Happy Tuesday.
The committee on finance is called to order.
And the committee on finance is having a subject matter
hearing this morning.
To discuss the resolution introduced by Alderman. Anthony
Beal of the Ninth, Ward, and 32 others regarding the
of the recent credit rating agency downgrades, and a
resolution introduced by Alderman. Gilbert VA of the 36th
Ward calling on the US Congress to preserve tax exempt
status on municipal bonds.
No votes will be taken during this subject matter hearing.
And we'll begin this meeting with the roll, call to
establish quorum.
Vice chair Conway.
Alderman laspada.
Alderman Hopkins.
Alderman Mitchell.
Alderman Harris.
Alderman Beal.
Alderman. Lee.
Alderman Ramirez.
Alderman Quinn.
Alderman Lopez.
Alderman Moore.
Alderman. Curtis
Alderman. OSHA
Alderman Rodriguez.
Alderman Scott.
Alderman, CEO Lopez Alderman brunette.
Alderman. Talia Farrell.
Alderman, Cardona.
Alderman waguespack.
Alderman, Rodriguez, Sanchez.
Alderman Quezada.
Alderman. Vagus.
Alderman mitts.
Alderman spaz.
Alderman Vasquez.
Alderman. Reilly
Alderman. Kuden.
Alderman. Martin.
Alderman Silverstein.
Vice chair Conway. I see that you're here.
Chair dowel is here.
Alderman, Moore is here.
How many is that?
We have a quorum. We have 20 members present.
Alderman, Taylor Irvin Mosley. And Hall, have requested
remote participation under the provisions of rule. 59, can
I have a motion to allow these Alderman to participate? By
remote means, motion made by Alderman Rodriguez, all those
in favor. Signify by saying I opposed and the opinion of
the chair, the eyes have it, and the motion carries. And I
want to confirm that Alderman. Taylor. Irving and Mosley
are here. I don't want. Taylor is here.
Mosley's president.
Alderman. Ervin is present. Thank you.
At this time, we will again the public comment period uh
which is for 30 minutes out of respect for everyone's Time.
Each speaker is limited to 3 minutes. We do have a caller
that is signed up to speak remotely and we'll start with
him. Joseph neural.
Good morning. My name is Joseph Nigro.
Uh, 41st, Ward resident. I'm also a right share driver with
10 years and 27,000 rides experience.
several years ago when Uber wanted to encourage drivers to
make a switch to electric vehicles, they offered a bonus of
1 dollar per ride regardless of trip, type
whether Uber X or pool, or Comfort didn't matter,
When EV drivers looked at their trip breakdowns, they saw a
fair, plus the dollar bonus and it looked like everything
was correct.
Then drivers tried to verify that Uber was applying the
bonus correctly. They would sit right next to fellow
drivers with gas cars and compare. The offers they were
getting they found that Uber wasn't actually giving them a
dollar more but only 70 to 80 cents compared to the gas
vehicles.
When enough drivers made enough noise Uber apologized, they
called it a glitch. They also promised to make EV drivers.
Hold imagine as a full-time driver, doing a 100 rides or
more per week and this had been going on for weeks and
months. You now have to trust the company that has been
glitching you to go back and honestly pay you for thousands
of trips.
there are other examples of Uber's mistreatment of drivers
but let me focus on Chicago where passengers have become
the newest victim of a defective glitchy algorithm that
charged a surge tax when it shouldn't have.
again, Uber apologizes and says they will make people whole
Uber has no incentive to stop these glitches, they're able
to hold on to our money and earn profit. Either floating it
on the short term Capital Market paying bonuses to their
exacts redecorating their offices, or who knows what else
they then give that money back, minus all of that profit
they get to keep. They don't even get a slap on the wrist.
They don't pay a fine. Nothing to discourage them from
doing this in the future. This revenue is supposed to have
gone to the city who on the council is responsible for
auditing. These companies who's making sure that these
algorithms are in glitching does the city need to hire an
outside auditor to check these algorithms and make sure we
aren't being cheated?
Or I can suggest something simpler and more cost-effective
vote. Yes, for the fair. Share ordinance. The ordinance
does away with the faulty glitchy algorithms. And trips are
priced based on time and distance, simple multiplication.
And addition we can do on our heads. The ordinance also
mandates, a clear receipt with a breakdown of how much a
passenger pays, how much a driver makes how much the
company takes and what fees are being charged. This allows
us all to audit our own trips and make sure we aren't being
glitched by these apps.
Banana is a sponsor and vote. Yes. To give Chicago in the
tools to protect ourselves. Thank you.
Thank, thank you. Um, we'll add Alderman Ramirez to the
role.
For count towards Quorum and we would like to have Richard
Warz to come forward for his public comments today.
Hi. Um I'm a 66 year old resident of Chicago. Born and
raised here and I'm proud.
I am a veteran. I have served this nation.
I've been a writer driver for over 10 and a half years over
47,000 rides. I've seen the evolution of the Uber and Lyft
system.
They always changed, they're always evolving. But why is it
is always evolving in the favor of their profits.
If you want to see an example of the profits, look at the
old rooftop, look at that lavish, rest area, that they
have, just for Uber employees.
We're asking for a transparent system in a fair, share
ordinance, where you can see the structured fairs. We can't
trust, Uber and Lyft.
They call them glitches. The the virtual caller explain 1
of the glitches.
There's always a glitch. They tell us they offer us a
bonus. Well, how can we see a bonus is applied? If we don't
even know what the actual fair is without the bonus,
it's disturbing, because
We the driver are micro businesses. We believe in
businesses, We Believe businesses have
They are it's important for them to generate a profit. All
the drivers trying to do is provide for their family.
They're not trying to look for a lavish vacation, they just
want to provide for their family.
Between the deactivation procedure, which there is none
because they're there was never an investigation. So it
seems people's lives are getting destroyed. People are
being deprived of an opportunity to provide for their
family.
We're just asking for, for support, for the fair share
ordinance. It's disturbing that everyone's focused on
businesses, but what about the micro business of the
driver?
How fair is that? Chicago's are working class City. We
pulled together when they were in the first started, they
focused on being a partnership. They've seemed to have lost
the definition of what it means to be a partner. We're
equally invested in each other.
The writer or the passenger, or the consumer invest, in the
driver, to get them, to their destination safely and
comfortably. And as quickly as we can in Chicago,
the driver provides that the companies our partners with us
to because they help us connect. We're just asking for
simple decency in a transparent. Structured Fair.
We don't think that's too much to ask for.
We ask for your full support.
For the fair share ordinance, safety seems to elude Uber
and Lyft. They do nothing meaningful. We've had a driver.
That was attacked.
Because he could not see who was supposed to be getting in
the car that PIN verification gives you a false sense of
security, which is how that attack happened.
Please support the fair share ordinance.
Thank you. Our next speaker is navette Casas.
Uh, did the clock start yet?
And Alderman, Scott, we will count you to my name is
Roberto Casas. I am a constituent of the 12th Ward, uh,
formerly the constituent of alderman. Raymond Lopez the
15th Ward. I came to this committee today because I have
found 546 million. That is ready to be dispersed through
the city of Chicago. The way we can disperse 546 million is
by passing the
Fair share ordinance. That ordinance would put into the
pockets of Chicago drivers, which are residents of Chicago
over 46 million dollars per month which ends up being about
546 million per year. With that money, that money would be
dispersed to Chicago restaurants to Chicago sporting
events. The Chicago hotels, we can pay our tickets on time,
I can pay my water bill on time. I might even be able to
pay my property taxes on time. Once that happens.
Um, and we can have a little bit saved, you know, 40 bucks
to buy a gift for our favorite Alderman or whatnot. Half a
billion dollar injection into the local economy is exactly
what we need at this time, this can actually lead to a
credit rating upgrade.
Chicago labor. Movement's history is long.
And we are characters in Chicago, liver movements history.
We need to choose who we are going to be in Chicago, labor
movement's history because years, from now decades from now
when people ask who were you then during the ride, share
struggle, who were you? Then during the gig worker
struggle. Everybody here has the opportunity to say. I
voted for labor rights, everybody has the opportunity to
say, I voted for labor safety and everybody here has the
opportunity to say I voted for Chicago as a Workforce. Um,
I yield the remainder of my time
Thank you. Thank you very much.
Alderman kutson, we will count you towards quorum.
Na.
Mavrodi.
Hi. I'm a writer and a resident commenting on today's 2.
agenda items. I'm going to use um, internet parlance. Um,
as in its, uh, kind of online definition as opposed to
dictionary definitions. So please excuse me. Um, my first
comment, is that, I like resolution number 2. Uh, the 1
that's second on the agenda and um
the other comment is a question about the first item uh,
which is
Uh, big picture, uh, here. I'm using the word cancel. What
are the consequences of canceling money? Not in terms of uh
uh, anything problematic happening in terms of a
generating, local Civic debate, but would there be um, kind
of, uh,
Umbrella, some kind of umbrella organizations, you know I'm
not talking about Credit Agencies, I don't know what kind
of Authority or power. They have that would um
Impose something on the city of Chicago inconsequence.
Uh, the reason I asked that is because, you know, like in
school
I learned about the Declaration of Independence, which
starts with the words, all men are created equal. So it the
law acknowledges uh those with she her pronouns.
um,
as being equal as well.
Um,
after what was written all of those centuries ago, strictly
speaking that document affords, us the right to life
liberty and the pursuit of happiness.
Money is not really part, doesn't necessarily have to be
part of happiness, at least. That's not written. Literally.
So again, the question is about what is the role of money
in a democracy? Thank you.
Thank you and our last speaker is Mr. George Blakemore.
I want you to start this clock.
With me this clock.
Faster, when I speak, when those will speak.
I'm a Paul to be down here and not see any black
participation when I got ready to sign up, you can't sign
up this young man say you can't sign up. It's too late.
It's something inherently wrong here.
And and and you all are the problem you've been the
problem. Emmanuel, with that fair share, and they Uber the
lift Emmanuel Emmanuel.
What Emmanuel? The man, the previous man. But this
Democratic sex food here,
but previous now is getting rich and and and somebody said
Mr. Blade more. Why do you keep on coming down there? This
all this negative energy. Maybe I'm trying to talk turn it
positive.
Positive, I can't believe it.
the, the ratings of the city of Chicago is going down
because of of, of political hack,
The rating and because of voting for illegal immigrants.
Coming in and using these resource reading.
This fundamental what they have to build safe the agency
downgrading. They have somebody to grade these very
municipalities and early in the morning. What, what
motivates you to come here? Mr. Blakemore, because it's
negative energy trying to bring some positive. It won't
happen.
It won't happen. All of them.
And the bill too. All of them.
Are part of this. Nonfunctional government. The Black 1.
The white ones, the, the history, all of them. Why do you
holler loud? Because they all Democrats.
Don't take it down.
No, this is why this it's happening here.
All of them. What party are you ultimate? A member of the
Democrat.
Avenue bill to get up and do his little flow show and and
all of them and they all in it together. What motivate you,
Mr. Blakemore all of you.
83 this man say I'm I'm 6 or something, what? Motivate you
to go in this pocket area. I think I can make a difference.
Somebody is listening to me.
Somebody is listening to me and that what motivate me? And
I'm getting a little more time today. Y'all read this
clock, the whole system is read. You'll talk again.
Thank you, Mr. Blakemore
Holdman OA will be counted towards quorum.
Uh, Please be aware that the meeting today.
that after the meeting today, there is a committee on
subcommittee on Revenue meeting that's supposed to meet at
noon, following this subject matter hearing, we're going to
try to keep today's discussion for each resolution to 45
minutes to an hour.
And we will begin with the resolution introduced by
Alderman Beal. Regarding the impacts of the recent credit
rating agency downgrades and we're joined today by Jill
Jaworski this. Our Chief Financial Officer Annette Guzman
our budget director, um, Brendan White assistant,
commissioner in the Department of Finance, in the box, we
have Joel Flores. Who's the first Deputy of Finance? Um,
Steve Mah assistant, commissioner of the Department of
Finance nor Shack, Deputy controller, from the deputy
Department of Finance and Craig slack, Chief investment
officer from the office of the city treasurer.
Also invited to testify this morning Alderman Beal has
invited Stuart Lauren managing director of Fort Sheridan
advisors LLC, who will provide a presentation Todd Waldrop?
Head of Public Finance at mesero and an expert in Municipal
Finance specifically Chicago, the sister agencies, the
state and state agencies who also provide uh presentation
Clarence, born managing director at loop capital, a
specialist in the Chicago Market covering clients
nationally with the 35 year career in Municipal financing.
Um we will begin this uh morning with a statement from
Alderman bill.
Thank you. Madam chairman, um, and members of the
committee, first of all, I would like to thank you. Madam
chairman for allowing this hearing to take place today. Um,
I think it's going to be a very informative uh, hearing on
um, the state of um, the city of Chicago, as well as um,
other sister agencies. And I think it's uh, very important
that we continue to have these type of hearings. Um, when
Um, when the city is being either upgraded or downgraded 1
or the other, uh, to to know what the impact of that is on
the city of Chicago and the people of, uh, this great City.
And so when we're talking about, um, borrowing money, uh,
whether it um, be an upgrade or downgrade. What
Are the consequences of, you know, those actions. And so I
think it's very important that we continue to. Um, kind of
are these things out as we move forward because we know
that the city of Chicago is in very dire Financial, um,
conditions and we just need to make sure that the people
are informed um, on what's taking place and what's going
forward and that they hear from not only the
administration, but they hear from, uh, objective people
outside the city who are also experts in these fields to
understand that. Uh, you know, sometimes we, we get the
full story and sometimes we don't. And so, I think it's
important that this body understands that uh, you know, we
need to have our own financial analysis Department that we
can go to, to dig in and get that information. Um and and
make sound decisions. And I think that's what it's all
about. So I think this is going to be a very spirited
debate and I'm looking forward to it. And again, I thank
you, madam chairman for having this hearing today.
Alderman, Bill, we'll start um, today's presentation with
uh Stewart, Lauren um Stewart, Mr. Lauren.
if you could, please come
Where You Are?
Um, and give your statement your presentation.
We're asking each speaker to keep their comments to 7
minutes.
Thank you.
Alderman Lopez. Yes.
Thank you, madam chairman and excuse the interruption
before our first witness speaks. Um, but what can we have?
All 3, uh, outside experts? Give their full statements
before the body, please?
They're going to give their full statements to the body
from where they are. And did we get the other 2 statements?
Or are they just, um, they have no statements to my
knowledge? Okay. Thank you. Thank you.
Excuse me, Mr. Lauren, you were advised that you have 7
minutes start with your presentation. Let's just see how it
goes.
I'll I'll do the full version. All right. Good morning. And
thank you for inviting me to testify. Today's hearing. My
name is Stuart Lauren, I'm the managing director at a local
investment firm called Fort shared, and advisors we're for
10 years have managed stock and bond portfolios, as well as
provided General market and macroeconomic Analysis. For our
institutional and high Networth clients prior to that. I
was the capital markets and debt Finance store in Boston. I
intended Northwestern for my undergraduate degree in
Harvard for law school and since 2017 I've lived in the
Bucktown neighborhood with my wife, 2 kids and dog. Now I
want to make something clear, I don't stand to gain
anything by participating, in today's meeting.
I don't do any business with the city or firms that handle
its financing and I think my presence here probably ensures
I won't be anytime. Soon, the reason I'm here is because I
believe in civic responsibility and more importantly,
because I care about Chicago. I want this to remain a
viable place to raise my kids. I believe we have the
building blocks to become America's most dynamic city, a
diverse economy, talented human capital, critical
infrastructure and Geographic Good Fortune. But we lack
Financial stability. And I'm afraid that without that, we
risk undermining our potential. My aim is to provide a
concise overview of how evolving credit and economic
conditions risk further. Stressing our finances
Necessitating, in my view, immediate remedial measures in
short if we were skating on thin ice before we now find the
ice cracking beneath our feet,
My broad economic view is that we've entered an era of
structurally higher interest rates and that's going to pose
difficulties for liquidity. Constrained municipalities a
world of ever-increasing economic efficiencies is giving
way to 1 of friction. Especially when it comes to trade
Supply chains and the flow of capital friction.
Unfortunately has a price higher costs whether that's in
Goods, labor or debt. At the same time, the potential
inflationary impulse of tariffs and federal deficit,
concerns risk, putting further upward pressure on interest
rates. Higher yields on treasuries impact rates throughout
the economy. Meanwhile volatility around the econ economic
Outlook diminishes the attractiveness of municipal bonds,
as local Revenue concerns
Turns arise indeed, over the last 6 months is the Outlook
has become more questionable. We've seen municipal bonds
cheap inverse treasuries by about 15% meaning that
Municipal is relative borrowing costs have risen
The municipal Bond asset class which had benefited from
fundamental agnostic fund flows over the last year has
recently shown some signs of strain experiencing the
largest amount of investor outflows in several years. This
past April, the risks for Chicago are multifold. If the
economy deteriorates are Baseline budget deficit,
projections are likely to low, additionally Market
volatility could further impair the value of our
underfunded pensions, necessitating a d additional
contributions. We could face a situation where we must
choose between materially, cutting services, increasing
taxes, or turning to debt markets to finance or spending
gaps.
Over the long term. Improving our disappointing economic
track record via more business investment and residents
would solve many Revenue problems. Growing GDP at 1.4%
annually versus 2.4% rate for the us. Over the last decade
has left us with an output Gap in excess of 10%. That's
real money left on the table. But back to the inter
intermediate term, it's Bleak of the 3 choices, cutting
expenses, raising taxes or borrowing more? I certainly have
my preferences. I'll focus on why more debt carries so much
risk, as I'm sure you're all aware. Uh, we recently
received a credit Outlook downgrade from Fitch, which
followed a credit rating downgrade from S&P in January of
the largest
10 US cities. Chicago is the only 1 with lower medium
investment grade status. However, we had made some recent
progress in in past years. Thanks in part to the influx of
Co relief, funds and advanced payments toward pensions.
Unfortunately, that progress now is coming undone.
Potentially at significant costs while many here rightly
focus on the messaging from rating agencies. I think it's
just as critical to look at Market signals. And those
signals are telling us that there's a disconnect between
our credit fundamentals and our cost to borrowing. We don't
want to take any risk that narrow that Gap.
To briefly note in part due to the rising cost of credit I
discussed at the outset, our cost to borrow have risen
substantially over the last year for debt in excess of 10
years Market. Indications are that it already costs us 70
basis points more to borrow than at this time last year
about half of that is attributable to Rising interest rates
and half attributable to the Market's perception of our
Rising credit risks, which has resulted in our credit
spreads to the underlying, AAA Municipal Benchmark Rising.
as a brief aside. The reason I'm showing you the 5-year
spread here is that we typically see the heaviest Municipal
bond trading within that maturity lengths, spreads for
10/20 and 30 your debt though are consistent. You can see
we had 2 major jumps around the S&P downgrade in January
and again, in April as you to tear up related, economic
concerns,
Now in bond World, there are instruments known as credit.
Default swaps, which are basically an insurance policy to
hedge against borrow and non repayment a purchaser of CDs.
Pays the yearly premium quoted. In basis, points to a
counterparty to protect against the risk of default. What
you're seeing here is a chart plotting Chicago's 5 year CDs
versus a 5-year, Bond, spreads to the AAA Municipal
Benchmark. Now, these are admittedly not hyperlink
instruments but we can still derive a signal from the
pricing and for reference New York City's fog. Year CDs.
Trades at 69 basis points Philadelphia, which after Chicago
is the lowest rated credit of the top city, has CDs at 68
basis points in the state of Illinois is a 220. The city of
Chicago is at 3006 basis, points to avoid any more
technicalities. The main takeaway is that the last time CDs
markets assigned us this level of risk in 2022, our credit
spreads were 80 basis points higher. Now, coincidentally, a
roughly 80 basis points. Spread is currently the difference
between the rates and the high yield municipal, uh, index
or junk rated credit
And Chicago's cost to borrow CDs pricing is already
signaling that we are junk rated credit. We don't want
rating agencies to come to the same conclusion as it. Could
be a costly 1 how costly according to the city's latest,
disclosures we have approximately 4.9 billion in
outstanding principal on our general obligation bonds, much
of which will mature over the next decade. And the most
optimistic case that we roll our debt with 10 year paper
and don't increase the outstanding borrow amounts and extra
80 basis points and 4.9 billion.
Million would equate to 39.2 million in additional annual
interest expenses or 392 million over the hypothetical life
of those issuances. And remember, this is assuming we don't
increase our total debt burden, which might be optimistic.
The last time our debt was downgraded to sub investment
grade.
Our credit spreads were 300 basis points. Over the
underlying AAA Benchmark, roughly 180 basis points higher
than current spreads. If markets severely reassessed, our
credit risks, that would like likely mean, borrowing, in
the 6 to 8% range, depending on maturities, and could
equate to an extra 88.2 million. In annual interest
expenses or 882 million over a decade and remember please,
please continue. And remember that given our fiscal
challenges and signals from the current mayoral
Administration. Increasing our debt burden in the coming
years, seems like a possibility.
In my experience, markets will always move faster than
rating agencies in times of distress. My advice for what
it's worth is not to respond the last dollar that breaks
the camel's back. So to speak. Now, briefly on that topic.
My understanding is that we're seeking to borrow
approximately 518 million in the coming days to fund
Capital Improvement projects. My guess is that the
borrowing terms may have changed from The Proposal earlier
this year? But I would just note that we risk pricing into,
not only a volatile Market but potentially an oversupplied
1 given the amount of planned munition Municipal debt
offerings over the next month. The 25 billion in issuance
visibility over the next 30 days is the highest total year
to date.
In fact it's the highest total uh based on quarterly data
going back to 2004 odds are the offering still goes
smoothly but we're not the only city with cash needs.
In conclusion, my concern is that evolving economic and
credit dynamics mean that we cannot prudently. Tap debt,
markets. To finance our growing deficits the risk of an
unintended error is high as our credit, spreads are more
reflective of fund flows into the municipal asset class
than our fundamentals. The narrowing of that Gap would be
extremely costly and further constrained our budget
flexibility. Unfortunately. I don't see an easy way out of
our fiscal challenges to rehash a world of increasing,
economic friction, combined with stubborn inflation and
unsustainable. Federal finances is not a world in which
interest rates are likely to market decline. If the term
premium on the 10-year treasury is rising. You can bet that
the borrowing premium investors will demand for cash. Rep,
Municipal governments will also rise higher. Interest rates
are not some esoteric figure for 1. Increased costs are
clearly a politically losing proposition moreover at high
enough rates. Debt, and liabilities become real
constraints, and spending, and services, whereas the
federal government has the added flexibility of a treasure.
Department in Central Bank, to monetize its debt, which to
be clear would risk weakening the dollar or stoking
inflation. We have no such alternative financing mechanism.
At the local level short of a productivity breakthrough
that dramatically increases economic growth which I won't
dismiss thanks to artificial intelligence. The likely
reality is that we all have to make some uncomfortable,
trade-offs either less Services, less consumption and are
more taxes. The only thing close to a free ranch, free
lunch for local. Governments is economic growth, and my
opinion, given our already high state and local tax burden
in, the diminishing return, on our taxes, due to the
amount, diverted, to pensions the best way out of our
predicament is providing more efficient public services.
Along with smarter consumption, taking on more debt, is the
easiest choice, but comes with perhaps the greatest risk as
any actions. That materially increase their cost of credit
Will further restrict our fiscal flexibility in both the
near and long term on our current trajectory it will at
some point be prohibitively too expensive to borrow mindful
of our additional funding.
Stresses due to pensions my belief, is that the best chance
we have at avoiding a financial Reckoning is putting into
place, durable cost, efficiency reforms keeping taxes in
check. So, as to retain businesses and residents and doing
everything possible to generate economic growth, that
increases the revenue Pi organically more residents,
business investment jobs and tourism would generate more
City resources, more taxes and more debt could generate
more pain. The last thing we want is to wake up 1 day to
the realization that we already ran off the fiscal.
Cliff best to change our trajectory while we still have
time. Thank you very much.
Thank you, Mr. Lauren, um, Alderman, sichel Lopez Alderman,
Talya, Ferro and Alderman. Mitchell have joined us and will
be counted towards Quorum Alderman. Lee has requested a
rule 59, uh, to Pro to participate remotely. Can I get a
motion to allow?
So, moved by Alderman Martin all those in favor. Signify by
saying I, I oppose Alderman, Lee
Yes chair. Thank you. Okay. Moving right along. The next
speaker is Todd waldrip.
Also want to acknowledge Alderman, Chico and Alderman.
Nugent non-members.
The Walter. Am I good to go? Well, good morning. My name is
Todd Waldrop.
Sorry, I'm a little shorter.
Good morning. My name is Todd wall, drop. And I serve as
head of Public, Finance at mezro Financial. Um, we are
headquartered here in Chicago. Um, thank you for the
opportunity.
Okay.
Uh, thank you for the opportunity to serve as a subject
matter witness today. Um, I've worked with the city on
numerous Bond transactions as well as uh communities across
Illinois and and throughout the country.
the city's credit rating is a key driver of borrowing costs
Chicago strong fundamentals, especially its economic size
and diversity. Our major credit strength
Chicago is a third largest US economy by population and GDP
according to new Census Data. The city added to uh 22,000
residents between July 23rd, and July 2024, placing it in
the top 10 for population growth nationally.
Cook County and the metro area. Also saw a strong gains.
The Census Bureau revises its earlier estimate for 2023
showing population growth. Not the decline.
No single sector makes up more than 15% of Chicago's GDP.
Given the economy, resilience and flexibility.
Despite these strengths rating agencies remain focused on
the need for structural budget balance reducing Reliance on
1 time Solutions.
The downgrades from crawl and S&P in January and fitches
Outlook Revision in May primarily reflect concerns about
aligning revenues and expenditures sustainably.
While Financial policies have improved, structural reform
remains necessary.
Agencies evaluate reserves, long-term liabilities,
especially, pensions and budget practices. Pension costs
often shaped by state level decisions. Continue to draw
particular attention.
Last year's, contentious budget process was also noted in
agency reports, political headline, risk factor into credit
assessments.
The rating agencies have been consistent and what they
would like, um, the main focus for the city to be number, 1
achieve a structural balance moderate pension costs and
improve transparency. The most importantly collaboration,
I want to commend the city's Finance team. They've shown
clear commitment to addressing these challenges and
strengthening the city's long-term Financial Outlook.
The city is well, supported by a team of Underwriters,
advisors attorneys. While specific advice may evolve the
need for structural balance in the 2026. Budget is a clear.
Focus of the rating agencies and recent steps indicate. The
city is moving in the right direction.
Thank you.
Uh, thank you, Mr. Waldrip. Our next speaker is Clarence
born.
Good morning.
Morning. Uh my name is Clarence born. I work as a Public
Finance Banker at loop capital markets. Uh thank you for
allowing me um to speak on the subject matter as a witness
today.
Um Loop has worked with the city on many Bond transactions
over the year. Um, Loop's chairman and CEO. Jim Reynolds is
currently working on the city's fiscal sustainability,
working group.
personally um I'm a wood lawn resident, lifelong chicagoan
and I worked on many, other Bond transactions for large
cities in the Midwest and throughout the country.
Um, lupus had a front row seat when the city's credit
ratings were negatively impacted about a decade ago, due to
a rating methodology change at Moody's.
before the Moody's methodology, methodology change Moody's
would use a municipality's pension fund reports as the
information source for how much unfunded liability any
municipality had unfunded liabilities are essentially debts
to a pension system.
A pension liability is calculated by an actuary using the
funds assumed rate of return or discount rate.
If the fund assumes it will earn 10% then it has a smaller
liability than a fund that assumes it will earn 7%. That's
because when you assume a higher investment return, the
amount you need to deposit to be fully funded is less than
if your assets are not earning as much.
At that time, many funds, including the city's Pension
funds utilize a higher discount rate than they do today
which Mass the amount of the unfunded liability to some
degree.
Moody's. Use a very low interest rate to start calculating
pension liabilities for all of the credits it rated. After
completing this analysis, it was clear to Moody's that
Chicago had a large larger pension liability than any other
city by a large margin.
This led Moody's to reassess its credit rating for the city
completely. And at 2015, they downgraded the city to sub
investment grade or what is more commonly known as junk.
The rapid decline in the city's, pretty worthiness led to
other challenges for the city including having to terminate
swaps and Bank facilities.
That was very costly to put it mildly and those costs
further weaken, the city financially leading to downgrades
by the other rating agencies.
Since then, the dominant Factor impacting, the city's
ratings have been the pension liability and the city has
also been in structural imbalance for a long time, which
also relates back to the pensions and the statutory ramp to
Actuarial funding.
The increased pension costs were huge. A 2.2 billion
increase in annual contributions since 2014 and this has
not has been challenging to fit within the city's operating
budget.
However,
those challenges a decade ago, have not stopped the city
from making meaningful incremental improvements. For
example, the rating agencies have applauded City council's,
commitment to the advanced pension policy, particularly
Moody's, which upgraded, the city to investment grade upon
the successful implementation of the policy.
The agency's recognized the advanced pension payment again
in their most recent reports Moody's, outlook for the city
remains positive, chiefly because of the policy remaining
in place.
The next step in the city's Credit. Recovery requires
continuing the advanced pension payment while also
achieving real, structural balance in the budget and
maintaining a Strong Reserve balances, if the city is not
able to do that, the rating agencies have strong reasons to
think. That further, further credit rating, downgrades are
warranted. However, as evident from the cities experienced,
over the past decade, there are strong reasons to link to
think that the city can achieve
Meaning, meaningful progress.
As a rating reports made, clear the agencies want the city
to achieve structural balance. While some amount of 1-time
measures is acceptable, that line was crossed last year in
the view of standard and pools and crawl.
The city also issues debt most years for Capital purposes
while the debt. The city issues is not insignificant, it is
not unusual for a city. The size of Chicago, maintaining
the city's infrastructure is an important investment as a
resident. I want the city I live in to have streets that
are maintained British that are safe a water and sewer
system that function. Well
And and to have parks and schools that and resources that
are not. I Source, all of that requires ongoing
Investments.
The city of space criticism earlier in the year when the
most recent General obligation Bond ordinance passed that
criticism focused on the delayed repayment of the go debt.
While rapid repayment is generally preferred. When viewed in
isolation, many large entities with big Capital plans, use
a wraparound structure locally, Illinois, Tollway, the
University of Chicago, Chicago Park District, all clients
of mine have used the structure and they are highly rated.
The rating agencies have not raised concerns about Geo debt
and the repayment schedule. The agencies are looking
entirely at the city's debt.
In, in, in, in, in entirety at the city's debt, which is
comprised of the pension debt, and the Geo debt, the
pension debt, is the larger of those 2 and that is where
the rating agencies are most focused.
I appreciate the opportunity to participate in this hearing
today and provide my perspective on the city's ratings.
Lupus played a role in many of the city's Bond issues and
in Economic Development projects across the city and Luke
will continue to exist the city. However, possible. The
city needs to work together to solve these Legacy
challenges and loop, including our chairman Reynolds
recognized that to be true. Thank you.
Thank you, Mr. Born uh, CFO Jill Jaworski
Good morning.
Thank you Alderman Beal for your opening statement, and
thank you. Chairman dowel for holding this hearing. I
appreciate this opportunity to discuss with all of you. The
important issue of the city's credit rating. This is an
area of significant concern to all the financial leaders of
the city as our ratings impact the city's costs directly.
While the city Dove has does have its share of challenges
including large fixed costs in the form of pension and
debt. We also have a robust base robust, economic base and
strong credit fundamentals.
In my presentation this morning, Brendan White, who is a
debt manager for the city. And I will go into more detail
about the rating, agency's methodology and commentary. But
in this opening statement, I want to just focus on the
biggest takeaways from their recent reports.
We meet with all 4 rating agencies multiple times
throughout the year, providing updates and listening to
their thoughts regarding the city's Direction.
In turn, this department was clear and emphatic with city
council about the agency's, expectations for the 2025
budget, and the risk of a downgrade. If the city could not
assemble a package of revenues and cuts that would result
in structural balance.
The rating agencies have been helpful in crystal clear
about what they want to see from us and that more than
anything. What they want to see is a structurally, balanced
budget.
Both crawl and S&P sided. The city's Reliance on 1-time,
budget Gap, closing measures as the primary reason for the
downgrade and we have the chance with the 2026 budget to
address their concerns.
Several of you have asked about the city's high debt, load
the billions in long-term bonds outstanding.
Oddly the city's policies in this regard are considered a
credit strength, the rating agencies agree that the city's
debt burden is high relative to other large cities.
However, the uniformly report that the budget the burden is
manageable considering the city's vibrant economy debt
practices and extraordinarily liquidity. So yes, we have a
lot of debt. We also manage it. Well, and the rating
agencies recognize that the Investments paid for with that,
debt are reasonable and necessary.
We need to continue the pension Advance funding. This is
the biggest driver of our Moody's upgrade in 2022.
Abandoning this policy, what? Unambiguously lead to even
more downgrades
We need to put together a budget with strong, structural
Revenue Solutions, including a CPI property tax increase
with a balance of strategic expense reductions.
The rating agencies, all criticize last year's chaotic,
budget process and Retreat to 1-time budget fixes.
We need to continue to maintain our high reserves in
liquidity, while building on and expanding long-term
Economic Development initiatives.
While S&P and crawl downgraded, us Fitch and Moody's
affirmed. Our existing ratings. Moody's has continued to
keep our Outlook positive large reduced to our continuation
of the advanced pension payments.
This Administration is managing our long-term liabilities,
while also making critical infrastructure and public good
Investments downtown, and throughout the city.
The alternative to defer maintenance or otherwise reduce
our commitments to paying down the debt and pension
liabilities would not be responsible.
It will take work and political, well will. But we remain
steadfast in our conviction that we have a large diverse
well-educated and dynamic city entirely capable of properly
addressing the challenges in front of us and moving into a
thriving future.
With that, I'd like to turn to our presentation.
I will begin with a couple slides and then turn over to
Brendan White for the rest of the presentation.
First off, uh, what is the role of the rating agencies?
There's 4 primary rating agencies that rate, the city's
debt and rate municipal bonds, uh, generally across the
country, uh, S&P Moody's and Fitch. Um, are the 3 agencies
that have been rating, municipal bonds for the longest, uh,
and crawl bonds rating agency is the fourth, which, um,
began rating bonds, I'm going to estimate approximately,
uh,
15 years ago, and has since grown to become a major player
not, uh, as large as the Big 3 that have been in longer,
but they are a major player now, um, in the bond rating
business,
Um, what do rating agencies really do? They're assessing
the general creditworthiness of any Municipal issuer uh
that they are looking at.
They do this to differentiate between different government,
issuers of bonds.
They're looking.
When they're differentiating between different different
issuers, they're looking at, what are things beyond the
likelihood of repayment the key thing? They're looking at
is the likelihood that you would pay the bonds. But almost
any tax back bond, has an extremely high likelihood of
repayment. So within that, they're also looking at what are
your liabilities? How much cash do you have on hand? What
are your policies? Do your policies, support prudent,
budget making do your policy support prioritizing repayment
of your of your debt. Uh, they are looking to find ways to
say, what is the difference between a triple a city with
high population growth and a city that has, uh, less, uh,
less of a high population growth. So they're looking for
ways to differentiate between Governors, governments,
Investors are using these ratings, as a factor in their
investment decisions. They impact each borrower's cost of
borrowing.
And for the city, specifically a downgrade below investment
grade would lead to additional costs Beyond increased
borrowing costs because our letters of credit could be
terminated or would have increased costs.
An increase in our rating uh would would lower our
borrowing costs, uh, which would be beneficial to the city.
I want to touch briefly on the difference between General
obligation and revenue Bond ratings. Today, we're here to
talk about the city's General obligation bonds. But you've
had many Bond issues come before you as you know, our
Aviation, uh, Department issues bonds for O'Hare and
Midway. Um, our department of water management issues
bonds, both for water projects and Sewer projects. All of
those are revenue. Bonds. Those bonds are repaid with
revenues that are direct that are, uh, generated directly
from those systems. They have very particular Provisions.
they're related to those systems and they are non-recourse
to our general fund. So if our water system suffered, uh,
severe economic, uh, challenges and was unable to pay its
debt, we would not be responsible for making that up in the
corporate funds.
The ratings of our revenue. Bonds tend to be very stable.
Um, and they're characterized, uh, by characteristics such
as their additional bonds tests, how much more debt may be
issued, the amount of coverage they have in the particular
amount of liquidity within those systems.
The general Bond rating though is somewhat different. So
unlike revenue bonds, the general, the general obligation
bonds are not secured by 1 specific Revenue stream.
Every time we issue, we do put in place a property tax levy
to secure those bonds.
But in addition, they're essentially secured by what's
called our full faith and credit which means any funds that
are available to us essentially in our general funds.
so despite actually having sort of a larger pledge, they
have a lower rating and the reason is because when the
rating agencies, look at General obligation bonds, they
tend to not look at the very specific characteristics of
things like coverage and pledges, but they look a lot more
at the budget. They're looking at the health they think of
the overall government entity. And so when the rating
agencies are looking at our general obligation bonds,
they're looking first and foremost at what our liabilities
are which is primarily our pension liabilities. As was
mentioned in the commentary earlier, the city has the
largest pension liabilities of any city in the country and
we have a larger pension liability than more than 40
States.
This is the thing that drives our ratings and what keeps
them as low as they are.
Beyond that. They're looking at. What are our budgetary
processes?
The city has consistently used some level of 1-time
measures in almost all of its budgets. Dating back.
I'm not going to say till when, but as long as I have been
involved in the municipal Bond industry which is going back
to 1998.
So it is a long-standing history to use some type of 1 time
measure.
The city is not the only government that does this many
governments are using 1-time measures year after year.
The real concern is, how big are those 1-time measures?
Its 100,000 150 million. These are things that the rating
agencies or less concerned about, because they know that
every year, you can find a 100 million doing some type of
1-time measure when it starts increasing beyond that, that
is where they get concerned and that's what happened last
year. Is the rating agencies, looked at the process, the
difficulties that we all had, as a group.
coming together to find solutions that provided structural
balance that cut revenues enough, the cut expenditures and
often raised revenues enough to lead to minimal amounts of
1-time uses. That is what we are really being judged by in
our general, obligation Bond ratings, it's reflecting our
pension liabilities and it's reflecting our use of 1-time
measures.
So unlike our revenue, bonds that rating has moved a lot. If
we look back at the history of it, which you'll see on the
charts, it is fluctuated tremendous amount over the last 10
to 15 years, um, because it's, it's reflecting.
you know, the types of decisions that we're making on a, on
a regular basis,
Um, I will let Brendan go forward and talk about the more
detailed about our credit rating. He promises, he'll take
as much, he'll take the same amount of time as I did to do
2 slides to do many slides. So you need that worry about
how long you'll be listening to us talk but I do want to
emphasize that you know the key takeaways. We think that
are here are that the general obligation Bond rating is
heavily predicated on, what has gone on with our budget.
Thank you. Thank you. Joe and good morning Alderman. Um, my
name is Brendan White. I'm an assistant, commissioner in
the Department of Finance. I'm 1 of the city's debt
managers.
Um, the presentation I'm going to run through will give
some more background on credit ratings, in general, uh,
it means for the city's borrowing costs. And then I'll dig
dig into specific recent commentary from each of the rating
rating agencies. So, as Jill said, the basics of the Geo
credit rating, uh, consider the full faith and credit of
the city, um, while each of the rating agencies use their
own methodology, they all concentrate on the same
overarching factors. This includes the institutional
framework, which the city scores highly on as a Home Room
municipality that can raise its own Revenue. Uh, the
economy and demographics including wealth level,
and population Trends, the financial profile, which
highlights annual operating results and whether or not our
budget is B is structurally, balanced management, which
includes our budgeting practices and our debt, and pension
policies. And then the biggest 1 for the city are
long-term, liabilities, pension and debt.
Um, and just to take a step back. The uh rating Spectrum
goes from AAA as the highest to Triple B as the highest
investment grade was the lowest investment grade rating.
Uh, and then below that below. Triple B, minus is the
speculative grade or the junk bonds. So, the city, as you
can see here, has, uh, split ratings, but we have
investment grade ratings from All 4. Credit Agencies Fitch
has a, uh, at a minus as does croll following their
downgrade from a, uh, Moody's recently upgraded us to
investment grade and their baa3 is equivalent to Triple B
minus. Um, and S&P has a set Triple B flat, uh, following
their downgrade from Triple B plus
So what does this mean for the city's borrowing cost? Um,
the city borrows that interest rates above the municipal
Benchmark. So here you can see the blue shading that, uh,
illustrates The Benchmark, which is the expected interest
rate of a municipal General obligation bond with a AAA
rating.
The red shading illustrates a credit spread which more
closely approximates the rates achieved by the city.
Uh, so we can see how the city's ratings affect the
interest rate that we can expect to pay in our bonds even
though it isn't 100% of the equation and typically moves in
concert with the index, but not perfectly. So sometimes it
widens, sometimes it uh, tightens relative to the index.
um, but the city's borrowing rate is generally uh
combination of the underlying index plus the credit spread.
So we can look at uh, the secondary Market to see how our
bonds are trading for an indication of what our current
credit spreads can be expected to be.
So you can see here our spreads decreased dramatically
falling Moody's upgrade. At the end of uh 2022 getting to
investment grade from All 4 rating agencies was really
impactful in the market. Uh, probably more impactful than
any individual other rating change. Um, and in at the end
of 2024, you can see our spreads increased, roughly 11
basis points, uh, due to the budget impacts.
Um, and on this slide, I've laid out the timeline of our
rating downgrades. So at the end of the, at the end of
October, the mayor presented a budget with 80% structural
solutions to close the 982 million budget Gap, um, after
city council called for a special meeting to vote against
the million dollar property tax, increase crawl. Put the
city on watch for a potential downgrade. And then after
city council voted to reject the property tax, increase S&P
placed the city also on watch for downgrade, then after the
2025 budget was passed and adopted by, uh, city council
with 60% structural Solutions, both S&P and crawled
downgraded, the city. Um, Fitch affirmed, the current
rating, but then recently changed their Outlook to
negative,
so now, let's dig into the rating cam commentary, starting
with the downgrades
S&P was very clear that they are worried. Not only about
the 1-time Gap, closing measures in the 2020, 2025 budget.
But how that would carry forward to 2026 and Beyond? Um,
political gridlock also makes them doubt the city's ability
to execute on these needed. Structur structural budget
reforms.
Pro echoed. This, they worry, that our 1-time budgetary
fixes put us in a hole for the next budget and Beyond.
Uh, Moody's and Fitch. Meanwhile affirmed our ratings
Moody's. Uh, as we mentioned earlier, is primarily
with our pension funding practices and they indicate that
if we stick to our guns with the advanced pension payment,
uh, and make progress, on the structural deficit, we may be
in line for an upgrade and Fitch while they did at the time
a firm, our current rating. They also expressed concerns
about our Reliance on 1-time budget fixes. In fact, this is
the main thing that they cite in their recent rating
Outlook change. And so, let me take a 1 more step back and
explain what the Outlook. Exactly means. So, the rating
Outlook indicates, the direction of rating is likely to
move over a 1 to 2 year period. So, the negative outlook
means that the city doesn't yet warrant a rating downgrade
in Fitch's eyes, but that Fitch may do. So if the city
fails to address the structural deficit in the 2026 budget,
um,
Now.
I just want to talk a little bit about like the biggest
driver of our expense side of our budget and that's
overwhelmingly pensions and debt rather than headcount.
So, in the corporate fund, there were 25,372 full-time
employees in 2022 2020, and that number was 23,730 in 2025.
So that's a decrease of nearly more than 1600 positions.
That's a 6.5% decrease over a 5-year period.
In this, at the same time the city is substantially. Ramped
up its payments to the Pension funds in accordance with the
state statute. Requiring, 90% funding ratio by 2056 or 2058
In 2019, our total debt and pension payments were 2.1
billion and then in 2026, total debt, and pension payments
are expected to be 3.6 billion.
So based on what the rating agencies are telling us how can
we improve the city's ratings?
Um, for on the upgrade side, it's pretty clear. We need to
continue the advanced pension funding policy. We need to
eliminate 1-time budget, balancing items and that combined
should allow us to get, uh, reduce our combined debt and
pension costs to below 30% of Revenue.
Uh, what we
We could be in line for a downgrade if we fail to implement
the structural budget adjustments. Uh if we draw on our
reserves or weaken our liquidity or if we have any more
Reliance on 1-Shot budget balancing measures such as scoop
and toss uh refinancing or any other things, but the 1
thing, they're all also crystal clear on is that foregoing
the advanced pension contribution will definitely cause us
to be downgraded. Now, I'll turn it back over to Joe
Thank you, Brandon.
So in the long run, what can we do to improve the city's
ratings?
We need a structurally balanced budget. That's the most
critical thing that we can do to improve our ratings.
we need to continue maintaining our reserves, uh, the
rating agencies, um, all specified that a reduction in
reserves. Whether that means, uh, taking money from the
concession reserves which are protected by stat by uh
ordinance currently um, or by just a significant uh,
weakening in our liquidity would lead to a downgrade. So
maintaining our reserves is very important. Continuing, the
pension Advance funding is critical. This was noted in
every rating report. Um, that this was important, they'll
crawl did note um, that it does also have the implication
of crowding out um, other priorities as well. So it does
the need for. It is also balanced by the challenge that it
creates for us.
Continuing to adhere to our debt and financial policies is
critical.
following through on the, uh, the the plan to let tiffs
expire, um, and allow that money to come back to, to the,
to our, uh, property tax system is very important. We've
made a commitment to issue bonds to fund certain programs.
Um, as those tips expire, we need to make sure that they do
and those revenues come back into the City and continuing
to build on and expanding long-term, Economic Development
initiatives. 1 of the things that's been talked about in
this room by the administration, um, and is noted, um, in
uh, in many analyses of the city, is that the biggest way,
the best way the city can ultimately deal with these
challenge, is to grow our way out of them. We need to
encourage population growth business growth. We need to
have a a large and healthy tax base. That's contributing to
the city.
These are I think the main things that we can do to improve
our rating, it's going to be a long and slow process, but
if we before we see our ratings go up, you know, the
near-term. Um solving our budget is the most critical
pathway, but the long term is really, how do we invest in
the city? How do we grow the population? How do we have a
city? Which was built originally for 4 million people? But
is only housing 2.7 million. How do we get more people in
this city? Who are using the full Network that we have
built out all the streets? All the utilities, everything
that exists here today that a smaller number of people are
paying for
We can grow that population base. If we can invest in our
city, if we can make it attractive to business, and to
people, that's the way that we're going to ultimately grow
our way out of a lot of the problems that we have today.
And with that, uh, that concludes our presentation.
Thank you, Jill. I'll start with questions. Uh, vice mayor.
Bernette, sorry. Did you?
Vice chair Conway.
Um, thank you. Thank you. Uh, and and thanks. Thanks to
everyone in the Box as well as uh uh the CFO jarsky and
Brandon for your presentation. If I could actually go back
to Mr. Lawrence presentation, real fast. If that's doable.
can you ask your question because we have to
Sure, I actually like to go back to the the 2, uh, slide 12
graph 11 on the yield curve.
July 12 and your. Yeah, so on that.
Looking at the yield curve, we faced a year ago versus the
1.
We faced today.
Uh, in that year we've we've authorized 1.25 billion worth
of debt for infrastructure. Another 830 million for
housing. Um,
It looks like on 30-year debt.
We are paying give or take.
70 basis points, more of interest. Is that would that be
correct?
If you could speak into the microphone. Yeah, that's
correct. So if if my calculations are correct and they're
fairly back of the envelope, if you're talking about 830
million of of debt, um, that would have been issued at 5%
and now would be issued 5.7%. That would mean over 30
years. That that would cost the taxpayers and Working
Families of the city of Chicago, a little over 130 million
dollars.
Um,
based on that, based on that 70 basis point number. And if
I could turn back then to, to the
uh,
CFO here.
Uh, I remember when the 630 million dollar debt issuance
was up in response to a question from me.
You gave the following response.
The borrowing forecast is already baked in meaning, this
bond issue in future. Bond issues are baked in and they
were not cited as part of the reasons for the credit
action.
So the ratings agencies do expect we'll continue to be
making high-level investment infrastructure in the city and
that is included in our rating and it's not something
that's specifically negative.
I also recall that after, uh, during our budget hearings,
this committee asked if this would impact our credit and
you seem to indicate that it would not and then after S&P
did downgrade us, you said we do not agree with this rating
adjustment as it doesn't accurately reflect the strength of
the city's credit.
Um,
I I don't to your credit. I do not think that you
intentionally misled this committee, but obviously you were
mistaken on on all of that. So I'm going to go ahead and
let you respond to the inaccurate statements that you've
you've made to city council.
I'm sorry, can you please clarify which statement you
believe was inaccurate? Well you have indicated on both the
issuance of the Bond as well as our budget that you didn't
think we were going to get downgraded since. Then S&P has
the largest Bond rating agency of S&P is downgraded our
credit. And uh, and of course our Outlook was downgraded as
well, which which brought us here today? So your
predictions were were not correct about what would happen
with regard to our
credit ratings. So we've already discussed what the cost of
that is. So I
Would just like to perhaps give you an opportunity to
respond to your prior statements, thank you. Um, I did not
misrepresent anything to this committee and um, I have to
tell you as much as I think you and I get along and respect
each other, I'm feeling insulted by the tone of that
question.
The comments that I made about.
The city not getting downgraded were related to.
The authorization of debt.
And as we discussed in the presentation, we provided the
direct quotes in the rating reports and we can make sure
that everyone has a copy of each and every rating report,
I'd be happy to sit down with all of you and you will see
that the comments in the rating reports do not state that
the authorization of debt to fund infrastructure was a
cause for the downgrade
They state that the cause for the downgrade was the lack of
a structurally. Balanced budget.
So, I stand by my comments, that the authorization for
bonds to fund. Critically needed infrastructure in this
city did not lead to a downgrade.
The increase in borrowing levels is Market driven.
All issuers are experiencing that as well as individuals.
If you get a mortgage today, it's more than if you had
gotten a mortgage, a few months ago.
The rating agencies have not issued any statements that they
are going to downgrade.
Large categories of issuers because borrowing rates are
higher in the same manner that when borrowing rates are
low.
They do not issue statements, that they're going to upgrade
large classes of issuers because borrowing rates are lower.
They have also never stated specifically that they would
downgrade the city because interest rates have gone up.
when we invest in our infrastructure and we borrow money in
the capital markets to do that, we do pay a cost in terms
of Interest.
if we do not do that, we pay a cost in terms of higher
construction costs later,
When you think about infrastructure investment, it is a
continuous.
Fight between what is the amount that I invest today to
reduce my cost in the future?
How do I lower my costs of repair and maintenance by making
sure my infrastructure is in good shape? Versus how much am
I paying to borrow money to make those Investments?
That is not an easy calculation and there is no easy
answer.
but we do know if we stop borrowing to fund Capital
expenditures in this city, we will see the quality of our
streets degrade. We will see the quality of our public
facilities degrade. We will see our ability to maintain the
city in a manner in which the residents who live here.
Expect us to maintain. It will be degraded.
We cannot expect that people will continue to want to live,
and maintain their homes, and their families. And their
businesses here, if we cannot make the Investments to keep
this city in good shape,
Thank you. Yeah, I would I would note that.
um, I don't think anyone would disagree with you regarding
infrastructure, the concerns at the time and today were the
backload of nature of of that debt which by the way, when I
cited the 130 million dollar figure, I assumed a level
payment structure and because these are back loaded or
would be back loaded the the amount it's going to cost the
taxpayers. The city is actually much much higher than that.
But it at minimum, you would concede that the downgrades we
have. We have faced will make it more expensive for the
city to borrow money. Is that right?
Oh yes, downgrades make it more expensive to borrow money,
which I think is what we noted on the first page of the
presentation. Now, when you, um, I I turned to to Brendan
real fast I saw on
oh, I forget which slide it was regarding the
Uh, 11 basis, point change.
it at a, at a
Longer date there. Thank you. Uh, on the longer dated Bond.
That number would clearly be higher. Is that right?
Or maybe you can explain how where the 11 basis points come
from the cross various maturities.
I would have to double check, but I believe that this is an
aggregate of our trading levels at, um,
Within.
I think this is an aggregate of our long-term trading
Levels by quarter. So there are a bunch of Trades here, um,
but I believe that this is on the long end and this is sort
of roughly similar to like what we're looking, uh, at with
our spreads in the current market. Okay? So, and that
would, and that is just to now that I'm looking at, that
was just in Q4. I mean, you have, you have no reason to
think that the the credit spreads in Mr. Lauren.
Uh, presented our inaccurate, right? I mean, they look like
a Bloomberg screenshot.
Yeah. I mean that, that looked like a Bloomberg has a, a
generates a yield curve for most issuers. Um, this was
based on actual trades through the end of 2024, uh, that
are tracked by the municipal Securities rulemaking board.
Um, this is a different sources, I guess. Yeah. The yield
curve that is presented is called the bval. Um, there's an
aggregate bval that is used similar to
To, um, another curve, you might have heard of called MMD
the municipal Market data index which provides a general
reflection of the market overall. Um, and is often used as
the is uh, the index that we would measure these spreads
against. Um, Bloomberg also has a product that they make,
that's an individual yield curve for different issuers. Uh
it is not something that uh that we price off of or
investors price off of. It's a information Point. Um the
city's bonds actually don't trade very much. Um, 1 of the
interesting things about um our investors is that they uh a
very confident in the city's ability to repay and they tend
to buy our bonds and hold them and trade them, very little.
little. So there's uh, often uh, a minimal amount of data
points out there. Um, as far as, you know, actual trading.
Um, and so, you know, the bval, I'm not exactly sure the
proprietary method, the Bloomberg used to, to create that
index.
But it likely is using trade data, which is minimal and
some other. Um,
You know, there's some other smoothing factors. I would
assume that go into it. It's not a specific reflection of
our borrowing costs, but it is an estimation by 1 firm, uh
of uh you know of an index to represent it.
Yeah. So, I mean, you've already conceded. Of course, it's
going to increase our borrowing cost. So, I guess how much
it is is not is not clear. I don't know if Mr. Lauren you
want to respond to that. Uh, just just a couple quick
points. Um, I didn't put this in the slides but I did look
at what the most recent General obligation Bond issuances
are trading at, uh, in December. We issued the longest
Dior, uh, maturity issuance, I think was, uh, roughly 1516
year, uh, Geo Bond as part of that 280 or 290 million
series that price. I think it like 103 104. It's, it's
trading down to, I believe um lower 90s. So so that's
already declined. Um, about 7 and a half percent And Trades
it like, uh, I think the coupon it pricing was 5%, um, it's
now trading closer to 5.2%, so I can get you the data out
of in Conway afterwards because I have it. Um, and in terms
terms of the Bloomberg yield curve, uh, mine goes through
last Friday. Um, I'm showing the 5-year, uh, go.
Uh, rate minus the 5 year, AAA Municipal rate if you were
to look at the 30-year spread, it's closer to 1.37%.
Okay that. So that would make that $0 million much higher
number. If it's, if it's 137 basis points then instead of
70,
and, and I'd also note that in terms of like what's, uh,
Why why our price of credit is higher. Why interest rates
are higher, you can uh derive. If you look at chart 12 in
my presentation, like how much of it is attributable to
City specific risk. So our spread over the triple a mini
index. Um, from last year to today is up ballpark 35 basis
points. So some of it is because interest rates have just
gone up, but some is City specific risk. Um,
Right. I I would certainly agree that a lot of the
problems that we Face financially and fiscally as a city
were created long before.
This mayor long long before this mayor through Decades of
of terrible decisions. Uh, but I would say, as we are
looking at issuing and authorizing debt in the future, I
hope that we, as the members of this body, uh, are
Consulting experts across the board as well as, uh, really
being
Vigilant about making sure that we are efficient with
taxpayer dollars. And with with that, uh, Madam chair, I
have Alderman Moore.
Followed by Alderman, bill.
Thank you. Um, chairman, um, CFO. Thank you so much, um,
for your uh presentation. Um, it was very clear
understandable and um, very educational uh, especially for
for me and I, I appreciate it so much, um, and helping us
as we move forward and making decisions, um,
And I wanted to just ask my my question was to Mr. Um
Lauren if if you will you without going to, you know, so
much in depth but just and high level. Basically, you heard
the CFO was presentation. Correct. Correct. Correct. What
was there? Anything that she said that you disagree with
Honestly, no, I I think we're in more or less alignment on
the cause of a lot of our credit issues. I might have a
different view on the longer term, path of interest rates.
But the reality is like, we have a ton of unfunded pension
liabilities and reading agencies are not going to look
kindly on that. And I definitely agree with their
conclusion. That the best way out of this predicament is if
we have policies in place that encourage more businesses to
invest here, more residents to move here and that increases
the overall tax base um in an organic way uh as opposed to
just increasing the tax rate. Um, I the
The my really big broad point of view and you're free to
disagree with it. Is that for the last 30 plus years, we've
operated in an environment where interest rates mostly
declined, and for various reasons, I think that era of
structurally, declining interest rates is over, and in an
era of rising interest, rates are just interest rates that
level out around these levels, that's going to pose some
financing issues for Chicago and a lot of other cities.
Thank you, and I appreciate that. And so when when you,
when you when you talk about um,
Other than um, taxes. Um, you you you say it efficiencies
as a recommendations, can you expound on that? Correct? And
And, and, and I realized there's some sensitivity around
this and I'm not in the political realm, but we have a cost
cost structure that is out of alignment with, um, frankly,
our Revenue structure. So my understanding is that budget
budget costs went up by roughly 2 and a half billion plus
over the last 5 or 6 years for the corporate fund. Um, the,
the, the revenue side of that picture is not gone up by
that much. Um, at least not organically. Uh, we've had to
fill it in with borrowing and, and, um, we've had some
federal, uh, relief funds that will be going away. Um, so
there there's a misalignment there. And, uh,
You know, cutting costs. I appreciate is tough. Um, we're
not the only city facing this San Francisco recently
announced cuts. Um, other cities are going to have to face
the same prospects because again borrowing cheap debt to
finance operations is going to be harder going forward,
okay? And and okay, I'm sorry. Uh, I just want to clarify
something that I think is really important and that
shouldn't be lost. But the city does not borrow to fund
operations City.
Uh which we just put out a preliminary official statement,
describing our uh upcoming uh General obligation borrowing.
But all of the borrowing that we are doing is for long-term
capital programs. We are not borrowing for cash flow. Um,
we have extremely strong liquidity uh, for
Uh, compared to our peers and that actually partially
offsets our large liability balance, but when we are going
out to Market and selling bonds, that is to fund long life
in infrastructure. Uh, I think like
I put together the spreadsheet with the average life. I
think we're funding average life of at least 25 years plus
um in our upcoming infrastructure deal and it none of it is
for 0% of it is for our operating
Thank you, I appreciate that. And and my, my last, I guess I
I would hope this is my last question statement because I
want to be as I'm out there. Educating my constituents and
telling them, um,
I want you to tell me if I'm wrong in this assessment and
then what, what possibly, um, should I be doing? Or should
I be saying? So I'm looking historically, understand that.
Um,
Property taxes were not increased um through uh more or
less through the daily Administration. Um, I personally
felt that through the, uh, Ramey manly Administration when
we did a, um, $500 million property tax increase, we should
have done a 800 million people want stability. Um, and that
was because of not increasing, um, property taxes, um,
consistently and I think we lost um, some leverage on that.
Um, then we got into the, um, life foot Administration,
Administration where we, um, then um, did it based on CPI.
Um, I'm I'm still in my mind's eye, even if we cut and we
can find something. We, I know we can find some
efficiencies, some were presented by members of this body,
but are used based on your expertise, you're saying, you
feel that we can do this without a property tax increase.
Is, is that that's directed to you? Yes. Okay. Uh, I, I can
tell you as someone who's property taxes, have almost
doubled that, that would not be my preference. I'm sorry. I
can hear you clearly. I was saying, I can tell you as
someone whose property taxes have almost doubled that a
property tax, increase would not be my preference. Um, I, I
Again, I'm gonna say that's a political question. I? Yeah.
Um let me just say Mr.
Lauren is not a municipal Finance expert, I don't know
about that but well,
That's true.
Um, so I don't think he can opine on the question, you're
asking about the property tax.
Increase if that's necessary or not. Okay, thank you.
Chairman, it's not my preference either, but I, I think I,
I, I get it. Thank you, chairman.
You're welcome Alderman, Bill followed by Alderman
Rodriguez, thank you. Madam chairman um,
I'm just jump right in. Um,
Mr. Lauren, can you just give me a brief overview on? Um,
what you think the city's Financial condition is as far as
borrowing, I, I think we're in a tough spot, uh, we again
have a budget deficits that are projected to be, I think
980 million this year.
um, if if the economy hits a soft patch that probably goes
uh and that's going up the next 2 years and we have a
federal Administration that's probably not too keen on
providing us much in terms of Aid. Uh so we have very
limited scope to come up with the missing revenue and the
as I talked about uh the the bond markets are not moving in
a way that is favorable um for borrowing. Okay. And and
your opinion, um, under the current
Situation that we're in right now. Do you think that the
city is potentially headed towards another downgrade?
The, the statements from the rating agencies. All hit upon,
uh, structural issues in the budget process. And as the CFO
said, if those structural issues are not resolved, um,
another downgrade does seem possible in my opinion.
Okay. Um,
okay, uh CFO just real quick, um not to
Um really be redundant with ottoman Conway. Um but you did
um, inform this body without question that we would not be
downgraded with the last budget that was passed. Correct.
No, that's not true. During the budget hearings last year.
we discussed extensively. When we were talking about
various revenues, uh, what the chances were that the city
would be downgraded and I never claimed that the city would
not be um you know, the more
Uh, I would have to go back and look at the record what I
said, but we discussed and that was there as well. Um, that
the more we relied on 1 time factors, the more likely we
were to get downgraded.
Okay. Well, I will tell you. Um, I believe that this body
would concur that uh whether you said it or meant to say it
or or me not to say it. Um, it was understood that this
last budget, we would not be downgraded. If that budget had
passed, we did discuss the proposed budget. I did not
believe that the proposed budget would get the city
downgraded.
If that is, what you're referring to not the actual budget
that passed. Okay. So basically the amount of 1-time
measures that were in the proposed, budget was
significantly less than what was in the actual that budget
that passed. And we did not believe. If that budget had
passed, we would have been downgraded, um, of note. When
that budget was proposed, there were no negative rating
actions. The negative rating, actions occurred. After this
Council rejected the property tax increase,
that was interpreted by the rating agencies as, uh, as a
concern that there would not be a willingness to increase
revenues in a manner, in which there could be a
structurally balanced budget. So that was the beginning of
when we saw first going on, negative watch after the
passage of the budget which was significantly different
than the proposed budget, the city was downgraded.
Okay, well, I can assure you that the reason that this body
rejected the proposed budget is because this body was
asking for cuts and efficiencies, instead of looking at
property taxes first, uh, and if we had done that, I think
we may have had a different Outlook. Uh, but it it that
didn't happen. And so this body rejected that because, um,
you know, we know that there's a lot of fluff and a lot of,
uh, fat and we would didn't look to do any of those cuts in
efficiencies as we were put
Pushing forward and that really put us into posit in that
position so I don't think it's really um you know I don't
know if it's strategic but you guys are trying to shift the
blame on the city council for the downgrade instead of
accepting the responsibility for the budget that was
presented. That's number 1.
In your opinion.
Um, based on the downgrade and the negative outlook, um,
I'm sure you've already crunched, the numbers, how much
money is it projected to cost us uh, under the current
borrowing plan that you that you all have in place.
Um, Brendan do you have the numbers on what it's expected?
We can pull that for you. Um, I do want to address though,
your comment about cson efficiencies and I think that it's
a very uh the you're a perspective that if there had been
more cuts and efficiencies we could have avoided, the
downgrade is a very reasonable perspective. The rating
agencies are neutral as to how we achieve structural
balance. So, the rejection of the revenue framework in and
of itself is not a reason for a downgrade, um, but if that
Revenue, the if the rejection of revenues is not tied to
also corresponding Cuts, then we have more structural and
balance and so ultimately the budget did not
Not include.
Uh enough Cuts or enough Revenue. It doesn't, you know,
either side of the equation would have avoided the city
getting a downgrade.
okay, so knowing that we still have this
the structural, uh, Cliff that we're headed towards. Um,
how can we have not instituted a, you know, Furlow days?
Um, layoffs, hiring freezes and things like that, going
going forward. So a number of those items would require,
um,
Uh uh changes to the collective bargaining agreements. In
essence, they would require consent of the uh unions um and
uh that has not been achieved yet.
Um, I'm sure that there will be many uh suggestions in the
budget coming forward around. Reducing costs. Are those
conversations going now
Uh, I cannot speak to what the status of uh, Union
negotiations are. I'm not particular. I am not personally
involved in Union negotiations. Well, I mean, would you
like me to answer that question? Thank you, absolutely. And
that Guzman budget director for the city of Chicago. Um, as
you know, the budget that was passed. What was a balanced
budget. So, we are living under the budget that has a
certain amount of Revenue and a certain amount of
expenditures for 2025. Um every month, we provide an update
to city council as to our Revenue performance and through
um April of this year.
We are um ahead of budget. Um I have said in meetings to
City Council Members both in our financial updates as well
as our monthly briefings that April and May are the 2
months that I am closely watching our Revenue performance
to understand how macroeconomic impacts.
Primarily what's happening at the federal level are
impacting, our regional economy because that'll give me a
really good sense of whether or not we have to put the
things that you're talking about for 2225 in place to
mitigate against negative Revenue performance. Thus far, we
have not seen that as it relates to the 2026 budget. We
have a number of things that are happening to, um, address
lot of the feedback that we got from city council last year
during the budget season. The first is we have monthly
meetings with our caucuses and we have made a general
invite to those who are not part of a caucus to meet with
the budget. Every month to discuss expenditure reductions
to discuss Revenue options. Secondly, we have uh,
Every 2 months, a financial update briefing for city
council, uh, to keep you a breast as we are kept a breast
of our revenue and expenditure performance. Third we have
um begun an exhaustive comprehensive review of both our
Revenue, as well as our expenditure sides to um, find those
efficiencies that you're calling for to Think Through what
other Revenue options, we have both within our control and
that we want to set up uh
Uh, discussions with the state about. So I asked for those
of you who can to stay for the next, uh, hearing. And then,
uh, fourth we have a external working group that is made up
of, um, not only businesses nonprofit, Civic organizations,
uh members of city council, but also labor unions. Um 1 of
of the things that we are constantly in conversations with
our labor Partners, about our expenditure reductions
efficiencies and so forth. So those are ongoing
discussions, we will be bringing more options, um, and
ideas to those, uh, tables. Um, as we go into our 2026
budget development discussions, and so forth. We've put
before city council. Um, the data around what it would look
like to do Furlow days. Um, both for our Union, uh,
employees as well as our non-union employees. So you can
get a sense of um, how much uh negotiation. It would take
to actually achieve savings through Furlow days because
90% of our Workforce is unionized.
okay, so again, are we currently having conversations about
layoffs and Furlow days as I, um, have mentioned, we are
constantly in contact and discussions with our labor unions
about our question, are you having specific conversations
about layoffs and Furs? We are having discussions with our
labor unions about reductions of cost within our budget as
it relates to which options are in front of them. Those are
the discussions that are at the table, okay? And when did
those discussions start? They never stopped. Okay, so we
are in June and we know that we have at least a 1.3 billion
dollar deficit. So why are we waiting to implement? I
understand conversations, but how come we have not
implemented, some type of structural change to minimize the
bleeding of the 1.3 billion.
We have a balanced budget that was passed in 2025 that we
are monitoring and managing as we speak as it relates to
layoffs obviously. Um layoffs will uh uh result in service
service reductions immediately. Um, that are being felt,
that would be felt throughout the city of Chicago and, um,
every single Ward. And so, as we are looking not only at,
uh, options around Furlow days around, um, layoffs. Uh,
we're also just looking at, uh, ways that we can make our
operations, more streamlined, and efficient, which I think
is the first place.
That we want to look at so that we are not disrupting
services for those who depend upon it every single day.
Okay well again I'm I'm you know, we're not getting to the
the meat of the question is that if we know we have a 1.3
minimum billion dollar deficit, how can we have are not
already implementing policies and procedures to minimize
the damage. But you let her say well she got. She answered
the question though. You keep trying to get her to say
more. She did not answer the question. She's answered the
question the way she plans to answer it. So that the, so
the answer is I'm not answering the question on to your
next. I'm not answering the question, I get it. Okay. Um,
Bringing in all these different outside entities for this
um, Budget Group that you all have formed. Um,
Why are we paying 4 million dollars closely 4 million
dollars on a group? That's basically going to tell us the
same thing. We've been saying for 2 years is that we need
cuts and efficiencies
I think it behooves us to um, look generally at our budget
comprehensively, um, but also Benchmark it against other
cities. Um, a lot of things that they'll tell you are are
are fees, are fines are much lower than the national
average. Um, what they'll also tell you are, you know,
there are ways for us to streamline our operations as it
benchmarks other jurisdictions that are similarly situated
to the city of Chicago. They have a national Viewpoint that
I think is beneficial for not only our departments and our
um our finance team to look at. But also in order to put
options in front of city council, to help you understand
how other municipalities and jurisdictions are, uh,
approaching and addressing operational services for the,
for their, uh, residents businesses and cities. Okay? I I
appreciate that. And that leads me into another question
for Mr. Lauren, um, you mentioned, um, a city that is
already laying
off and cutting services and costs and efficiency. What's
what city was that San Francisco? Mayor Lori, who was just
elected, okay? And what is uh do you know how many
positions that they they cut and how much revenue that
they're cutting? I I off the top of my head, I don't
remember the exact details but the they're uh fiscal
situation is not too dissimilar from ours. Okay? Um, well I
think they've already cut 1400 positions.
and, uh, 100 million, uh, out of their budget is what the
numbers that they're looking at, um, because they're
looking forward to the cliff that they're headed towards.
And uh, so they're already planning um on minimizing that
Cliff. So support a clarification that was in conjunction
with the uh introduction of their budget. And again, not in
the middle of their budget season. I just want to make that
clear. I asked Mr. Lawrence a question, thank you. But I
think that clarification, Alderman, Bill, come on and
Let's we know what's going on here. You got more questions.
Let's go.
Boy, I tell you, alrighty.
um,
1 of the presenters asked he mentioned, um, and I think it
was MRH, is it Todd?
No, next to you. I'm sorry the gentleman next to you. Um,
you don't need to move. Um, basically you said that the
there was a population growth of 22,000 people in the city
of Chicago. Um, do you have a breakdown of those people? Or
were they all migrants?
I don't have a breakdown of the information with, okay.
Well, I'm pretty sure that 22,000 population growth that
you all mentioned in your, um, presentation was all
migrants. Um, and we haven't had population growth in this
city, um, outside of that. So, um, so Madam chairman.
Again, I want to thank you for allowing me to have this
hearing. I appreciate it. Uh, I think it was very
informative and I hope that my colleagues got um, some very
valuable uh information as we move forward with with the
problems that we're having in this city. So thank you so
much. Thank you Alderman Rodriguez.
Followed by alderman waguespack.
Why? Thank you madam chair. Um, oh Alderman, laspada, my
mistake. Uh, you can go after Alderman, Rodriguez Alderman
waguespack. You'll go after Alderman, laspada. Sorry,
right, right. Um,
CFO. Dorsky, would you, uh, just share with me some of your
Bonafide as a finance expert, maybe your preparation. Uh,
in college post College, uh and your work in finance
particularly
Sure, um, I went to University of Chicago and graduated
with a degree in political science.
I must say, I wasn't thinking that that degree with Lan me
here today but I did have a focus on Urban politics um,
which has always been something of great interest and uh
Fascination to me um 1 little anecdote my uh, father
reminded me.
um, before I took this job that, uh, when I was in college,
and I was studying political science, and focusing on
cities that I had told him that um of every level of
government, the city government is the 1 that affects your
life. The most and I had not remembered that, I told him
that but I guess I was foreshadowing where I might end up
being. Thank you really, these aren't got. You kind of
question. I just want to know who's talking to me and like
yes we're coming from and so uh so that's my uh educational
background. Um I started my career in Municipal Finance in
1998 as a financial analyst. Um at a company called first
called first Albany, they're no longer in the business
anymore. But uh, uh, so since 1998 you've been working on
this Finance, okay? Very good, that, that that's where I
was getting at, uh, I just, I just want that context. Um, I
want to go to a couple things that you highlighted in your
presentation, um, particularly the number of FTE that have
dropped in our city. I think it was over.
Over a 5-year period and about a 6%. Decrease. Is that
right?
That's correct.
Okay. Um,
Over those 5 years and that 6 and a half percent decrease
in the FTE. I'm looking at from fy20 to 25.
Do you have a calculation of their pain that lost pension
contribution?
Um, I do not that is something we can probably.
do an analysis of and and come up with what we would uh
assume that could be. Yeah. I I'd like that analysis and I
and I I'd also like to share a list of folks who want to
cut FTE. I'm going to put a list together, so that maybe we
we cut those ftes in your Wards, uh, who are collecting
garbage? Who are cutting trees down? Um, yeah, yeah, yeah,
yeah. Yeah, that's right. Um,
So, as as uh, as as we move forward here, I also would like
to ask you, uh, CFO Jaworski. Um, if you would get us that
6.5%
Um, where those folks work and what that pension
contribution was I would love the. I would love to really
understand that nature. I think it will inform Us in this
next budget as well. Um,
Um, Mr. Waldrop I did have a question for you if you if you
wouldn't mind approaching.
Could you tell me a little bit about your background as
well? I just, I don't know you. I just want to know a
little bit more about your
Uh, Municipal Finance background, if you could if you can
make a brief as well.
Hey.
I graduated with a degree in finance and I've been working
at mesero Financial for 25 years and started there as an
analyst and now, I run the department.
And I I'm not sure if it was you or I think Mr. Todd,
forgive me. I I Mr. B Alderman, bio, Mr. Born forgive me.
I'm not sure who it was, who talked about the 22,000, uh,
additional, uh, individuals that have moved into the city
in, in 1 year span forgive me. I don't know which 1 of you
was. That was part of my remarks. Okay. It was part of your
remarks. Okay, very well. Um,
as far as Municipal Finance population growth, I believe
has significant repercussions on, uh, our future stability
and the and the and the potential future tax base in the
city is, is that accurate.
Is that why you brought that number up? Absolutely. And I
think the CFL mentioned this, you know, growth is going to
be key to the city's success over time. Okay, very well.
Um, you also, uh mentioned, uh uh, as a as as 2, you
mentioned, 2 things 1 around uh stability of our finances,
moving forward and the and maintaining better or or
consistent. Credit status 2 things you, you talked about,
uh, uh, keeping the advanced pension payment policy is
there some sort of best practice formula that you've
observed in the municipal entities that you've looked at
or, is that just consistent with the city of Chicago's, uh,
Advanced pension payment or is there any best practices out
there, essentially or best practice formulas on that
matter?
I would say, my experience. Advanced payments are um, more
unusual than than usual. So I think it's a huge credit
positive that the city has been doing that.
Okay. And you also uh, mentioned maintaining a Strong
Reserve formula. Could you speak a little bit more about
that as well? Yeah, no I I think the it was in the spirit
of maintaining the city's reserves. You typically drawing
upon reserves is viewed, potentially, as kind of a 1-time
fix. So, maintaining those reserves is also an important
crowd to factor moving forward.
Yeah. It's it's it's my understanding that this meeting
today was about uh the the downgrading of the on on the uh
post bond, uh infrastructure package. I think it's a bit of
a misnomer that has been put out there that there's some
impacts on our what, the way we ended up with our budget,
potentially that it caused, that is what I heard, um, from
from from our city finance department, uh, or Finance team.
I should say, um, I think as we move into this budget
season, I'm glad you spoke, uh, as well, budget director. I
think we need to take these things into consideration,
right? We need to have a strong firm understanding about.
Um, the fact that the advanced, uh, the advanced pay on our
pension policy maintaining a Strong Reserve. They're both
critical aspects. I also want to lay out there. Um, the
fact is, is that 1 of the key cogs in paying down our
pension, is having people paying into the pension system,
right? Ft is doing that. So, for every number of folks,
you're decreasing that are paying in you're causing.
Potential long-term impacts as well. Just uh, thank you so
much, Mr. Lauren, I just the same question to you, as far
as preparation. My understanding is you come from a legal
background. I just wanted to get clarity on that.
Went to Harvard Law, I did corporate law in Boston for a few
years. I grew up here, I moved back to work in the
investment industry. Um, I've been doing macroeconomic, uh,
analysis and, um, just portfolio management for 10 years.
Uh, if you're an investment role, I raise money from Tiger
management years ago, I can, uh, assure you that wasn't an
easy thing to do. Um, so, uh, I, I'm I, I don't live and
breathe municipal bonds, but I'm pretty, uh, I'm pretty
astute when it comes to credit markets. I think and I
respect you for being here and and I respect the
information you brought to us today. So that's that's
really all I wanted to say. Other just 1 question on on, on
the issue of uh, a city like Chicago, issuing bonds,
particularly as it relates for infrastructure improvements.
Do you see a world where that does make sense or do you
know? Of course, it makes sense. It's just a matter of how
you structure it and if we're going to structure it with a
back-ended payment structure, I don't know if credit rating
agencies are going to look too kind.
Upon that. Okay. Uh, that's all my questions Madam chair.
Thank you so much. Thank you, Alderman. I just wanted to
add that, you know, I think it's a balancing that we're
to have to do, uh, later this year. I mean, yes, uh, on the
revenue side but we also have to look at in, um,
efficiencies and
I hope you'll be right there, when we do that.
Uh, alderman laspada.
Thank you very much cheer. Uh, Mr. Lauren, I did have a
follow-up question, because you, you just stated that you
don't live and breathe Municipal finance and I understand
that could you talk about your experiences in my Municipal
finance and bond transactions. So for example, could you
talk about times that you've been party to a municipal
bonds? So here's what I can tell you, I know so I I can
talk
I'm happy to answer it. My question was unclear. I
apologize. Let him answer the question then I'll get to
your point of information. I'm happy to answer it and
Uh, I think it's a benefit that you have someone who's not
conflicted talking and just can give you a fair take on
credit markets. Uh, I am not involved in Municipal
financing. I am involved in credit management and Analysis.
Um, I think hopefully through my presentation, you saw that
I know what I'm talking about and if you don't think so,
it's your point of view. Oh, I don't mean currently
involved in Municipal Finance because it was clear from
your resume, I mean, in the past. So even like in your
in never, I I don't trade, I don't trade municipal bonds,
uh, that is not part of my workflow, um, but I think I'm a
pretty astute credit analyst and if you're an Institute
credit analyst you can analyze Municipal Credit as well.
And can you also talk about time
Alderman laspada.
Alderman Lopez point of information. Thank you, chairman. I
just have to ask, are we going to go through everyone's
resume, while we're up here, asking we're gonna go
questions. So we're gonna go through everyone's questions,
and I believe, yours comes up shortly, so but I have never,
no, no, no committee.
Singled out an expert witness. He's repeatedly. We're not,
we're not, in fact, actually, you all are I person
including information? You asked your question? Please
continue. Thank you, chair. I wouldn't repeat the questions
that were just asked by Alderman, Rodriguez, who just
actually asked about the other participants experiences as
a subject. Matter expert. I'm, I'm trying to understand
what makes someone a subject subject matter expert. So,
like Mr. Lawren. You're also, I want to understand about
times in the past, as you're speaking to advise this body
that you've been contracted by other municipalities I, I've
worked with others in this legislative body who are here
right now over the past year I've worked with others at the
state level going over the same issues as well. So for
example like which which municipality specifically have you
been contracted with contact with no? This I I wish I'm
doing all of this for free. Um I I I've worked with some of
Of your peers on analyzing some of our fiscal and Municipal
issues and have done the same with state level officials.
Say, I don't think they turned to me if they didn't think,
I knew what I was talking about, maybe, maybe the wrong.
That's an opinion as well. Um, I did want to ask if you
could talk about credit default swaps is that was a key
piece of your presentation. Yeah. It it's it's a sentiment
sort of so I I'll admit those aren't the most heavily
traded financial instruments for the city. They're, they're
a bit more heavily traded for the state of Illinois, which
for 5 years CDs, has about 220 basis points CDs level. Um,
Chicago's indicated pricing, which Bloomberg provides,
which is based by, based on quotes, from dealers, I think
there's about 8, they got it from updated daily. Uh, it's,
it's about a 80 basis, point spread to the state level. So
not much of it trades but it does indicate what um, a
pocket of the credit Market views are risk at. And the
reason I showed that chart is, if you look at the last
time, our CDs was at a 300 basis. Point level, our credit
spreads to the AAA meeting index were at 200 basis points
versus the 125 basis points that we have today. So what the
CDs sentiment is telling us what the CDs pricing is telling
us.
Is that, that part of the market thinks that our investment
risk is more akin to sub investment grade risk. And, uh,
the, the next chart I showed was that sub investment grade
credit, uh, trades at about a 200 basis point spread to
AAA, um, which is consistent with the CDs pricing issue.
and may I ask if you specifically, or your firm in general,
trade in credit, default swaps related to the city of
Chicago? Absolutely, not no I I I'm zero conflicted in
anything I'm talking about and I'm guessing that talking
here today. Means I'll I'll remain zero conflicted for a
long time here. After when would a credit default swap
involving the city of Chicago yield profit for those
invested in them, a credit to false swap would pay off if
Chicago defaulted, which is very tough to do. I mean,
Chicago could miss a payment, but the state needs to
approve bankruptcy. It, it's, it's a very far-fetched
scenario that Chicago would default, but it's interesting
looking at our CDs levels compared to a city like
New York or Philadelphia, which is um in terms of rating
like the closest 1 to us of a major city and those traded
about 70 basis points. So what what? Okay, that's enough on
that particular Point CFO divorced, him curious.
based off of your understanding of the history of Chicago
or at least the
Foreseeable past, as you can go effort, defaulted on its
General. Obligation bonds know the city is not on his
General obligation bonds, I believe the last time there was
a default in City debt was on the Skyway bonds um which is
going back many, many decades to win the Skyway was built
and there was
Pretty low users and they did default on the city, did
default on those bonds and, uh, over time the uh, use of
the Skyway increased and the city made full.
Uh got fully caught up on those bonds and then of course
ultimately ended up selling the system. I don't my
knowledge is that there has not been a default of any City
Credit since then, that's helpful, I I would appreciate if
this could be provided through the chair. I'm curious if
there's anywhere in the municipal code or the code of
ethics that prohibits Alters or elected officials, from
being invested in credit, default swaps against the city of
Chicago. I feel I hadn't even thought about it before. But
I feel like that would be potentially dangerous. The
election of our fiduciary responsibility to the city
so noted
Is that your that's the end? Um, that is almost all of it.
I know we're it was being talked about as a rhetorical item
but cuts are cuts are not rhetorical. I mean, we we talked
to our constituents about this at length about what are the
cuts that they would like to see
uh implemented in the city, whether that's I mean the
garbage service that they receive whether it's a reduction
in public health inspections
I find that people generally prefer their Cuts in a
rhetorical sense. Um,
I would say when we talk about a structurally sound budget.
Budget director. Guzman. You
Presented us multiple structural solutions for the budget,
arguably doesn't of structurally structural solutions for
the budget that had nothing to do with property tax
increases at more than compensated for it.
If there was a
if there was an interest in not having a structurally sound
budget for the city,
certainly, I won't put
all of the blame on Council, but blame is inarguably to be
shared.
And what we choose to see, or not, see in a structurally
sound budget.
Is going to come out of the meetings that were already a
part of and that we're going to have through this November
to December. So I do I just want to credit the work that
you and your team did tirelessly to try to put forward. The
most structurally sound budget possible for us to vote on.
Thank you for that. Thank you chair. Thank you Alderman, LP
Alderman. Wagers back. Followed by Alderman brunette, vice
mayor brunette.
Thank you, chairwoman and thank you for hosting this
hearing. Um, first I want to say, thanks to Mr. Lauren for
your excellent analysis of the situation here. And um, also
just want to say that um, I'm 1 of those people that asked
him for advice. He is a constituent but like several other
constituents of mine. I reach out to Mark and analysts in
both the uh munic side and the private side to go over
these issues and figure out if there's other ways to
approach. Uh, what we've been doing over the last several
years, just like CFO Jaworski did, when she was at CPS went
to the private sector and then came back.
So there are opinions that are meaningful from uh, anyone
that comes forward and allows us to hear from them. Um,
when we talk about
Conflicts of interest. Mr. Lauren, clearly stated that he
has no Financial benefit from doing this, um,
I would point out that, uh,
In terms of Mr. Born with loop capital. He did disclose
that he works for other municipalities. What he didn't
disclose was that.
Loop capital is a 50% underwriter.
On the deal that we just recently passed.
and stands to make over 2 million dollars in fees that is
the kind of conflict that we need to hear about and say,
okay, it's on the table, but we still want to hear your
opinion.
And I do appreciate his opinion as well as that of mesero.
Um,
But I think we should always disclose that information.
That is said, I appreciate all your contributions over the
years.
So we know that um we're in a very tight situation here, we
have to go um through this information. Prepare ourselves
for the upcoming budget, we are behind the 8-ball in part
because of management. Um, we have seen the mayor fail to
get down to Springfield in a timely manner. And once again,
missed the boat on finding those Revenue sources that we
are going to need as a city to close this 900 and
potentially 80 million 980 million dollar budget Gap.
so um, just going back uh, for a couple questions here CFO
page 13 of um your presentation for the foundation of the
the Geo credit ratings. Could you go through uh quickly and
and just tell us what percentage um, Moody's S&P and Fitch
roughly give to each 1 of those areas that are outlined in
blue. So for instance, institutional framework is that 10%
20 30%. And then for each 1 of those 5, could you just give
us a quick breakdown, please.
You know, each of the, those 3 rating agencies have a
different, what they, they call it something each call
different, but us like a score card or a matrix that they
wait those at um, the heaviest weightings um, are on the
uh, Financial profile. Uh, the long-term liabilities. Um,
and then after that, it's going to be the institutional
framework, uh, the and, uh,
excuse me, the economic de economy demographics, generally
and the institutional framework and management, but they
each weight them slightly differently. Um, but what we can
do is give you, uh, a breakdown of those. We can provide
that for each of the agencies so you can see what percent
they use, uh, crawled does not use this type of a
framework, but, uh, because the rating agencies are highly
regulated, whatever methodology that they do use in order
to determine
Their ratings. Um, they, you know, they they publish it and
they do have to stick with it. So we, uh, we can certainly
compile that information for you and send that to you. And,
uh, to the, uh,
We set it through the chair to everyone. Yes. If you could
do that through the chair that would be helpful. I have
each 1 of them already. But I think all my colleagues would
like to see how each of those is broken down and I think it
will uh, help. You know, if we're looking at institutional
framework being 30% of, um, their scorecard Financial
profile 30% and then maybe 10 from, uh, you know, parts of
each of the other ones. I think it's important to know how
each of those work. Um, you know, we, uh,
We have a situation here where we are trying to prevent a
further, downgrade we are on Watch. And um, I think that
Our position right now requires us to do things that we
haven't done in the past, for instance, embrace the
business Community. Unlike what we've seen on the fifth
floor where we have not done that, where we are saying
basically it's uh gaslighting and pushing out the back door
to get the things done that. Uh there might be a certain
policy for on the fifth floor uh getting down to
Springfield in a timely manner, not the day after they
close down business, but really getting in there and saying
what are those Revenue sources that we could get our hands
on um or our hand?
Hands around to to really change the structural imbalance
that we're uh hitting here.
um,
Now, as Mr. Lauren, I, I agree with you. We've entered
another, another era of structurally higher interest rates.
We've been through this before back in 2000, uh, 8 2009.
Um, we were in a significant. Uh, um,
Downgrade situation. Um,
We were able to get back on the right track over time. Um
skipping a chart, 7 number 17 of your chart. Um,
if you could take a look at that, um,
excuse me for a second.
Um,
when we were talking about the 518 million in
infrastructure uh some of the things we talked about were
the need to make sure that we continue to invest in our
infrastructure in the city. Uh could you talk a a briefly
about what you would do to improve that? Um and if you're
talking about Cuts or pairing it down, how would you, how
would you address that?
Is is this? So the question is specifically about the 830
million, um, proposed Capital Improvement Bond and how
that's structured is, is that correct? Yes. Um, I mentioned
the wrong number. Yeah, go ahead. So I I I think um, you
know it's tough. There's obviously a need for
infrastructure repairs. Um but the cost of uh funding that
is just rising and Rising. Um
So the question is, does borrowing all at once? Make sense
uh does the if if we really are borrowing 30 or debt and
then paying it off, um, after missing a few years of first,
Postponing, a few years of interest payments. Does that
make sense? I, I think that, my, my guess is that rating
agencies probably are suspect of the idea that we postpone,
um, any payments on on interest or principal for a few
years, to make near-term budgetary issues potentially look
a little better. Uh, it's it's a risk. I, I I don't.
In in all honesty, I don't know enough about the particular
infrastructure needs of the city to to know you know do we
we need to borrow all that right now or are are these all
for, you know, shovel ready projects, or is, is this just
sort of a floating amount that we can uh, put toward any
projects that come up? I would say that. Any borrowing, we
do probably should be for shovel ready. Projects? Given
credit conditions? Yeah, I would, I would agree with you
there, I think. Um, I've even looked at ways of you know,
what projects are we looking at in the 302nd? Ward that we
Ward that we could scale back or in terms of time uh or
size to um, hold off a little bit there. Um,
And I think your point about uh, postponing years of
interest payments was a very deep concern of many of ours.
Um, when we found out that that, that was the case. Um, I
don't think I had seen 1 for about 10 years. That was
similar to that, that type of setup. Um,
on the, uh,
also on the idea of um I think you and I have talked about
this, you know we in this Council often use our menu funds
and Tif funds and other corporate sources to help pay or to
fray costs for our sister agencies. Which hasn't come into
question here today. Um, when we look at the um, requests
by CPS for pension payments that has to be part of
This conversation, when we look at the red lines situation,
where we might end up paying hundreds of millions to make
up the, uh, significant, um, shortfall that was not
disclosed to us. That will also be part of this budget
conversation, unless we put the blinders on. Um, now
looking at your uh,
Your chart here. I think it was number 20. Um, you
mentioned also that markets will always move faster than
rating agencies in time of distress. Uh, is that referring
also to the comment that short of productivity, uh, break
views that dramatically increase economic growth. Um,
Is that referring to the resident side of things, the
numbers or business, or both or a balance?
As a woman said, sure. So
Rating agencies are historically, pretty conservative. Um,
entities. They definitely are in the corporate side and
they definitely were, if you go back, you know, 15 years to
the financial crisis, they did not move fast, the market
moved before them. Um, and in times of distress market,
prices are going to start pricing in problems, faster than
the rating agencies can respond because they have a whole
institutional framework that they have to go through and
there's a lot that goes into the those decisions, uh, for
chart 20, um, or, I'm sorry, did you want to talk about
the, the that's different 1. So that the 10. I'm sorry. I
had the wrong 1. Which do you want me to talk about this,
specifically, the hold on, hold on. I think he had, uh, he
missed.
He didn't mean chart, 20? What chart are you referring to
all of them?
I just slipped it under there, um, referring to the um,
Well, the comment that, uh, short of a breakthrough that
dramatically increases economic growth. So so we have a
problem at the national level and we have a problem at
municipality levels across the country. Like, we have a lot
of debt right now at the federal level, treasuries are
starting to price in, um, a concern that our our debt
situation is getting potentially out of hand. And if you
know the reason to show that is if treasury yields move up
that's going to affect costs across every single um part of
the credit World, definitely at the local level too, that's
a benchmark industy. So the there's there's no really free
lunch in all of this. Like if we at the federal level at
the state level at the local level we've taken on a lot of
debt. Uh the the more debt there is the more that crowds
out private investment and the only way out of it is really
um in increasing taxes or cutting expenses or you get
productivity growth. That is
Master than the growth in debt and maybe AI unlocks, that
and GDP grows at 5 or 6% and we all look back and this was
nothing to worry about. Um, so at the local level like the
really key thing for us is to do anything possible to just
grow the economy. Um, because growing your way out of our
debt issues is a lot easier than borrowing your way out, or
taxing your way out, or cutting your your way out via
expenses.
Thank you.
Um 1 last question. Uh chairwoman um for the CFO. Um how
how much of a cushion is there in our reserves? Um, for
2026? Uh, I noted that Fitch had said that we were possibly
falling below 15%. Um, what would you say? Our cushion is
for the upcoming budget?
Well, you know, we still have all of our, uh, reserves in
place. There is, uh, you know, the concession reserves and
those type of things are all protected. Uh, by uh,
ordinance. Um, in addition, um, we still have, you know,
additional balance on top of that. Um, the amount of
reserves that we will have, uh, will be able to, uh, tell
you that in more detail relatively soon, um, the, uh,
controller's office and our external Auditors are very
close to finalizing the financial statements and I know we
will be briefing.
Uh, all the council members on that, um, near the end of
this month, uh, so we will have more detail on that shortly
to come, okay.
Well uh thank you chairwoman. I would strongly urge
everyone here today to heed the warning signs, and I want
to thank all of the speakers for their balanced, uh,
expertise and opinions, um, to as they add it to this
conversation. I think the warning signs, uh, are pretty
clear today and we cannot move forward without addressing
some of these structural issues that have, uh, really
created, an imbalance in our finances. Um, we owe it to our
constituents, we owe it to our businesses and residents.
And I hope that, uh, we can move forward, more
collaboratively to make this work. Thank you chairwoman.
Thank you Alderman. I think uh, the CFO and the budget
director had some additional comments on on your questions
and wanted to give you another uh perspective as well.
Thank you chairman. Um 1 of the things I just wanted to
know was there was a question came up about the
amortization structure are related to the 830 million
dollar Bond.
Authorization. Um, you know, what? We had shown city council
was an illustrative example of the of a bond amortization.
Um, really based on the fact that we have very high, uh,
Debt, Service going forward that drops off dramatically in
the future. And so, um, you know, utilizing a wraparound
structure is going to be what happens for a large majority
of the debt, but 1 of the things we did emphasize at the
time was it's just illustrative and uh that at any given
time, when we're in the market, we're going to respond to
what the market is. Uh at the time, the steepness of the
curve, how high rates are um, in determining the ultimate
amortization. So, uh, we intend to be in the market, uh,
very soon possibly as early as tomorrow, um, with a
transaction, um, smaller than the 830 million, um, to fund
a capital, uh, expenditures.
And in that we are looking at advertising um in certain
years uh debt that is uh significantly shorter. Um, there's
primary reason for that is that we are in a rising interest
rate environment and we have seen a steepening of the
curve. So it's beneficial for us to in this kind of
environment. Try to move some of that debt earlier, um, to
lower our total borrowing costs. And, you know, that's, uh,
you know, I think typical of how, um,
you know, the city would be choosing to advertise, his dad,
in this particular kind of market conditions, you know, if
we were lower rate and flat or debt, it would argue more
for doing a full wraparound structure, um, at the time. So
I think it's important, I think that, um, you know, we
continue to always, you know, dialogue about how we're
managing our debt load, but also to recognize that, you
know, we are going to be amortizing each transaction in a
manner that is appropriate to what the market conditions,
um are at the time.
And um, I'd like to just respond to a couple of things. So
I think, 1 thing that Jill just said is really key, um, the
authorization that city council provides and has provided
over several years for Bond ordinances, um, we don't issue
the entire amount all at once. So the 8:30 that you just
authorized 830 million is not being issued into the market
at 1 time and we do uh, um, issue based on
Primarily shovel ready, uh, projects. Um, secondly, as it
relates to Springfield, you all know. It's a very
complicated place. Um, conversations are always ongoing,
um, you know, when when we have conversations, um, we
largely don't talk about them in the public, but those
conversations are always ongoing. It's 1 of the reasons why
today, uh, for those of you who are able to stay for the
revenue subcommittee, we are, um, we have prefaced and
prioritized talking about State revenues and state policies
because a lot of times
Is going to take more than just 1 person, having a
conversation with lawmakers, it's going to take the full
force of City, uh, government to have those conversations.
And I think that, you know, we look forward to these
conversations with members of city council. Um, because as,
you know, as you saw this last, uh, uh, budget cycle
revenues were very difficult at any level for Springfield
to pass, um, and they did not pass, a lot of revenues, uh,
despite municipalities including Chicago, um, uh,
advocating for additional revenues. Um, so uh, when we have
these conversations with you, um, it is to provide the
facts is to provide, um, you know, the ammunition for why
we need these things. Uh, 1 of the things that we'll talk,
we'll talk about is that our largest revenue sources. Uh,
when you talk about changes in those Revenue sources, come
from State action. So we look forward to that conversation
later today.
And before we go on, I just wanted to uh, thank Alderman
viegas. Um, I think he walked out but he's, uh, he'll hear
about this. Uh, he has agreed to, uh, move his
uh,
Hearing on the importance of tax exempt, bonds to another
day because we have a number of aldermen who have questions
and that they will go long. And I know that uh, chairman
Hall of the subcommittee on Revenue has a meeting that he
needs to have in here as well. So we will keep moving with
uh questions.
From the committee members, uh, starting with, uh, vice
mayor, Bernett, followed by Alderman Lopez. Thank you very
much, Madam chairman, um, and good afternoon, everyone.
Uh, first of all, I want to thank everyone for being here
and testifying today. Um you know when folks question
people's uh credentials and everything and when people say
things it could have a adverse effect on on their uh future
especially people in in Private Industry. So thank you all
for being here. Um,
1. I you know I know there was a question asked um I know
ottoman Bill referred to the tax situation but can you um
just run us through.
You know, initially.
From what I from what I recall. Initially we there was a
proposal for a tax increase, right? Then folks didn't want
to vote on that.
Then then there was another proposal for a lawyer tax
increase. The folks didn't want to vote on that. Then there
was another proposal for even smaller tax, increase and
folks didn't want vote on that. Now, as I recall, I don't
recall anyone, uh, wanting to vote on any of those. Do you
recall, anybody wanting to vote on any of those because it
sound like uh oh uh, David Moore did, because it sound like
it was it sound like it was said that.
We should have voted on a tax increase, right? Can you can
you just and and and and tell us why. So, the folks went
against it.
And folks went against it.
Um,
You all found a way to make it work, right? But tell us.
Why. Initially in in in early on, we were talking about
If we vote on these tax increases, it would help us to be
able to, uh, you know, could be in the in, in good with the
rating agencies. Can you just tell us about that? I'll I'll
just talk about the, the, the timeline in Jill. Can talk
about the reactions from the rating agencies because she's
right, we, we were in constant contact with the rating
agencies during the budget season. Um, so when we presented
the budget, um, back in October, we presented a 80%
structurally solved budget. Um, there were some 1 time
revenues in there. Such as Tiff's.
Surplus, um, and and and so forth, but largely, um, it was,
uh, balanced through 80% St. What what they consider
structural, uh, changes, um,
For municipalities, we talk a lot about our home rule
Authority and we only have certain amount of home rule
Authority. Most of, uh, re large Revenue Source collection
is going to happen at the state level. So, for most
municipalities the most structurally sound Revenue source.
That brings the largest amount of dollars in is always
going to be property tax. Um um you'll hear Ralph materi a
a little bit later in the revenue subcommittee. Uh, go
through why that is and um, what our corporate and general
fund is made up of in instead. Um, and so when we presented
the budget and we knew that it was going to, you know, we
were leading into a particularly, um, uh, economic
uncertainty in the year ahead. It's 1 of the reasons why we
presented a budget that had both the, uh, revenue from the
property tax. But also and I know that that people might
not remember this, it had a a very large amount of, um,
cuts in that budget as well. So over 700 positions were
cut, um, we had non-personnel Cuts as well, so we present,
Both Revenue as well as expenditure Cuts in in the uh,
beginning budget which um, you know, uh when the rating
agency saw that was presenting. Um, a pretty structurally
sound, uh, solution to the budget Gap that was forecasted,
um, in August of last year and Jill. You can talk about the
timing
Um, yes. So in regards to the proposed budget, um, and the
uh, ultimate budget that was passed. Um,
you know, I think, as I mentioned earlier, um, we did not,
um, you know, based on the briefings that we had with the
rating agencies, based on the analysis that we
Um had done regarding the rating criteria but we did not
expect that. It the proposed budget would result in a
rating downgrade. Um the you know, final budget that was
passed. Um, did have that reduction from 80% of structural
balance to 60% of structural balance and we saw that within
2 weeks, um, our rating got downgraded by uh, S&P and
within a month, our rating got downgraded by crawl. Um,
both of those occurred in January of those this year as,
uh, re reaction to um,
the actual passage of the budget, um, and noted the, um,
and both noted the, um,
Uh amount of 1-time measures that were used, um, as well as
a challenges in the process.
Um you know further into the uh spring, we had the
authorization for uh additional bonds. The 830 million,
which was for capital projects. Um, there was no uh rating
downgrades um or events like that. After the passage of the
bonds. Um you know again that was related um, entirely to
the budget that was passed.
um,
uh, and not to the subsequent, authorization of the bonds.
Okay, thank you so. So I appreciate that. And, and so, um,
um Mr. Lauren is it, can I can I and and first of all, so I
want to commend you for being here. I want to commend you
for doing what you're doing, you know, and being a
businessman you put in your business online when you out in
public like this, making statements like that. Uh so I so I
I just want to say thank you for taking those risks. Um, so
is your testimony today to be taken as legal or financial
advice?
Definitely not legal. Uh, I I would say to to take it as
advice in as to credit market conditions and how that might
impact our ability to borrow at a reasonable cost going
forward, okay, thank you. And then also you, um,
you mentioned that you advise people in the city and that
sure, I I work at a firm, it's called 4 Sheridan. We manage
roughly a billion dollars, we work with institutional
clients. So that could be endowments. It could be hedge
funds. We also work with, uh, families and individuals. Um,
I I do not work with any cities or government entities.
So, so, how would you characterize your relationship with
the state controller Susana Mendoza? Uh, she is a personal
friend, so I would say it is a good relationship.
So have you ever advised her in a formal and informal
capacity I talked to her frequently about state and local
Finance issues.
All right, and and and and I guess it's been stated that
you you don't do any. You don't do any, uh, type of, uh,
You.
I'm sorry. Give me all the meno. Shade, did you have a
point of information and you
Just you just uh speaking out loud.
Continue on. Hey, Suzanne is not running for mayor.
Okay. Anyway, so
So so your your testimony or uh, comments here today is not
political, then. See I I didn't hear your question. I'm
sorry you being here is not political, no, not at all.
Okay, that that's fine. And
and so you said you haven't really worked on municipal
bonds. I, I am not a init. Municipal Bond Financial
professional. Our firm does not handle Municipal financing.
We don't trade them. I I just I would uh, describe myself
an equity and credit. Uh investor. I think I'm pretty
astute and credit markets. And I think there's a lot you
can take from credit market analysis in general and apply
it to municipalities
so, would you say from
um,
from your comments and, and, uh, our cfo's comments when
she spoke about, uh,
in our budget director when they spoke about initially,
They were going to do cuts and they were going to rate
raise taxes, that that was probably a good thing.
What what do I make of that that I think that credit
markets would respond positively to that. All right I have
my own opinion on what the Right Mix is but I think
anything that Shores up the revenue is something that
credit markets and rating agencies would look kindly upon.
All right thank you very much. Thank you for putting your
Business and reputation on the line. Thanks, thank you,
vice mayor.
Alderman Reilly followed by Alderman sichel Lopez.
Thank you, madam chair. And uh I'd like to leave slide 8 up
there please.
Um, you know, it seems like we, you know, that we've got
our budget and rating. I'm sorry. I'm sorry. Lopez Alderman
Lopez. Calm down. You you're absolutely right. Ray is up.
Sorry, I'll I'll take a seat. Hope is Brandon's on a roll.
I'll let him work Alderman. Lopez.
It's not show pet. It's more like skip peasy today.
Man. Oh man. Good morning. Good afternoon. Madam chairman
members of the committee.
Thank you for remembering. I'm a member.
And allowing me to speak and address this today.
Um,
thank you to all my colleagues who signed on and joined
Alderman. Bill in this resolution and thank you to everyone
who's here to discuss it whether they are. Professional
speakers, Municipal speakers or just concerned citizens.
Like
Mr. George Blakemore.
You know.
I keep hearing Madame chairman.
A couple things that are sticking to me.
so,
First off.
With the exception of aldermen cassada who was not here.
Last year's budget passed by 27 to 23.
Nearly half the city council said no to this budget.
So this is not a shared.
Structural imbalance that we are dealing with. This is 1
that many of us had tried to say was wrong from the start.
And I feel like every time we have conversations, we're
being deceived intentionally.
because even as I heard 1 of my colleagues asked whether or
not
we were told about the potential downgrades and
The answer was we have to go back to our records. I
specifically remember what that answer was and it wasn't we
were told that there would be no downgrades at this budget
was fine, that everything was good that no conversations
were being had with regards to what was potentially coming
down the pike.
And then in January of 2020.
5 January 15th.
CFO stated that.
It is because we were downgraded because of persistent
structural imbalances.
including the 2025 budget, which means, even though by law,
this body is required to to pass a
balanced budget.
We knew we were passing an imbalance budget.
We lied to each other and said, we're passing something
that's equal. When all parts were not equal.
And we keep hearing phrases like well it's just 1 time
measures 1 time measured. How many years of 1 time measures
do you does it need to be before it becomes a consistent
budgetary practice.
That's a question.
Because for me a 1 time means exactly that 1 time.
Who is the question, too? Is it whoever wants sand? Okay.
I'll start and then I'll pass it to my colleague. Um,
so the 1 thing I will say because I was on a lot of these
calls with rating agencies all through December into
January and and most more recently um the city has
forecasted the gaps right? And that's not uncommon for for
a lot of cities throughout throughout the the country. Um,
what I think they're looking for is to start to is to see
that we
We are working towards structural balance period, right? And
so the budget that was put forth by the mayor last year
when it shows 80% of what was put forth were structural
Solutions, then you start to actually get towards 100%
structural balance in the out years as well because again,
revenues, either go up or stagnate or go down your
expenditures. Either stay the same or they go up,
currently, our, our expenditures are going up. And so, we
want to make sure that we have Revenue that are matching,
the pace of that growth in our expenditures, which the
budget that the mayor put forth would have helped towards
uh uh uh uh closing that gap between revenue, um stagnating
and expenditures, continuing to climb Jill. So before
before Jill goes, if I may then to that point
Director.
Stagnation.
Increase. But what we never talk about is reining in
spending decreasing spending
and I know you mentioned earlier that some of the
issues is with our labor force and the collective
bargaining agreements there in and having an address for
lows and things of that nature with them which I get and
understand and we could save that for another day. But we
also know that there's a sizable part of the
Workforce, that is not covered. That is exempt and that in
this last budget.
We saw significant pay increases across the board for all
exempt employees.
Would it not have made sense to at least cap the increase
that we have absolute control over rather than allow in
some cases? 15 to 20,000 dollars in pay raises for
individuals who are an exempt positions.
I I think those are great questions for us to ask
ourselves. I I just want to highlight a couple of things 1.
1. Um, we have and have had persistent salary compression
issues in the city of Chicago, where you have supervisors
managers, um, on, on up, uh, making less than the very
people that they, um, that they supervise, um, that
happened because, um, it, uh, the early as the city of
Chicago completely cut out increases to the pay for
non-exempt non-union, employees and so because you had uh,
raises uh, that were bargained for by non-union, by
unionized employees. They were making more than their than
their supervisors and so over the course of the last 4
years.
Is through, um, conversations, not only with the
administrations. But through salary resolutions, approved
by this body, we started to chip away at that salary
compression issue because the reality of it is the longer
we had the salary compression issues, the harder. It was
becoming for the city of Chicago, to recruit people to fill
positions that were critical to the work of, uh, the city
services. The other thing I would say is 2, things did
happen, um, uh, that we did Implement in the city of
Chicago's 2025 budget. And there are probably others that
I'm forgetting. I should say, 3 things 1, we did reduce,
uh, through the, um, feedback from city council. We did
reduce the number of middle managers, as part of the 25th,
we also shifted our coalesce for only the non-union
employees to a July in, um, increase to take effect in
July, rather than January, whereas, our Union Partners did
get their Cola increases in January. Um, we also, um, began
to implement a phased in approach for having the employee
contrib.
solutions from our non-union employees increased over a
2-year period, and that happened, uh, starting in this 2025
budget, which matches, uh, the employee contributions that
our Union employees have. So we did Implement a number of
things that reduce the pay for our non-union, uh,
Workforce. Um, and just as a reminder, that only makes up
11% of our Workforce.
Excuse me, Mr. Blakemore, we know what time it is.
I think you should sit down. Thank you.
That answer your question. Yes, thank you.
Jump.
um, I think, as I mentioned before, um,
you know, a modest level of uh 1 time measures has
is not uncommon.
To governments.
It's not ideal. Um but you know many governments are using
Uh, excess balance various other things at any given time
to balance their budget.
The budget that was passed was balanced in that the dollars
in and the dollars out were balanced. It just wasn't
structurally, balanced in the sense that we didn't have
revenues.
Uh coming in and expenditures going out that when you look
at the next year, could continue to maintain balance. So
you know we used 1 time
Uh, transfers of balanced use of redirecting arpa funds
things like that, that couldn't be replicated in the next
year. So that is why it was not structurally balanced
though, it was balanced because those funds are being used.
Uh, to pay for the expenditures in the budget.
um the amount of 1-time measures that was used is, you
know, clearly uh, was problematic for the radiation
agencies as we saw from the 2 down grades and certainly um
um, each year in which we use 1 time measures. We create
the challenge again for the next year because we haven't
solved, uh, the budget. We haven't solved that budget Gap
going forward. So we have just essentially taken resources
to manage it for 1 year and recreated the problem in the
next year. I think all of your statements about
The focus on.
Creating lasting change are important and and that is uh
what we will need to do in order to ultimately get to a
structurally balanced budget.
That's a whole lot of word salad to say that we did not
have a balanced budget because I don't know how anyone
could say that we had a, we passed a legally balanced
budget. That was structurally imbalanced. It either is or
it isn't.
And simply stating that we took 7 billion in and we put 17
billion out and it didn't matter how we made it up in the
meantime.
that's,
How we wind up in these situations, that is exactly why we
have been deficit spending for, as long as I've been in
this room and odds are as long as everyone has been in this
room together.
I don't think there's a single alternate in this room. Who
knows what it means to take in. Exactly the amount of money
you get in revenue and spend it without borrowing, to cover
the difference. And with respect to your colleague up
there, we do borrow every year for our operational needs
for the needs of the city. For the needs of this building.
Every year we do do that ROM Lori Brandon doesn't matter.
We've been doing it for as long as I've been in this room.
As long as all of you have been in this room and to sit
here and tell us that we don't do that. You're lying to us,
you're misleading us, and the public. And I really hate
I have to say that because in this moment where we are
trying to figure out how to get on the right side of
everything with regards to you only get so
How much money in and you want to live within your means so
that you could be sustainable viable and effective.
We're not being truthful with where we're at.
What's the point of this exercise today?
And I think that's very concerning to me. Madam chairman
Alderman Lopez. Do you have some other questions because
it's getting
Late in the hour and I have the city of Chicago. Yes, it's
very late. They have uh looks like 2 or 3 more people. Well
Well, I I I would appreciate point of information Alderman
Moore. I think is very critical because I, um, took a face
value with the um, budget director said, so, um, the
ottoman had laid something and I don't want that to be out
there if it's not true. Um, can you define, is it okay, if
he can tell us those operations that we borrow from?
Because she emphatically said, we don't and I and I trust
her statement.
You mean do we borrow do? We borrow for our operations? Is
that your question?
We don't have our operational costs are not part of our our
uh Bond. Um ordinance or authorization
So then in this budget, where we had to borrow $40 million
to make it balance, what was that for?
What 40 million are you referring to in the fiscal 2025
budget? We did not borrow 40 million to balance the budget.
We executed a refunding transaction which lowered our
costs. So that reduced the amount of debt service that we
had to pay by the budget.
Yes, the lower Debt Service is always reflected in budget.
So, correct CFO. I'm trying to make sure we're we're trying
to compartmentalize
To evade. What is actually going on here, right? We're
trying to say that, well, Debt Service isn't part of the
government operation. So it doesn't count for what we're
talking about in terms of borrowing. Yes, it is. Because at
the end of the day, that's part of the overall operation of
this government. When you have to borrow as we did a few
years ago to cover a, a contract,
To cover the price increases of the wages that were
awarded. That is something that is a cost of government.
When we have to borrow to cover settlements, that is a cost
of government and the more that you keep trying to
compartmentalize and Silo everything to say, well, that's
not exactly government. I don't know who you're fooling
here.
so,
I'm just going to leave it at this Madam chairman because I
am extremely frustrated. I know taxpayers are extremely
aggravated and to be honest everyone that borrows us the
billions of dollars that it takes to keep this place to
float.
Is looking at us. Like we are spending our wheels in the
mud.
And we're we're trying to argue semantics when at the end
of the day whether it's trimming trees paying pensions
paying debt.
All of those are interconnected as part of what we raise
money for and what we spend and to keep acting like they
don't intersect anywhere is truly a disservice to the
taxpayers. Thank you. Thank you. Like to note that um, each
each and every transaction that we do has, uh, very
significant amount of documentation that backs up that
transaction and 1. Piece of the documentation is the tax
exemption certificate, and inside the certificate, um,
there is, uh, uh, illegal analysis of what the expenditures
are for, um, in order to assure that they are allowable for
tax exempt, bonds. Um, it includes looking at the average
life of the Investments, um, you know, which is something
you calculate for all capital expenditures. Um, operating
expenses expenditures do not have, um, an average life. So
if there's uh,
Questions about what any particular, bond issue has been
used for um that we can certainly pull the documentation
related to it to go through it. Um when we do a refunding
bond transaction or refinancing Transaction. What we are
doing is taking an existing amount of bonds and refinancing
it at a lower rate similar to if you take your mortgage and
refinance it at a lower rate. Um, that was what was done
with the transaction last fall and that lower Debt Service,
um, by $40 million, it did not pay for
Tree trimming or anything like that it simply lowered The
Debt Service components we did not.
We did not find Finance.
The debt we reduced the debt household burden is the
entirety of everything that you just said. So if you were
going to use a mortgage analogy, you don't get to your
mortgage refinancing while you're talking about, trying to
put sighting on or Windows on the building, they are still
the same house. They are still interconnected and yes we
do. Borrow for also those ancillary services that we deal
with just as you think about all your menus with the 518
million dollars, that we're talking about the fact that we
have to borrow 66 million dollars for the surveys, for the
Department to have the engineers. Do what they need to do?
It is all interconnected. Thank you, chairman. I I would
just note again, we want to make sure that we're separating
Capital infrastructure costs from regular operating costs,
which do not have a useful life. And that is
An important clarification to make. Yes, that's like saying
that the uh, we could go, you could pay for your sighting
but you don't pay for the man that well that's exactly.
That's exactly the description. How you guys are saying it?
Today, let's move on Alderman, Reilly.
Followed by Alderman Vasquez.
thank you, madam chairman, um, and thank you to everyone in
the box and especially to our, uh, subject matter expert
witnesses that took time out of their
Busy schedules, and the private sector to be here.
Um, I started to reference this, this slide that we still
have on the screen and thanks for keeping it there.
um,
you know, this is being talked about as if the budget
happened to us.
Like a tornado or a hurricane or some other major
unforeseen event. Um but the truth is uh, that the budget
that was passed the 1. We're talking about today. The 1
that the rating agencies aren't big fans of um, was passed
by the mayor and his allies and Alderman Lopez said it.
Once I'm sure we'll all be reminded of it during the
election time coming up in about a year uh this past 27 to
23.
And as I look at this, uh, this slide 8, we have here, I
noticed the creative use of Bolding, um, throughout our
little timeline.
Um, and it seems I believe this slide deck was prepared by
the mayor's office. Um, I see that really, the city
council's, taken some heat here based on this, this
timeline, um, bolded many times actually, um, by the
mayor's office. Um, not a whole lot of bolds around the
mayor.
Doesn't seem um, so, I doubt, many people are going to get
cover for their budget votes. Um, when they're up for
election in 2020. So, um, but I think it's, it's worth
saying, I think again, um, a couple of the things that
almond Lopez did, um,
These, these 1-time measures that were used.
Uh, were not proposed by those 23 Alderman. Who, who voted
against this thing?
um and while today we have a slide up on the screen that it
it seemed seems to be trying to shift blame for this
current situation, um, to those who 27 ottoman who voted
for this budget.
Um, I recall that there were some public statements made
right after this budget passed.
Um, that say something quite different.
And there are just a couple of very brief statements that
I'm going to read into the record because I think it's very
important.
For posterity, uh, this budget is a reflection of shared
leadership.
by working hand-in-hand with the mayor and city council and
centering our residents in every decision, we have
delivered, a budget that not only addresses immediate
needs, but also sets the stage for sustainable growth and
equity in the years ahead.
Who'd like to own that quote.
That's the budget director.
Um, we have another statement.
uh where we're pointing to the budgets long-term fiscal
strategy, emphasizing its focus on addressing Legacy costs.
Quote with full pension contributions including
supplemental payments. This budget takes critical steps
towards improving, the city's Financial Health while
creating room for future investments. In Chicago's
priorities, it's a bold but responsible plan,
Who'd like to own that quote.
Uh, that's you CFO Gorski that that's your quote there.
Uh, I'm going to stop reading quotes. Um, but for those of
you in the Press, you received the press release, you can
go back and look at it yourselves.
um, so when this passed
And here, this this timeline distancing, the mayor from
this horrible budget, that was passed. Um, it sure, sounded
pretty good to the folks who uh,
Who saw sold it to this body?
um, and that to me is troubling
Um, you know, I think it, it's frustrating for me because,
um, those of us who voted against the final budget pointed
out, time and time again, that it wasn't structurally
sound.
Um, that there would remain a structural deficit and I also
remember the mayor declaring almost defiantly.
After this passed, almost proud.
That this didn't include any Cuts or efficiency meaningful
ones.
Because he doesn't believe in Cuts. That's not part of his
his ethos. Um, I remember those words, they stuck with me
because it made me angry.
um, again uh, this idea, this notion that the only way to
fix this problem to, to achieve a structurally sound budget
is to Sock It To taxpayers.
Over and over again. Um, I I heard a reference to the new
plan, which will be a property tax increase plus a CPI.
Every year. Um, congratulations, Chicago taxpayers, that is
the promise of a recurring property tax, increase every
single year Alderman. Reilly without without without you
have a question, I have several. Let's go great. Uh what
happened in the mayor's uh executive order and hiring
freeze.
Because he's been on a hiring binge. And uh so what happened
happened to that? The hiring freeze was in place in 2024,
okay? And uh, I'm sorry from what date to what date it was
through the end of the year.
Were there any hirings made between?
uh 2020, uh sorry January 1 of 2024 and the end of that
year by the mayor
Or were there certain positions deemed uh, exempt?
When the hiring freeze went into place, we were pretty
clear in our, um, memo that Revenue generating positions
were exempt as well as, uh, uh, certain Public Safety
positions. All right, so, so did that cover
intergovernmental Affairs? I forget.
I'm sorry. Could you uh clarify your question. It's a
hiring freeze. Uh cover.
The department of intergovernmental Affairs or not.
Um, I it included the ones that I just mentioned, okay? So
it did not include the department of intergovernmental
affairs.
The hiring freeze included, everything other than the ones
that I just mentioned. Great. So not a direct answer.
Um, how much of the 830 million dollar Bond uh, has been
issued so far?
None of it has been issued so far. Um, we're going into the
market, possibly, as early as tomorrow, um, that would
include uh, relatively modest amount 70 million dollars
from the 830 million dollar Bond.
I see, uh, so who actually offered the budget amendment
that was ultimately adopted and approved as the fiscal year
2025 budget.
Anyone can answer that.
I know the answer but maybe someone could answer it for the
record.
Uh, CFO Gorski. You want to take a shot at that? I don't
have the answer. Okay. It's uh, the mayor did.
It was the mayor's budget amendment.
Um,
not the city council's.
But I don't see that mentioned in your history Onix there
on on slide 8.
Um, it was mentioned that Springfield is tricky.
I worked there on a Quinn worked there, a few other folks
In this building have worked there. Uh, yeah, It's Tricky,
um, but competent teams go down there and get things done.
Um, what is it that we got in relief from Springfield
during this past budget session to assist us with our
Budget crisis here in the city of Chicago.
and if you could, with each of those victories assign a
dollar amount in relief that we've received from
Springfield,
um, I'm still waiting for an a, a summary from, um, our IGA
team. But we did receive an extension of the 911 S charge
which will help with our, um, continued efforts to build
out our 911 system, as well as additional funding for the.
Once it's some initiative to support, um, uh, the uh, uh,
agenda related to supporting, um, the homeless population
in the city of Chicago, but there are others, I don't have
the full, uh, um,
Readout nor the dollar figures fairly certain. You won't be
getting any more than that. Um, the 9111 relief is worth
about how much money
Um, 4030 or 40 million. I forget.
Correct. It's somewhere in that range.
Um,
Did CPS receive any funding relief? They did. They received
an increase in their categorical spending but I don't have
the the dollar figure
And do we know um which of those items uh of these quote I
quote, I guess victories. I wouldn't call them victories.
But, um, the pittance we got back from Springfield. Do we
know how the ig8 team prioritized? Each of those goals
because it seems they made a bit more progress for the mess
that the mayor has made over at CPS than they did here for
the city of Chicago, who were the fiscal stewards for
I would um I don't have the answer for for how the
Springfield team. Prioritizes you'd have to ask them
directly. Okay well maybe chairman we should have uh our
esteemed IG GA team. Come in and explain how they manage
this past legislative session. So poorly
um, because
Well, they're, they're, they're lack of progress. Their
inability to secure us. Any relief, leaves, the 50 of us
here in this room and a real quandry, come this fall.
Um, and even mayor Lightfoot.
um with all of the challenges that she had with
Springfield, I would argue uh has done much, much better
than the current Administration um and again uh, we are in
a precarious position as a City right now.
Um, I'm, you know, chairman I'm, I'm not going to ask a
whole lot more. I'm actually, I'm not, I'm I'm into my
testimony and I'm sure some of my colleagues are very happy
to hear that.
Um, but my point here is that everyone is walking away.
From a budget that was, was approved. Last Fall by only a
2, vote pad margin.
Um it's being described as something this body as a whole
did to to the citizens of Chicago, which is not true.
And it's also being represented as if um none of us raised
these alarm Bells before it passed.
You know, maybe the media should go back and take a look at
the transcript.
Of the Florida bait that occurred between all of us before
this thing passed. Barely.
um, and I'm sure that all of our political opponents will,
In a year or so. Uh, so my colleagues may want to get
familiarized with their comments that day.
But, um, I do recall that, that this budget was being
presented as a responsible 1.
Um, 1, that balances the need future needs of the city
against the, um, the needs and wants of the taxpayer, blah,
blah, blah, blah, blah, blah, blah, blah. Um, and now we're
talking about what a crisis, we have to face this fall. Um,
a number of the folks who voted against this, in debate
said, we're going to be back in this position this year.
Except you would likely be worse.
And it would be 1 year closer to an election.
And it turns out those folks were 100% correct.
Um, you know, I think that rejecting the million dollar
property tax increase is something that's worth
highlighting, um, but what was not included in the timeline
in history, here was the fact a number of aldermen did.
Recommend Cuts uh not just to headcount but also to
services and and that is the last thing anyone in public
service wants to do.
We're here to help people.
And we are here, I think because we, we all believe to some
degree government plays, an important role in people's
lives and can do good.
um, but when you're in a fiscal crisis and you are spending
more than you take in,
I think it's pretty common sense to cut expenses first.
Before going and getting the second or third job or in this
case, socking it to taxpayers. And so I'm, I'm just going
to leave it here.
You know, as we're heading into the fall and look and I
appreciate the budget briefings that you all are bringing
us into now, okay? Um and you're right uh all of us here
need to be part of the solution in the fall.
Um but it is, my sincere hope. The mayor is backing off his
ideological bent that somehow cuts her evil.
Or finding efficiencies is wrong. Um, that's where the
conversation needs to start and, and chairman I'm finished.
But yeah, chairman you know what? Though taxpayers have had
it with this nonsense. They've had it with all this
rhetoric, all right? Give us some show us the money and
then we'll make it work. Show us the cuts and efficiencies
first and then we can talk about Revenue Solutions. Thank
you, madam chair. That's a fair point. Thank You, chairman,
let's move on, uh, Alderman. VA uh Basquez
Thank you, madam chair, vagus, no worries. Um,
I I definitely am 1 of the folks. That is glad that um, I
already wrapped up, but not because he doesn't have valid
points. It's because I get re-traumatized being reminded of
what this process was last year, as somebody who also
didn't support this budget.
Um, I'm glad that we're on this slide because there's a
number of things that I have questions related to because I
feel that when I'm looking at right now is a bit of a
revisionist history,
Um, that I have a problem with. So I guess I'll start
asking the 80% structural on the October 30th.
Was that some of the other um increased revenues that
weren't property tax ultimately landed on the budget,
right? They were increases to different fees. Is that
what's included as part of the 80%? It includes both the
expenditure reductions, as well as the revenue increases
that were proposed by the mayor. Okay? The largest of which
on the revenue side was the property tax. Yes. Yeah. That
like, I just want to Clarity on that. Um, I think
Where I've got challenges is.
Twofold because I found myself kind of in the middle of
both parts of the argument. So, for example, we have
colleagues that present this idea that they presented cuts
That's not what I recall at all. They presented ultimatums
where they said, I want you to spend this amount compared
to this year, or this amount compared to they did not
actually propose efficiencies. They did not put details as
to what they would cut to do so. And I think that for some
of us was a bit of a tense moment as well, because we were
waiting to see what those efficiencies would have been to
find out what we're willing to support and we waited for
them to give us actual efficiencies and that's not what
they presented. They presented an ultimatum, there's a
difference there. And then when I talked to our colleagues
and said, hey you guys said you were had efficiencies?
Where are they? The answer I received back from a colleague
was, we don't really have the resources to come up with the
efficiency and figure it out, which is a fair answer
because we, as a body don't have the tools that we need to
actually provide the efficiencies and solve the problem.
And so I think
It's tense being in the middle of that knowing that we
weren't able to really have efficiencies provided. But on
the revenue side we also didn't engage at all in the
process as far as what revenues were. In fact we just got
something presented to us maybe a week before that October
30th and that's where we found out about a hundred million
dollar property tax without much engagement and without
figuring it out. So
here's my next question.
When did you thank you Alderman Vasquez? Because I feel
that we're getting off topic a little bit, uh, because of
this hearing was on.
The credit, sure no and and thank you for that because the
reason we got downgraded I don't believe as anything to do
with data. It's because we all are functional as a city
government with a process that works. We get somebody
presenting us something in October 30th for a vote at the
end of the year and then when we don't get actually the the
ability to work on it and vote on it down, or vote it down.
Then you end up with a product that doesn't make sense when
we were in the first year and we are this term and we said
don't remove the CPI and they removed it, that was the
administration deciding to do that. We're here. Now being
downgraded because that structural fund was not there when
we talk about efficiencies, we weren't being part part of
it. So you're right.
It's about the downgrade but the downgrade isn't because
somebody borrowed some money. It's because we don't have a
functional process. And so that's why I'm asking the
questions, all the other fees that ended up replacing the
fact that there weren't property taxes, right? When were
those presented to the city council as a body?
after the 300 was voted down or
Um, that's what I'm asking. Was it after the 300 was voted
down or before it was after because, um, at, you know,
the 300 million was, um, reflected as, you know, a c Gap
closing structural change once that was, um, uh, voted
down. We we you were in the meetings, we had meetings with
the number of olders, uh, to try to resolve both what are
some additional cuts and what were some additional Revenue
options that that you had. And and, you know, I want to
thank you uh, for the work that you've been doing to shift
the the process, right? Um we we have way more
transparency, we have way more engagement. Um it's 1, 1 of
the reasons why we have monthly meetings now we have
Financial briefings. Yeah. And I think that that will
actually lend to and we've talked to credit rating agencies
about that as well. The the fact that we have policies in
place, the fact that we're going to be briefing city
council, more the fact that we're actually asking you now,
early on in the process, what are your ideas? I hope will
lead to to. So, at least a little bit more consensus around
the budget. Yeah, I mean, and, and that's the goal for
trying to get the change. I think?
I feel similar to what ottoman Riley presented is when you
look at that slide and it's like city council, did the
thing, it's not the memory I have because no 1 even
listened to any other ideas, we had about Revenue up until
the point that we voted down the million dollar property
tax and that speaks to the inability for both. Co-equal
branches to actually have those conversations. And so,
where it looks like, hey, we voted the thing down and so
choices were made, it was never a process. For example,
what's not on here is how it went from 300 million to 150
million, without full engagement. It was the administration
deciding to cut that in half and then to go to 68 million
and then go to zero. So, at some point you had zero Revenue
coming in and everything else. Became worse off, we could
have paid off, I think it was uh, forty million dollars for
Michael Reese and decided to take that money to continue to
get the property taxes zero and it's just irresponsible. So
when our colleagues talk about cut, cut, cut cut, it's
absolutely real. That we have to look at efficiencies to
figure out how to get government tighter but there's a
reality that costs go up.
Up and revenues necessary to do so which is why CPI made
sense. So I just
the reason why I'm harping on it and I'll wrap up shortly is
if we keep having this conversation about city council, did
the administration the administration did the city council
and we're not engaging in the way that we want to happen,
which is why we want the data, which is why we want the
media reports at the end of July 30th, which is why we're
having the hearing in September is without a functional
process. It doesn't matter what you end up with at the end
of the year, the public doesn't have confidence in the
process and we'll get the downgrades because it's not about
borrowing, it's about the fact that we don't look like a
adults out here. And so I think we can get better. I advise
our colleagues who just want to be reactionary to actually
attend, do the homework, get the data because without it
you're just going to be frustrated by the end of the year
and we're going to replicate this and it's not going to
help. Thank you very much cheer from that point. I agree
with you. You have a moment and don't worry, you're going
to get lots of data.
Almond vagus.
Thank you, madam chair. You know, I should have, uh, posed
this question during a point of information because I just
wanted to get clarification on something. So, you know,
Brendan you you like
um,
said.
Firmly that Chicago does not use any bond funds for
operations.
and I just want to get clarification on that because
the Enterprise funds that we use do we not pay for
employees out of that. Those funds, the Enterprise funds.
Yeah, but those are revenues that we received either from,
um, the airlines. So if we're talking about Midway, uh,
O'Hare, it's, it's Revenue that we receive from Airlines
from their concessions from parking revenue and things like
that. Um, the bonds that they issue, um, go towards Capital
infrastructure. Um, the water fund sewer fund. Also, those
are revenues that we receive from a, a combination of
things. Uh, but largely, uh, the Water, um, uh, the Water
revenue from customers. So, yeah, we do not. We do not use
bond funds to pay for operations, at any of the Enterprise
funds.
Okay, so I just want to make sure I'm clear. So
the water bonds that we that we sell, go for the actual
infrastructure, the revenue that we generate in order to
sell the water, is what actually pays for the people. Is
that accurate? That's right. Yeah, so the the water bills
uh that people pay uh those are the water system revenues
revenues that come in, as well as the water bills that all
Suburban customers pay. Um, that constitutes the water
system revenues, which pay the water system revenues pay
for the full operations of the water system. Um, and they
also use to pay back The Debt Service. The bonds are used
to fund infrastructure, uh primary use uh for the water
bonds is
The water main replacement program. Um, other uses are the
public side for lead service line replacement, um, for uh,
investments into our water plants. Um, uh, you know, those
are significant, uh, Capital Investments, uh, but
operations Personnel. Um, those kind of costs are not paid
for through bonds.
and, and it's
You grabbed the mic so just curious. Oh, yeah, I was just
going to say that, uh,
I don't know, chat GPD is not a terribly, reliable source of
information, but, um, you gave me a correlation, it gave me
a correlated uh, uh, articles as well. So, I mean, I'm not
gonna, I'm not gonna sit here and say it's 100% but it gave
me something. Uh, but as Jill also mentioned every time we
file, every time we issue, bonds, we place a communication
on file with this body. Uh, you can see it on the, the city
clerk's website, um, But it includes a tax certificate. So
whenever we're issuing taxes implementable bonds, we have
to fill out a form that we file with the federal government
that is included in the tax certificate that says there's
like a little box where it's like this much is for projects
this much is for operations and it you can see that it's
that it's not for operations and when you pull up a list of
the what the water bonds fund, it will say water main
water, main water main Jardin plant, uh, Sawyer plant.
plant. It'll give you like infrastructure and useful lives.
Um, and not the but the operating budget includes.
Is the Personnel. Gotcha. Okay. Thank you. Thank you for
that and then I I would be remiss if I didn't think all of
the the presenters here as well from taking time out of
your schedules. To talk about an exciting topic of uh
credit rating for the city of Chicago. Thank you. Madam
chair.
Thank you, Alderman. Viegas Alderman, Ervin.
Think about the chair. Uh this is definitely been uh
informative as relates to our um ratings and and how we got
here. Ultimately um, what I'm what I'm hearing and correct
me if I'm wrong is that we ultimately need to find
structural structural solutions to our budgetary process
and also find a
I won't I'll call it a better answer for for pensions are
those seemingly the 2 major components that are driving our
ratings?
And I don't want to ask this question, is there a way and
you all as professional opinion that we get to high level,
you know? Uh, AA I thought I was a A+ or a A+ uh, what is
the path and how long is it going to take us to get there?
Uh, based on some of the things that you all are laying
out? How do we get to that top tier level? Where our
borrowing costs become less, our creditworthiness uh
increases? What do we need to do to get there?
I'll I'll let Jill. Um, answer. The how do we get to the
high level? Um uh investment grade uh ratings. I'll say
that you're correct in your summation of what you're
hearing today and I think what we're trying to communicate,
uh, that we heard from rating agencies, and I just want to
be really clear. We're just trying to provide you, the
information. You guys obviously have to make very difficult
difficult choices when it comes to budgeting. But, um, what
hearing is, you know, structural Solutions will help the
help the city of Chicago, um, you know, rain in its ability
back its long term obligations. Uh, whether that be
pensions, whether that be debt, um, we do have mandates
that are outside of your control as it relates to pensions,
um, the state placed requirements on all municipalities as
it relates to their pension obligations. Um, and uh, uh,
someone mentioned Springfield earlier, um, they're still
debating pension um bills.
that would continue to put even larger obligations on the
city of Chicago, as well as other municipalities so. Um,
yes, we need to think through our structural obligations.
Um, we will not be able to cut our way out of our
structural, uh, um, imbalance, um, alone. It will, it's not
it it's not the only thing that we, uh, have to employ in
order to deal with our structural balance, but Jill.
Um, the biggest challenge that we have, you know, outside of
sort of the immediate downgrades of, you know, dealing with
the structural balance in our budget, which is what you
know, causes downgrades, you know, recently is the pension
liability and that is what has kept us in this Triple B to
low a category, uh, for a long time. And really will
continue to keep us there until we get closer to the point
when we are near to that 90% amortization level. So at this
point when we um, you know, are 24% funded on our pensions
and we have, you know, 40 plus billion dollars in
actuarially acred liability. We are not close to being able
to get to that high a category. Um I imagine at over time,
when we take to better numbers,
Meaning get to over 50% funded, those kind of things. Those
are going to be Milestones, they're going to help us along
the way towards getting to a higher rating. I think, until
we get to that level, we are going to be constrained within
a range. Um and certainly we want to be at that higher end
of the range but with the amount of you know, pension
liability, I don't see us being into high a category until
we have much better funding status.
Let me ask you this question. Uh, what are your take? What
is your? Take on pitching obligation bonds.
So, uh, pension obligation bonds, um,
are uh, a a tool that you use 1 form of debt, to pay
another form of debt down. And if it's done properly in the
right interest rate environment, and most importantly in
the right environment for investing those funds, it could
reduce some of the liability in the aggregate. Um, they
carry risks though, because if they're done in the wrong
interest, rate environment, or if they're done at a time
when, uh, for instance, uh, you know, there's a, there
would be a stock market, uh, significant stock market
decline soon. After the money was invested, then you could
end up having it cost you more than if you had never done
anything. So, um, when we think about pension obligation
bonds, um, 1 we want to be in a position where the
borrowing rate on a taxable bond is lower than what we
expect. Uh, the investment rate is so, you know, right now,
6 and 3/4% is the discount rate for All 4 of the city's
Pension funds. We would certainly
Certainly want to be borrowing less than that which in
today's market environment. Um I don't think we could do um
um, taxable rates, you know, have gone up significantly. Um
uh as has the entire Market, you know, as was discussed
earlier. Um, you know, primarily due to uh inflationary
concerns.
Um, so if that, uh, Trend changes uh, that opportunity may
come back, but the other big part is you never want to
invest.
Do a pension obligation on invest that money when you are
sort of at a high level in the equities Market. Uh, because
any near-term decline would, uh, be devastating in the long
term. So, uh, there's a, uh, the sort of best time would be
when interest rates are low and we are in a recession
Frankly, uh, and and, uh, Equity level Equity, prices are
lower. That would be the ideal time to issue. Pension
obligation bonds, would have the highest chance of
resulting in a significant reduction in our total
liabilities.
Okay. No, that's that's a fair first statement. Uh, again
uh, thank you all for for your time. And again, uh, I know
this is a, uh, we'll be faced some fairly challenging
decisions, uh, in a couple of months. Uh, however, I think
the conversation and the information that's being
presented, I, I think is helpful for making, I'll call them
rational decisions. I think some folks, may not want to
make rational decisions, but I think we have to have the
information so we can make rational decisions, um, as a
body and Preserve.
Uh, reserve the city and uh and again, keep us stable and
moving forward for the next hundred years. So thank you,
madam chair. Uh, thank you. I wanted to add on to uh the
question that you asked which is that? I think as Alderman
we have to focus on um or refocus our greater focus on
growing the population within our, within our communities,
and within our Wards to, um, promote business and other
Revenue, producing activities that are going to bring more
money into the city. Um, and that means removing a lot of
the barriers.
For the business Community to be able to thrive and to get
more housing produced in this city. Um, I think that's 1 of
the elements of what gets us to a higher. Um,
Bond rating or credit rating. Um, I want to thank uh
Stewart Lauren Todd waldruff and Clarence born for spending
the morning and some of the afternoon with us uh to discuss
this topic. And I also want to thank uh our CFO Jill
Jaworski. Um,
You know, I know your name, Brendan White from the finance
department uh the bond expert and our budget director.
And that Guzman want to thank you all for being here. And,
uh, we will have more conversations on this topic and there
being no further business before the committee on finance,
can I get a motion to adjourn? So, moved by Alderman
Quezada, all those in favor. Signify by saying I oppose and
the opinion of the chair, the eyes have it, and the meeting