fund in 2016 and each year a determined amount of the unassigned fund balance will be assigned to it. This fund will provide reoccurring short-term funding for City operations, allowing the City to manage liquidity issues associated with timing of revenue collection. For example, the Operating Liquidity Fund could be used to replace the short-term borrowing needed for library operations while the City awaits property tax receipts.
• Unassigned Fund Balance: Surplus resources identified through the annual financial audit process make up the unassigned fund balance. The City’s unassigned fund balance has grown due in part to the improving economy, enhancements in revenue, including debt collection and investment strategies, and ongoing savings and efficiencies.
As part of its budget stabilization policy, the City adheres to the GFOA recommendation and maintains an unrestricted budgetary fund balance in the general fund of no less than two months of operating expenses. Further, the City does not appropriate more than one percent of the value of the annual corporate budget from the prior year’s audited unassigned fund balance in the current year’s budget.
Balanced and Comprehensive Budgeting
• The City bases its annual budget on a reliable assessment of the available resources for that year and a meaningful understanding of the City’s service priorities, and adopts a balanced budget in accordance with the Illinois Municipal Code (65 ILCS 5/8-2-6).
• Members of the public are provided with an opportunity to submit comments on the annual budget through City Council hearings, community forums, written or electronic submissions, or other appropriate means, and at any public hearings required by the Illinois Municipal Code (65 ILCS 5/8-2-6).
• Annually, the City evaluates each department’s direct costs, as well as any indirect costs that are necessary to conduct that department’s function. Accurately assessing these costs across City government will provide a useful measure of the full cost of City services.
• Enterprise funds are charged the full cost of services provided by other City funds.
Financial Report and Long-Term Financial Planning
Pursuant to Executive Order No. 2011-7, the Office of Budget and Management issues by July 31 of each year a long-term budget and financial analysis – the Annual Financial Analysis – which includes a historical expense and revenue trend analysis and a long-term financial forecast.
Anticipated grants are appropriated annually as part of the Appropriation Ordinance passed by the City Council. Before applying for or accepting any grant, the City evaluates whether the grant is consistent with the City’s mission and priorities and assess the costs, responsibilities, and risks associated with the grant.
Capital Investments and Maintenance
The City will strive to consistently maintain capital assets and prioritize capital projects in a manner that minimizes future maintenance and replacement costs, and meets Chicago’s infrastructure needs. On an annual basis, the City issues a multi-year Capital Improvement Plan (CIP). The CIP contains an outline of the sources of funds, timing of capital projects, and the CIP’s financial impact on the applicable tax levy or revenue source.
Diverse Revenue System and Evaluation of Costs
• The City maintains a diversified and stable revenue system that is responsive to the changing economy and is designed to protect the City from short-term fluctuations in any individual revenue source.
• The City does not use revenue from volatile sources in an amount that exceeds normal growth rates for ongoing operating costs.
• User fees are regularly evaluated and set at levels designed to support the full cost of the service.
• Tax and fee reductions and waivers are also critically evaluated to determine their value and impact on City services and finances.
• Where appropriate, the cost of City services are benchmarked against similar providers of such services so that the City can accurately evaluate opportunities to improve efficiency and reduce costs associated with service delivery.
Declaring a TIF Surplus
Pursuant to Executive Order No. 2013-3, the City must declare a surplus in those TIF districts that are older than three years, were not created for single redevelopment projects, are not transferring funds to other TIF districts to pay debt service costs, and have a balance of at least $1 million. The amount of the surplus is at least 25.0 percent of the available cash balance in the TIF, after accounting for current and future project commitments and contingencies, revenue volatilities, tax collection losses, and tax liabilities. To view the City’s TIF surplus amounts by year, visit the TIF section of this report.
Debt Management Policy
Pursuant to Section 2-32-031(d) of the Municipal Code of Chicago, the Chief Financial Officer must adopt the City of Chicago Debt Management Policy which establishes guidelines for the issuance and management of all City-issued debt and any new financing types related to existing City debt. The Chief Financial Officer has the day-to-day responsibility and authority for structuring, implementing, and managing the City’s debt program in accordance with authorization by the Chicago City Council. To view the City’s Debt Management Policy, visit the City of Chicago’s Investor Relations website.