Annual Financial Analysis
Liquidity and Stabilization Funds

Liquidity and Stabilization Funds

In order to support the City’s long-term financial health, it is the City’s policy to maintain sufficient unrestricted fund balances to mitigate current and future risks, emergencies or unanticipated budget shortfalls; and, maintain necessary access to certain short-term debt instruments in order to address various operating, liquidity, and capital needs.

The City’s budget stabilization funds are not included in its annual operating budget. Instead, the City maintains a number of separate funds it has set aside as an economic safety net to mitigate current and future risks such as contingencies, emergencies, or revenue shortfalls. This section details the sources that make up the unrestricted fund balance or budget stabilization funds and the City’s liquidity. The current City policy requires the budget stabilization funds for the corporate budget maintain an equivalent of no less than two months of operating expenses.

Additionally, this section discusses the rate stabilization funds for the City’s water and sewer funds, which help to maintain the City’s long-term financial stability.

Asset Lease and Concession Reserves

The following section describes the manner in which funds generated by the City’s long-term Skyway concession lease, long-term parking meter system concession agreement, and the Midway Airport security funds have been spent as well as historic and present levels of reserve funds.

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Skyway and Parking Meter Lease/Concession Reserve Funds

In 2005, the City entered into a 99-year lease of the Chicago Skyway, under which a private company was granted the right to operate and collect tolls from the Skyway. In return, the City received an upfront payment of $1.83 billion. Approximately $850 million of this amount was used to pay off existing debt, including $446.3 million to refund the outstanding Skyway bonds at the time of the transaction.

In 2009, the City entered into a 75-year concession agreement for its metered parking system, under which a private company was granted the right to operate and collect revenue from the parking meter system and the City received an upfront payment of $1.15 billion.

Both of these transactions resulted in the establishment of a long-term reserve fund, a mid-term reserve fund, and a human infrastructure fund.

This chart provides the annual transfers to the corporate fund from the multiple reserve funds established with revenue from lease or concession agreements of City assets. Additionally, the transfers presented in this chart include amounts utilized to cover transaction costs for the respective lease/concession. The sections below detail the initial reserve fund balance and reasons for the transfers to the corporate fund.

Long-Term Reserves

The City established a $500 million long-term reserve with a portion of the proceeds of the Chicago Skyway lease. The principal of this fund was intended to supplement corporate fund reserves, with interest earnings to be used for City operating expenses. These funds have been utilized as planned - the principal balance remains $500 million and the earned interest has been transferred to the corporate fund each year, with the dollar amount of the transfer reflecting variations in interest rates.

The City established a $400 million long-term reserve with a portion of the proceeds of the parking meter concession. This fund was created to replace revenues that would have been generated from parking meters by transferring interest earnings to the corporate fund, with the principal remaining intact at $400 million. However, starting in 2009, the City began utilizing these long-term reserve funds to subsidize the City’s operating budget. Utilizing these funds reduced the principal balance substantially below the initial deposit and accordingly reduced the interest earnings generated by the fund. The original ordinance establishing the fund directed that an annual transfer of $20 million be made from the fund into the corporate fund to replace lost meter revenue. However, in order to maintain these important reserves, the City amended the ordinance in 2012 to state that only interest generated from the fund, and not principal, must be transferred for this purpose. In addition, the City began to rebuild these reserves in 2012, with $40 million deposited through 2016.

Mid-Term Reserves

The City also established mid-term reserve funds of $375 million and $325 million, respectively, with proceeds from the Skyway lease and parking meter concession. Both of these funds were created to supplement corporate fund revenues. The Skyway mid-term reserve fund has been drawn upon as scheduled, with the principal depleted in 2010 and the approximately $50 million in accumulated interest transferred from this fund to the corporate fund in 2011. The parking meter mid-term reserve fund was drawn on an accelerated schedule and was also fully spent by 2011.

The parking meter mid-term reserve was established to assist the City in weathering the national economic downturn occurring at the time of the closing of the parking meter concession. Initially $326.4 million was deposited into the fund and the principal was fully utilized by the end of 2010. A small amount (approximately $600,000) of interest remained in the fund and was transferred to the parking meter long term reserve fund in 2012.

Human Infrastructure Reserve Funds

The City set aside $100 million of the proceeds from each of the Skyway and the parking meter concession transactions to be used to fund programs to improve the quality of life in Chicago neighborhoods. The principal of the Skyway human infrastructure fund was fully utilized by the end of 2009 and the remaining interest in the fund was utilized in 2011. The remaining balance of the parking meter human infrastructure fund was used in 2014; thus, there was a $0 balance as of year-end 2014.

Midway Airport Security Funds

In 2008, the City entered into an agreement with a private company for the long-term lease of Midway International Airport. The private company failed to carry out the transaction and surrendered its $126.1 million security deposit to the City in 2009; $13.1 million of this amount was used to pay various fees associated with the proposed lease transaction, $33 million was used to pay off existing debt, and $40 million was transferred to the corporate fund for use in that year. The remaining $40 million was transferred to the corporate fund in two $20 million transfers, one in 2010 and the second in 2011.

Current Asset Lease Reserve Fund Balance

Historically, the City used the asset lease/concession reserve funds to subsidize its operating budget, but in recent years only the interest earned on the long-term reserve funds has been transferred to the corporate fund. Since 2012, the City has added $40 million to its reserves. The current principal balance is approximately $620 million with an additional $17 million in interest income that is pending transfer.

Operating Liquidity Fund

In 2016, the City created the Operating Liquidity Fund to further enhance the City’s liquidity. The Operating Liquidity Fund will serve as a recurring bridge funding source for certain operating needs (e.g. funding space consolidation which is repaid with rental savings) or for operations that are funded from a revenue source for which receipt is delayed (e.g. Chicago Public Library property tax revenue).

The City has set aside a total of $10 million from the unassigned fund balance starting with the 2015 financial audit –$5 million in 2015 and $5 million in 2016—for the Operating Liquidity Fund. The deposits are identified as part of the City’s annual financial audit, and the City intends to deposit another $5 million in the Operating Liquidity Fund through the 2017 audited financial statements.

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 annually since 2013 due in part to the growing economy, enhancements in revenue systems, including debt collection, and ongoing savings and efficiencies. The City’s unassigned fund balance was $33.8 million in 2013, $51.6 million in 2014, $93.0 million in 2015, and $153.7 million in 2016.

Current City policy states that the City will not appropriate more than 1.0 percent of the value of the annual corporate budget from the prior year’s audited unassigned fund balance in the current year’s budget. The 2017 corporate budget includes $37 million1 of unassigned fund balance, referred to as prior year available resources in the corporate revenue section of this report. This amount represents less than 1.0 percent of the overall corporate budget for 2017.

Commercial Paper and Lines of Credit

As part of the City’s overall liquidity and budget stabilization, the City regularly issues commercial paper notes and/or enters into lines of credit with commercial banks. The City issues certain types of short-term debt to address various operating, liquidity, and capital needs. The City currently has commercial paper and/or lines of credit programs for O’Hare, Midway and general purposes. These financial tools are used to satisfy short-term funding needs until long-term bonds are issued, and satisfy interim cash flow and liquidity needs of the City. For example, general obligation lines of credit are issued to fund operations for the City’s libraries for a short period until property tax revenues are collected.

Water and Sewer Rate Stabilization Funds

The City’s water fund and sewer fund both maintain rate stabilization accounts. These accounts ensure that the City’s water and sewer systems will remain financially solvent in the case of a catastrophic event. In such a case the accounts would be used to finance operations and make necessary repairs for a short period. Contributions to the water and sewer rate stabilization funds are projected in amounts necessary to maintain an account balance equal to three months of operating expenses. The balance as of December 31, 2016 in the water rate stabilization account was $91.2 million, and was $32.6 million in the sewer rate stabilization account.

  1. The City allocated $16 million of unspent property tax rebate money from the 2016 City of Chicago Property Tax Rebate Program to a variety of public safety, educational and economic development programs or projects in 2017.