Department of Finance
CITY OF CHICAGO
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CO
en .via
July 21, 2015
Susana Mendoza City Clerk
121 North LaSalle Street, Room 107 Chicago, Illinois 60602
RE: City of Chicago, Illinois, $345,530,000 General Obligation Bonds Series 2015A (the "Series 2015A Bonds") and $742,860,000 General Obligation Bonds Taxable Series 2015B (the "Taxable Series 2015B Bonds")
Dear Ms. Mendoza,
Attached is the Notification of Sale which is required to be filed with your office pursuant to Section 12 ofthe ordinance authorizing the issuance ofthe Series 2015A Bonds and the Taxable Series 2015B Bonds, which was passed by the City Council on June 17, 2015.
Chief Financial Officer
121 NOH'I'H LASALLli STREET. SUITE 700. CHICAGO. ILLINOIS 60602
State of Illinois )
)ss
County of Cook )
Notification of Sale
$345^30,000 General Obligation Bonds, Series 2015A
$742,860,000
General Obligation Bonds, Taxable Series 2015B
Being Issued by the City of Chicago
To: The City Council ofthe City of Chicago
Please be advised that responsive to authority contained in an Ordinance (the "Ordinance") adopted by the City Council (the "City Council") of the City of Chicago (the "City") on June 17, 2015, authorizing the issuance of up to $1,100,000,000 aggregate principal amount of general obligation bonds of the City, plus original issue discount, a Bond Purchase Agreement dated July 16, 2015 (the "Series 2015A Bond Purchase Agreement"), providing for the sale of $345,530,000 aggregate principal amount of General Obligation Bonds, Series 2015A (the "Series 2015A Bonds"), and a Bond Purchase Agreement dated July 15,2015 (the "Taxable Series 2015B Bond Purchase Agreement" and, together with the Series 2015A Bond Purchase Agreement, the "Bond Purchase Agreements") providing for the sale of $742,860,000 aggregate principal amount of General Obligation Bonds, Taxable Series 2015B (the "Taxable Series 20I5B Bonds" and together with the Series 2015A Bonds, the "Bonds"), each were entered into by me as the Chief Financial Officer of the City, with the concurrence of the Chairman of the Committee on Finance of the City Council of the City, and the purchasers thereof named below (the "Underwriters"). The Bonds of each series are being issued pursuant to the terms of a separate trust indenture, each dated as of July 1,2015 (each an "Indenture" and collectively the "Indentures"), by and between the City and Zions First National Bank, Chicago, Illinois, as Trustee, Bond Registrar and Paying Agent for the Bonds (the "Trustee").
The Series 20I5A Bonds were sold at a purchase price of $338,783,430.15 (representing the aggregate principal amount of the Series 2015A Bonds less net original issue discount of $4,570,044.25, and less an underwriters1 discount of $2,176,525.60); and the Taxable Series 20I5B Bonds were sold at the purchase price of $726,784,205.13 (representing the aggregate principal amount of the Taxable Series 2015B Bonds less an original issue discount of $11,396,932.85 and less an underwriters' discount of $4,678,862.02). The aggregate purchase price for the Bonds is equal to S1,065,567,635.28 (which represents the aggregate principal amount of the Bonds less net original issue discount of $15,966,977.10, and less an aggregate underwriters' discount of $6,855,387.62). The Underwriters for the Bonds are Morgan Stanley & Co. LLC. Siebert Brandford Shank & Co., L.L.C., William Blair & Company, Academy Securities, Inc BMO Capital Markets GKST, Inc., Citigroup Global Markets, Inc., Estrada
381291601 05 doe 2230746
Hinojosa & Company, Inc., George K. Baum & Company, J.J.B. Hilliard, W.L. Lyons, LLC, Melvin & Company, and North South Capital LLC. The compensation (including all fees) of $6,855,387.62 being paid to the Underwriters in connection with the sale of the Bonds represents less than 5% of the aggregate principal amount ofthe Bonds.
Capitalized terms used herein without definition shall have the meanings assigned to such terms in the Ordinance.
The proceeds of the Series 2015A Bonds will be used to provide funds for the purpose of paying (i) costs of the Series 2015A Debt Management Project (as defined below), (ii) certain interest to become due on the Series 2015A Bonds, and (iii) expenses of issuance of the Series 2015A Bonds (including the Underwriters' discount). "Series 2015A Debt Management Project" means (i) the payment of costs of the Debt Management Purposes described in Schedule IC attached hereto and (ii) any other expenditure of proceeds of the Series 2015A Bonds authorized by the City Council after the date of execution and delivery of the Indenture related to the issuance of the Series 2015A Bonds.
The proceeds of the Taxable Series 2015B Bonds will be used to provide funds for the purpose of paying (i) costs of the Series 2015B Debt Management Project (as defined below), (ii) certain interest to become due on the Taxable Series 2015B Bonds and (iii) expenses of issuance of the Taxable Series 2015B Bonds (including the Underwriters' discount). "Series 2015B Debt Management Project" means (i) the payment of costs of the Debt Management Purposes described in Schedule ID attached hereto and (ii) any other expenditure of proceeds of the Taxable Series 2015B Bonds authorized by the City Council after the date of execution and delivery ofthe Indenture related to the issuance of the Series Taxable 2015B Bonds.
Attached hereto as Exhibits 1 through 5, respectively, are executed copies of the Series 2015A Bond Purchase Agreement, the Taxable Series 2015B Bond Purchase Agreement, the Official Statement dated July 16, 2015, the Indenture pursuant to which the Series 2015A Bonds are being issued, and the Indenture pursuant to which the Taxable Series 2015B Bonds are being issued.
Pursuant to Section 12 of the Ordinance, the undersigned hereby makes the following determinations: (a) the principal amount of the Bonds is $1,088,390,000 and the designation of the Bonds and principal amount of the Series 2015A Bonds and the Taxable Series 20I5B Bonds are set forth in the first paragraph hereof, (b) the Series 20I5A Bonds are issued as Current Interest Bonds in denominations of $5,000 or any integral multiple thereof, the Taxable Series 2015B Bonds are issued as Current Interest Bonds in denominations of $1,000 and integral multiples thereof, and none of the Bonds are sold as Direct Purchase Bonds, Capital Appreciation Bonds or Convertible Bonds, (c) the Bonds mature and are subject to redemption as set forth in Schedules IA and IB attached hereto, (d) the principal amounts and interest rates on the Current Interest Bonds are set forth in Schedules IA and IB attached hereto, (e) a description ofthe Series 2015A Debt Management Project, including (i) an identification ofthe Outstanding Line and CP Indebtedness to be paid or refunded with proceeds of the Series 2015A Bonds and the date on and price at which such Outstanding Line and CP Indebtedness shall be paid or refunded, (ii) a description of the Financing Transaction Undertakings to be financed with the
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proceeds of the Series 2015A Bonds, and (iii) an identification of any funds of the City to which reimbursement is made with proceeds of the Series 2015A Bonds and the amounts of such reimbursements, is set forth in Schedule IC attached hereto, (f) a description of the Series 2015B Debt Management Project, including (i) an identification of the Outstanding Line and CP Indebtedness to be paid or refunded with proceeds of the Taxable Series 2015B Bonds and the date on and price at which such Outstanding Line and CP Indebtedness shall be paid or refunded, (ii) a description of the Financing Transaction Undertakings to be financed with the proceeds of the Taxable Series 2015B Bonds, and (iii) an identification of any funds of the City to which reimbursement is made with proceeds of the Taxable Series 2015B Bonds and the amounts of such reimbursements, is set forth in Schedule ID attached hereto, (g) the Underwriters of the Bonds and the compensation paid thereto are as set forth above, and such compensation does not exceed five percent of the principal amount of the Bonds, (h) the Bonds are issued in book-entry form; the book entry depository is The Depository Trust Company, (i) the sale price of the Bonds is as set forth in the second paragraph of this Notification of Sale, and such price with respect to each series of the Bonds is not less than 85 percent of the principal amount of such series of the Bonds, and (j) the Trustee shall serve as Bond Registrar for each series of the Bonds pursuant to the Indentures.
Pursuant to Section 7 of the Bond Ordinance, the amount of taxes to be levied for the Bonds in each year will be less than the levy of taxes specified in Section 7 of the Bond Ordinance and I have determined, pursuant to the Ordinance, to abate the excess levy of taxes not necessary for the purpose of payment of the principal of and interest on the Bonds, as specified, together with the annual tax levy requirements for the payment of the principal and interest on the Bonds, in the Notification of Tax Abatement filed concurrently with the City Clerk, a copy of which is attached hereto as Schedule II.
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|Signati;rf Pag f. to Notifica i ion oi- SaleI
Exhibit 1
Series 2015A Bond Purchase Agreement
Bond Purchase Agreement
$345,530,000 CITY OF CHICAGO GENERAL OBLIGATION BONDS, SERIES 2015A
City of Chicago
July 16,2015
Ladies and Gentlemen:
The undersigned, Morgan Stanley & Co. LLC (the "Representative"), on behalf of itself and the other underwriters listed below (collectively, the "Underwriters"), hereby offers to enter into this Bond Purchase Agreement (the "Agreement") with the City of Chicago (the "City"), for the purchase by the Underwriters, and sale by the City, of all but not less than all ofthe City's General Obligation Bonds, Series 2015A (the "Series 2015A Bonds"). This offer is made subject to the acceptance by the City, evidenced by the signature of a duly authorized officer of the City in the space provided below, on or before 5:00 P.M., Chicago time on the date hereof, and upon such acceptance this Agreement shall be in full force and effect in accordance with its terms and shall be binding on the City and the Underwriters.
The Representative is authorized, and hereby represents and warrants that it is authorized, to act as Representative of the Underwriters and to execute this Agreement and has full authority to take such action as it may deem advisable with respect to all matters pertaining to this Agreement. Each Underwriter hereby severally represents to the City that it is registered and in good standing under the Securities Exchange Act of 1934, as amended (the "1934 Act"), as a municipal securities dealer.
The primary role of the Underwriters is to purchase the Series 2015A Bonds, for resale to investors, in an arm's-length commercial transaction between the City and the Underwriters. The Underwriters have financial and other interests that differ from those of the City.
Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Preliminary Official Statement, as defined herein.
1. Agreement to Sell and Purchase.
(a) Upon the terms and conditions and based upon the representations, warranties and covenants herein set forth, the Underwriters, jointly and severally, hereby agree to purchase from the City and the City hereby agrees to sell to the Underwriters the Series 2015 A
Bonds at a price equal to $338,783,430.15 (which represents the aggregate principal amount of the Series 2015A Bonds less an Underwriters' discount of $2,176,525.60 and less a net original issue discount of $4,570,044.25).
It shall be a condition to the City's obligation to sell and deliver the Series 2015A Bonds that all the Series 2015A Bonds be purchased and paid for by the Underwriters at the Closing (as defined in Section 7 hereof) and a condition to the Underwriters' obligation to purchase and pay for the Series 2015A Bonds that all Series 2015A Bonds be issued, sold and delivered by the City at the Closing.
The City and the Underwriters did execute on July 15, 2015, an agreement (the "Series 2015B Bond Purchase Agreement") with respect to the sale and delivery by the City and the purchase by the Underwriters ofthe General Obligation Bonds, Taxable Series 2015B ofthe City (the "Series 2015B Bonds" and, together with the Series 2015A Bonds, the "Bonds").
Bond Authorization. The Series 2015A Bonds are authorized by an ordinance ofthe City adopted by the City Council of the City (the "City Council") on June 17,2015 (the "Ordinance"), and the Series 2015A Bonds will be issued pursuant to and secured by a Trust Indenture dated as of July 1, 2015 (the "Trust Indenture"), between the City and Zions First National Bank, as Trustee, Bond Registrar and Paying Agent for the Series 2015A Bonds (the "Trustee"). The Series 2015A Bonds will mature, bear interest and have such other terms and conditions as are set forth on Schedule I hereto.
The Preliminary Official Statement. Attached hereto as Exhibit A is a copy of the Preliminary Official Statement of the City, dated July 8, 2015, relating to the Series 2015 A Bonds (the "Preliminary Official Statement"). For purposes of Rule 15c2-12 ("Rule 15c2-12") adopted by the Securities and Exchange Commission (the "SEC") under the 1934 Act, the Preliminary Official Statement is "deemed final" by the City with respect to the Series 2015A Bonds as of its date except for the omission of such information as is permitted by Rule 15c2-12(b)(1).
Public Offering Price. The Underwriters have agreed to make a bona fide public offering of the Series 2015A Bonds at the initial offering prices set forth on Schedule I. The Representative will provide the City and Co-Bond Counsel (as defined herein) with a closing certificate confirming the reoffering yields and prices of the Series 2015A Bonds and the Underwriters acknowledge that the City and Co-Bond Counsel will rely on such certificate and that such reliance is material to the City in entering into this Agreement and in connection with the delivery of the Series 2015 A Bonds.
The Official Statement.
(a) The City shall provide, or cause to be provided, at its expense, to the Underwriters no later than the earlier of (i) seven (7) business days after the date of this Agreement or (ii) one (1) day prior to the Closing, three copies of the Official Statement of the City relating to the Bonds (the "Official Statement"), signed on behalf ofthe City by the Chief Financial Officer and the Official Statement so delivered shall be "final" for purposes
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of Rule 15c2-12. Such delivery ofthe Official Statement shall occur in sufficient time to accompany any confirmation that requests payment from any customer and in sufficient quantity to comply with the rules of the SEC and the Municipal Securities Rulemaking Board (the "MSRB").
If on or prior to the Closing or within twenty-five (25) days after the "end of the underwriting period" (as hereinafter defined) any event known to the City relating to or affecting the City, the Ordinance or the Series 2015 A Bonds, shall occur which would cause any statement of a material fact contained in the Official Statement to be materially incorrect or materially incomplete, the City will promptly notify the Representative in writing ofthe circumstances and details of such event. If, as a result of such event, it is necessary, in the joint opinion of the City and the Representative to amend or supplement the Official Statement by stating or restating any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading, the City will forthwith prepare and furnish to the Underwriters a reasonable number of copies of an amendment of or a supplement to such Official Statement in form and substance satisfactory to the City and the Representative, at the City's sole cost and expense, which will so amend or supplement such Official Statement so that, as amended or supplemented, the Official Statement will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. For purposes of this Agreement, the term "end of the underwriting period" shall mean the later of the date of Closing or the date on which an Underwriter no longer retains an unsold balance of the Series 2015A Bonds for sale to the public. The Underwriters agree that the date on which the end ofthe underwriting period shall occur shall be the date of the Closing, unless the Underwriters otherwise notify the City in writing prior to twenty-five (25) days after the date of the Closing that, to the best of their knowledge, the Underwriters retain for sale to the public an unsold balance of the Series 2015A Bonds, in which case the end of the underwriting period shall be extended for additional periods of thirty (30) days each upon receipt of additional written notification from the Underwriters that, to the best of their knowledge, there exists an unsold balance of the Series 2015A Bonds, but in no event shall the end ofthe underwriting period be extended longer than sixty (60) days after the date of Closing.
The Official Statement shall be provided for distribution, at the expense of the City, in such quantity as may be requested by the Underwriters as set forth above in order to permit the Underwriters to comply with Rule 15c2-12, and the applicable rules of the MSRB, with respect to distribution of the Official Statement. The City shall prepare the Official Statement, including any amendments thereto, in word-searchable PDF format as described in the MSRB Rule G-32 and shall provide the electronic copy of the word-searchable PDF format of the Official Statement to the Underwriters no later than one (1) business day prior to July 21, 2015, to enable the Underwriters to comply with MSRB Rule G-32.
At or prior to the Closing, the Representative shall file, or cause to be filed, the Official Statement with the MSRB in compliance with the rules of the SEC and the MSRB. Promptly after the date after which the Underwriters are no longer obligated under Rule 15c2-12(b)(4) to deliver to potential customers the Official Statement, the Representative shall
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notify the City of such date.
6. Representations, Warranties and Covenants of the City. The City represents and warrants to the Underwriters as of the date hereof that:
The City is a municipal corporation and home rule unit of local government, existing under the Constitution and laws of the State of Illinois (the "State").
The City Council has: (i) duly adopted the Ordinance, which remains in full force and effect; (ii) duly approved the execution and delivery of the Trust Indenture; (iii) duly authorized the use of the Preliminary Official Statement prior to the date hereof in connection with the public offering and sale of the Bonds and duly authorized the execution, delivery and distribution of the Official Statement in connection with the public offering and sale of the Bonds; and (iv) duly authorized and approved the execution and delivery of the Series 2015A Bonds, this Agreement and a continuing disclosure undertaking pursuant to the provisions of Section (b)(5) of Rule 15c2-12 (the "Undertaking").
With the exception of the disclosure described in the Preliminary Official Statement in the section titled "SECONDARY MARKET DISCLOSURE - Corrective Action Related to Certain Bond Disclosure Requirements", the City has not failed during the previous five years to comply in all material respects with any previous undertakings in a written continuing disclosure contract or agreement under Rule 15c2-l 2.
The City has full legal right, power and authority to: (i) adopt the Ordinance; (ii) execute and deliver this Agreement, the Trust Indenture, the Undertaking and the Official Statement; (iii) issue, sell and deliver the Series 2015A Bonds to the Underwriters pursuant to the Ordinance and the Trust Indenture and as provided in this Agreement; and (iv) pay for the Series 2015A Bonds from the sources pledged under the Ordinance and the Trust Indenture for their payment.
The adoption of the Ordinance and compliance with the provisions thereof do not, and the execution and delivery of this Agreement, the Trust Indenture, the Undertaking and the Official Statement will not, in any material manner, violate any applicable law or administrative regulation of the State or any department, division, agency or instrumentality thereof or of the United States of America (the "United States") or of any department, division, agency or instrumentality thereof, or any applicable judgment or decree to which the City is subject, or conflict with, in a material manner, or constitute a material breach of, or a material default under, any ordinance, agreement or other instrument to which the City is a party or is otherwise bound.
All approvals, consents and orders of, and filings (except, if any, under applicable state "blue sky" laws) with, any governmental authority, board, agency or commission having jurisdiction which would constitute a condition precedent to the performance by the City of its obligations under this Agreement, the Undertaking, the Ordinance, the Trust Indenture, and the Series 2015A Bonds have been obtained or made.
The financial statements of the City contained in the Official Statement fairly present the financial position and results of operations of the City as of the date and for the
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periods therein set forth and the City has no reason to believe that such financial statements have not been prepared in accordance with generally accepted accounting principles as applied to governmental units, consistently applied except as otherwise noted therein.
(h) The Official Statement (excluding any description of The Depository Trust
Company ("DTC"), information under the captions "THE BONDS - Book-Entry System,"
"RATINGS," "UNDERWRITING," "TAX MATTERS," APPENDIX A — "SUMMARY
OF THE INDENTURES", APPENDIX B — "ECONOMIC AND DEMOGRAPHIC
INFORMATION (with respect to the information under the headings "— Economy," "—
Percentage of Total Non-Farm Employment by Major Industry Sector" and "and "—
Housing Market," and information relating to population, per capita personal income and
employment, and unemployment rate with respect to the United States, the State of Illinois,
Cook County and the Chicago MSA), Tables 1-10 included in APPENDIX E —
"RETIREMENT FUNDS," APPENDIX F — "OPINIONS OF CO-BOND COUNSEL,"
and information furnished by the Underwriters for use in the Official Statement) as of its
date does not, and at the Closing will not, contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading in any material respect.
(i) Information in the Third Party Sourced Retirement Fund Tables is sourced
from documents published by the Retirement Funds and the City takes no responsibility
for the accuracy and completeness of such information; however, nothing has come to the
attention of the City which would lead the City to believe that the Third Party Sourced
Retirement Fund Tables are not true and correct in all material respects;
(j) The Ordinance, the Trust Indenture, this Agreement, and the Undertaking, when duly executed and delivered by the parties thereto, as appropriate, will constitute legal, valid and binding obligations ofthe City enforceable in accordance with their terms (except to the extent that enforceability may be limited by bankruptcy, insolvency and other laws affecting creditors' rights or remedies and the availability of equitable remedies generally).
(k) When delivered to the Representative, and paid for by the Underwriters at the Closing in accordance with the provisions of this Agreement, the Series 2015 A Bonds will be duly authorized, executed and delivered and will constitute legal, valid and binding obligations of the City enforceable in accordance with their terms (except to the extent that enforceability may be limited by bankruptcy, insolvency and other laws affecting creditors' rights or remedies and the availability of equitable remedies generally).
(1) Except as disclosed in the Official Statement, there is no action, suit or proceeding, at law or in equity, or before or by a court, public board or body, pending or, to the City's knowledge, threatened, against the City wherein an unfavorable decision, ruling or finding would materially adversely affect (i) the validity or enforceability of the Series 2015 A Bonds, the Ordinance, the Trust Indenture, this Agreement, or the Undertaking or (ii) the excludability from federal income taxation of the interest on the Series 2015 A Bonds under the Internal Revenue Code of 1986, as amended (the "Code").
(m) The City has not taken, or omitted taking, and will not take or omit to take,
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any action, which action or omission would adversely affect the excludability from federal income taxation of the interest on the Series 2015 A Bonds under the Code.
(n) Any certificate signed by any Authorized Officer of the City and delivered to the Representative at the Closing in connection with the issuance or sale ofthe Series 2015 A Bonds shall be deemed to be a representation and warranty by the City to the Underwriters as to the statements made therein as of the date so delivered.
(o) The City will make available such information, execute such instruments and take such other action in cooperation with the Underwriters as the Representative may reasonably request to qualify the Series 2015A Bonds for offering and sale under the "blue sky" or other securities laws and regulations of such states and other jurisdictions ofthe United States as the Underwriters may designate in writing; provided, however, that nothing in this Section 6(o) shall require the City to consent to general service of process in any state or jurisdiction other than the State.
(p) The City will apply the proceeds of the Series 2015A Bonds in accordance with the Ordinance and the Trust Indenture.
(q) The City acknowledges and agrees that: (i) the transaction contemplated by this Agreement is an ami's length, commercial transaction between the City and the Underwriters in which the Underwriters are acting solely as a principal and not acting as a municipal advisor, financial advisor or fiduciary to the City; (ii) the Underwriters have not assumed any advisory or fiduciary responsibility to the City with respect to the transaction contemplated hereby and the discussions, undertakings and procedures leading thereto (irrespective of whether any Underwriter has provided other services or is currently providing other services to the City on other matters); (iii) the Underwriters have financial and other interests that differ from those of the City; and (iv) the City has consulted its own legal, account, tax, financial and other advisors, as applicable, to the extent it has deemed appropriate.
7. Closing. Subject to the conditions set forth in this Agreement, the closing (the "Closing") ofthe sale of the Series 2015A Bonds by the City and the purchase of the Series 2015A Bonds by the Underwriters, shall take place at approximately 9:00 a.m., Chicago time, on July 21,2015, at the offices of Chapman and Cutler LLP, 111 W. Monroe Street, Chicago, Illinois (or at such other time, date and place as the City and the Representative mutually agree).
At the Closing, the City shall deliver or cause to be delivered to DTC, as securities depository, for the account of the Underwriters one fully registered certificate for each, interest rate and maturity of the Series 2015A Bonds in the aggregate principal amount thereof, registered in the name of Cede & Co., as nominee for DTC.
Upon delivery of the Series 2015 A Bonds to the Representative at the Closing, the City will deliver to the Representative the closing documents as set forth in Section 10 hereof.
(c) The Representative will accept delivery of the Series 2015A Bonds and pay
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the purchase price therefor at the Closing by delivering federal funds checks or making federal funds wire transfers or otherwise confirming deposits of same day funds, as the City shall direct, to the City's account at a bank specified by the City, in an aggregate amount equal to the purchase price of the Series 2015 A Bonds pursuant to Section 1 hereof.
Reliance and Further Conditions ofthe Underwriters. The Underwriters have entered into this Agreement in reliance upon the representations, warranties and agreements ofthe City herein and the performance by the City of its obligations hereunder, both as of the date hereof and as of the date of the Closing. The Underwriters' obligations under this Agreement are and shall be subject to the following further condition that at the time of the Closing, the Ordinance, the Trust Indenture, the Undertaking, and this Agreement shall be in full force and effect and the Ordinance and the Official Statement shall not have been amended, modified or supplemented except as may have been agreed to with respect to the Official Statement pursuant to Section 5 hereof, and the City shall have duly adopted and there shall be in full force and effect such ordinances as, in the opinion of Chapman and Cutler LLP, Chicago, Illinois, and Hardwick Law Firm, Chicago, Illinois, as co-bond counsel ("Co-Bond Counsel") shall be necessary in connection with the transactions contemplated hereby and thereby.
Termination of Agreement.
(a) The Underwriters shall have the right to cancel their obligations to purchase the Series 2015A Bonds and have the further right to terminate this Agreement, without liability therefor, by written notice to the City from the Representative, if, between the date hereof and the Closing:
legislation shall be introduced in or enacted by the Congress of the United States or adopted by either House thereof or shall have been introduced and favorably reported for passage to either House by any committee of such House to which such legislation had been referred for consideration, or a decision shall have been rendered by or adopted by either House or a decision by a court of the United States or the United States Tax Court or an order, ruling or regulation shall have been issued or proposed by or on behalf of the Treasury Department of the United States or the Internal Revenue Service, with respect to federal income taxation upon interest received on obligations of the general character ofthe Series 2015A Bonds which, in the Representative's reasonable opinion, does materially adversely affect the market price or marketability of the Series 2015 A Bonds, or
legislation shall have been enacted by the Congress of the United States to become effective on or prior to the Closing, or a decision of a court of the United States shall be rendered, or a stop order, ruling, regulation or proposed regulation by or on behalf of the SEC or other agency having jurisdiction over the subject matter shall be issued or made, to the effect that the issuance, sale and delivery ofthe Series 2015A Bonds, or any similar obligations of any similar public body of the general character of the City, is in violation of, or has the effect of requiring the contemplated offering, sale and distribution of the Series 2015A Bonds to be registered under the Securities Act of 1933, as amended, or the
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enactment of the Ordinance or any ordinance of similar character is in violation of the Trust Indenture Act of 1939, as amended, or with the purpose or effect of otherwise prohibiting the issuance, sale or delivery of the Series 2015A Bonds as contemplated hereby or by the Official Statement or of obligations of the general character of the Series 2015A Bonds which, in the Representative's reasonable opinion, does materially adversely affect the market price or marketability of the Series 2015 A Bonds, or
there shall have occurred any event which in the Representative's reasonable opinion, after consultation with its legal counsel, makes the Official Statement either (A) contain an untrue statement of a material fact or (B) omit to state a material fact required to be stated therein or necessary to make the statements contained therein not misleading in any material respect, and the City fails to prepare or furnish or fails to cause to be prepared or furnished to the Underwriters an amendment or supplement to the Official Statement, pursuant to Section 5 hereof, which will amend or supplement the Official Statement so that, as amended or supplemented, the Official Statement will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements contained therein not misleading in a material respect, or
there shall be in force a general suspension of trading on The New York Stock Exchange, Inc., or minimum or maximum prices for trading shall have been fixed and be in force, or maximum ranges for prices for securities shall have been required and be in force on The New York Stock Exchange, Inc., whether by virtue of a determination by that Exchange or by order of the SEC or any other governmental authority having jurisdiction, or
(v) a general banking moratorium shall have been declared by either
federal, State or New York authorities having jurisdiction and be in force, or
(vi) any legislation, ordinance, rule or regulation shall be enacted by the
City or State, or any department or agency thereof, or a decision by any court of
competent jurisdiction within the State shall be rendered which, in the reasonable
opinion of the Representative, would have a material adverse effect on the market
price or marketability of the Series 2015A Bonds, or
a war involving the United States, an outbreak or escalation of or adverse development in hostilities or terrorist activities or other national or international calamity or crisis shall have occurred which, in the reasonable opinion of the Representative, materially adversely affects the market price or marketability of the Series 2015 A Bonds, or
there shall be any proceeding or threatened proceeding by the SEC against the City and such proceeding or threatened proceeding, in the reasonable opinion of the Representative, materially adversely affects the market price or marketability of the Series 2015 A Bonds, or
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(ix) an event identified in the 2015B Bond Purchase Agreement shall
occur giving the Underwriters the right to cancel their obligation to purchase the Series 2015B Bonds pursuant to the Series 2015B Bond Purchase Agreement.
(b) If the City shall be unable to satisfy the conditions contained in this Agreement or if the Underwriters' obligations shall be terminated for any reason permitted by this Agreement, this Agreement shall terminate and neither the City nor the Underwriters shall have any further obligations hereunder.
10. Closing Conditions.
(a) The Underwriters' obligations to purchase, to accept delivery of and to pay for the Series 2015A Bonds at the Closing shall be conditioned upon the City's performance of its obligations under Sections 6, 7 and 8 hereof and the Underwriters' receipt ofthe following documents:
three copies of the Official Statement manually executed by the Chief Financial Officer;
the approving opinions, dated the date of the Closing, of Co-Bond Counsel to the City, substantially in the form attached to the Official Statement as Appendix F;
(iii) the opinions, dated the date of the Closing and addressed to the
Representative on behalf of the Underwriters and to the City, of Co-Bond Counsel,
substantially in the form attached hereto as Exhibit B-l;
the letters dated the date of the closing and addressed to the Representative on behalf of the Underwriters and to the City, of Co-Bond Counsel, substantially in the form attached hereto as Exhibit B-2;
a letter dated the date of the closing and addressed to the City of Chapman and Cutler LLP, Special Pension Disclosure Counsel to the City in connection with certain pension matters described in the Official Statement, substantially in the form attached hereto as Exhibit B-3, which letter shall also either be addressed to or accompanied by a reliance letter to the Representative on behalf ofthe Underwriters;
an opinion, dated the date of the Closing and addressed to the Representative on behalf of the Underwriters, ofthe Corporation Counsel ofthe City, substantially in the form attached hereto as Exhibit C;
(vii) an opinion or opinions, dated the date ofthe Closing and addressed to
the Representative on behalf of the Underwriters, of Mayer Brown LLP, Chicago,
Illinois, as counsel for the Underwriters ("Underwriters' Counsel"), in form and
substance satisfactory to the Representative;
(viii) an opinion or opinions, dated the date ofthe Closing and addressed to
|10 10|
the Representative on behalf of the Underwriters, of Duane Morris LLP, Chicago, Illinois, and Shanahan & Shanahan LLP, Chicago, Illinois, Co-Disclosure Counsel to the City, substantially in the form attached hereto as Exhibit D;
a certificate, dated the date of the Closing, signed by the Chief Financial Officer, to the effect that (A) the representations and warranties of the City herein are correct in all material respects as ofthe date of the Closing; and (B) there has been no material adverse change in the financial condition of the City since December 31, 2014, as reflected in Appendix C to the Official Statement, except as set forth in the Official Statement;
a certificate of the Trustee to the effect that the Trustee has full legal right, power and authority to act as the Trustee, Bond Registrar, and Paying Agent under the Ordinance and the Trust Indenture;
a certificate, dated the date of the Closing, signed by the Representative, in form and substance satisfactory to the City and Co-Bond Counsel;
an executed copy of the Undertaking substantially in the form summarized in the Official Statement under the heading "SECONDARY MARKET DISCLOSURE";
an executed copy of the Trust Indenture;
a copy of an agreement between the City and DTC relating to the safekeeping and book-entry form of the Series 2015A Bonds;
(xv) a copy, duly certified by the City Clerk of the City, of the Ordinance,
as passed by the City Council and approved by the Mayor;
evidence satisfactory to the Representative that the Series 2015A Bonds have ratings of "BBB+" (negative outlook) by Standard & Poor's, a division of The McGraw-Hill Companies, Inc., "BBB+" (negative outlook) by Fitch, and "A-" (stable outlook) by Kroll Bond Rating Agency;
such additional closing certificates and agreements related to the Series 2015 A Bonds, including such tax certifications and agreements relating to the Series 2015A Bonds, as Co-Bond Counsel shall reasonably determine to be necessary to deliver their opinions as provided hereinabove.
(b) All of the opinions, letters, certificates, instruments and other documents mentioned above or elsewhere in this Agreement will be deemed to be in compliance with the provisions hereof if, but only if, they are in form and substance satisfactory to the Representative, in its reasonable judgment. Payment for the Series 2015A Bonds and acceptance of the Series 2015A Bonds by the Underwriters shall constitute acknowledgment by the Underwriters of the City's full performance hereunder.
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Expenses. The Underwriters shall be under no obligation to pay, and the City shall pay, any and all expenses incident to the performance of the City's obligations hereunder, including but not limited to: (a) the cost of the preparation and printing or other reproduction of the Ordinance, the Trust Indenture, the Preliminary Official Statement and the Official Statement, as well as the cost of shipping the Official Statement; (b) the cost of the preparation and printing of the Series 2015A Bonds; (c) the fees and disbursements of Co-Bond Counsel and Co-Disclosure Counsel; (d) the fees and disbursements of any experts or consultants retained by the City; (e) the fees of the Trustee; and (f) the fees for the municipal bond ratings on the Series 2015A Bonds. The City shall be responsible for any meal, travel and lodging expenses of its own officials and employees. The Underwriters will pay the expenses incurred by them or any of them in connection with their public offering and distribution of the Series 2015A Bonds, including, but not limited to, the CUSIP Service Bureau charges, the fees and expenses of Underwriters' Counsel and advertising expenses directly incurred by the Underwriters.
The City shall pay for any expenses (included in the expense component of the Underwriters' discount) incurred by the Underwriters on behalf of the City in connection with the marketing, issuance and delivery of the Series 2015A Bonds, including, but not limited to, meals, transportation, lodging, and entertainment of the City's employees and representatives.
Notices. Any notice or other communication to be given to the City under this Agreement shall be given by delivering the same in writing at the address set forth above, and any such notice or other communication to be given to the Underwriters shall be given by delivering the same in writing to the Representative at the following address:
Attention: William Daley, Managing Director
No Third Party Beneficiaries. Survival. Etc. This Agreement is made solely for the benefit ofthe City and the Underwriters (including the successors or assigns of any Underwriter), and no other person, partnership, association or corporation including any purchaser of the Series 2015A Bonds shall acquire or have any right hereunder or by virtue hereof. All ofthe representations and agreements by the City in this Agreement shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Underwriters and shall survive the delivery of and payment for the Series 2015 A Bonds.
Governing Law. The rights and obligations of the parties to this Agreement shall be governed by, construed and enforced in accordance with the laws of the State, without giving effect to the conflict of laws provisions thereof.
Representations and Warranties of the Underwriters. The Underwriters represent and warrant that:
(a) They have heretofore authorized the Representative to execute any
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document on behalf of or exercise any authority of and otherwise to act for, the Underwriters in all matters under or pertaining to this Agreement. Each Underwriter has warranted and confirmed to the Representative, and the Representative warrants and confirms to the City that: (i) it is duly registered under the 1934 Act, as a broker/dealer or municipal securities dealer and has duly paid the fee prescribed by MSRB Rule A-12 or is exempt from such requirements, (ii) it is (a) a member in good standing of the Financial Industry Regulatory Authority ("FINRA") or (b) otherwise eligible under FINRA rules to receive underwriting discounts and concessions available to such members with respect to underwriters of municipal securities, and (iii) it has complied with the dealer registration requirements, if any, of the various jurisdictions in which it offers Series 2015A Bonds for sale. The Underwriters represent, warrant and covenant that they are and will be in compliance with all applicable laws, rules and regulations in connection with the offering, issuance and sale ofthe Series 2015A Bonds.
To the knowledge of the Underwriters, no person holding office ofthe City, either by election or appointment, is in any manner financially interested, either directly in the officer's own name or indirectly in the name of any other person, association, trust or corporation, in any contract being entered into or the performance of any work to be carried out in connection with the issuance and sale of the Series 2015A Bonds upon which said officer may be called upon to act or vote.
Each Underwriter severally represents to the City that neither the Underwriter, nor any Affiliate thereof is listed on any ofthe following lists maintained by the Office of Foreign Assets Control of the United States Department of the Treasury, the Bureau of Industry and Security of the United States Department of Commerce, the United States Department of State or their successors, or on any other list of persons or entities with which the City may not do business under any applicable law, rule, regulation, order or judgment: the Specially Designated Nationals List, the Denied Persons List, the Unverified List, the Entity List, the List of Statutorily Debarred Parties and the Excluded Parties List. Such representation shall be provided to the City in the form attached hereto as Exhibit E.
For purposes of this representation, "Affiliate," when used to indicate a relationship with a specified person or entity, means a person or entity that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with such specified person or entity, and a person or entity shall be deemed to be controlled by another person or entity, if controlled in any manner whatsoever that results in control in fact by that other person or entity (or that other person or entity and any persons or entities with whom that other person or entity is acting jointly or in concert), whether directly or indirectly and whether through share ownership, a trust, a contract or otherwise.
The Underwriters may enter into distribution agreements with certain financial institutions for the retail distribution of municipal securities, including the Series 2015A Bonds, at the initial public offering price. In accordance with such arrangements, the Underwriters may share a portion of its underwriting compensation.
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Approval. The approval of the Underwriters when required hereunder or the determination of their satisfaction as to any document referred to herein shall be in writing signed by the Representative and delivered to the City.
Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the parties and their successors and assigns, and will not confer any rights upon any other person. The terms "successors" and "assigns" shall not include any purchaser of any Bond or Series 2015 A Bonds from the Underwriters merely because of such purchase.
Enforceability. If any provision of this Agreement shall be held or deemed to be or shall, in fact, be invalid, inoperative or unenforceable as applied in any particular case in any jurisdiction or jurisdictions, or in all jurisdictions, because it conflicts with any provisions of any constitution, statute, rule or public policy, or for any other reason, such circumstances shall not have the effect of rendering the provision in question invalid, inoperative or unenforceable in any other case or circumstances, or of rendering any other provision or provisions of this Agreement invalid, inoperative or unenforceable to any extent whatsoever.
Counterparts. This Agreement may be executed in several counterparts, each of which shall be regarded as the original and all of which shall constitute one and the same document.
Cooperation with City Inspector General. As acknowledged by each Underwriter's Representation Letter, each Underwriter understands and agrees that it is required to and will comply with the provisions of Chapter 2-56 of the Municipal Code of Chicago. Pursuant to Section 2-56-090 of the Municipal Code of Chicago, it shall be the duty of each Underwriter to cooperate with the inspector general in any investigation or hearing undertaken pursuant to Chapter 2-56. Every Underwriter shall report, directly and without undue delay, to the City's inspector general any and all information concerning conduct by any person which such Underwriter knows to involve corrupt activity, pursuant to Section 2-156-018(b) of the Municipal Code of Chicago. As acknowledged by each Underwriter's Representation Letter, any Underwriter's knowing failure to report corrupt activity as required in subsection (b) of Section 2-156-018 of the Municipal Code of Chicago, shall constitute an event of default under this Agreement. For purposes of subsection (b) of Section 2-156-018 of the Municipal Code of Chicago, "corrupt activity" shall mean any conduct set forth in subparagraph (a)(1), (2) or (3) of Section 1-23-020 of the Municipal Code of Chicago:
bribery or attempted bribery, or its equivalent under any local, state or federal law, of any public officer or employee of the City or of any sister agency; or
theft, fraud, forgery, perjury, dishonesty or deceit, or attempted theft, fraud, forgery, perjury, dishonesty or deceit, or its equivalent under any local, state or federal law, against the City or of any sister agency; or
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(c) conspiring to engage in any of the acts set forth in items (a) or (b) of
above.
The Underwriter (individually and collectively) agrees and covenants that no payment, gratuity or offer of employment shall be made in connection with this Agreement, by or on behalf of a subcontractor to the Underwriter or any higher-tier subcontractor or any person associated therewith, as an inducement for the award of a subcontract or order related to this Agreement.
21. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the matters covered hereby, and supersedes all prior agreements and understandings between the parties. This Agreement shall only be amended, supplemented or modified in a writing signed by both of the parties hereto.
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FN WITNESS WHEREOF, the parties hereto have caused this Bond Purchase Agreement in connection with the City of Chicago General Obligation Bonds, Series 20I5A, to be executed by their duly authorized representatives as of the date first above written.
Very truly yours,
THE UNDERWRITERS
Morgan Stanley & Co. LLC
William Blair & Company
Seibert Brandford Shank & Co., LLC
Academy Securities, Inc.
BMO Capital Markets GKST Inc.
Citigroup Global Markets, Inc.
Estrada Hinojosa & Company, Inc.
George K. Baum & Company
J.J.B. Hilliard, W.L. Lyons, LLC
Melvin & Company
North South Capital LLC
Schedule I
TERMS OF CITY OF CHICAGO GENERAL OBLIGATION BONDS,
SERIES 2015A
Aggregate Principal Amount: $345,530,000
Dated: Date of Issuance (Expected to be July 21, 2015)
Maturities, Principal Amounts, Interest Rates, Prices and CUSIP Numbers:
Maturity Interest
(January I) Principal Amount Rate
$ 4.965,000 5.000%
7,380.000 5.000
7.870,000 5.000
8,320,000 5.000
8,845,000 5.000
5,415.000 5.000
19,390,000 5.000
24.925,000 5.250
33,585.000 5.250
35.275,000 5.375
88,100,000 5.500
36,430,000 5.500
16,420.000 5.500
2039 48.610,000 5.500
Price
103.511 103.579 102.874 101.537 100.366 99.385 97.692 98.980 98.206 98.539 98.454 98.179 98.008 97.553
CUSIP
I67486WC9
I67486WD7
167486WE5
I67486WF2
167486WG0
167486WH8
I67486WJ4
167486WKI
167486 WL9
167486WM7
167486WN5
I67486WP0
167486WQ8
167486 WR.6
4. Redemption.
The Series 2015A Bonds are subject to both optional and mandatory redemption prior to maturity, as described below, only in principal amounts of $5,000 and integral multiples thereof.
Optional Redemption.
The Series 2015 A Bonds maturing on and after January 1, 2026, arc subject to redemption prior to maturity at the option of the City, in whole or in part, on any date on or after January I, 2025, and if less than all of the outstanding Series 2015 A Bonds of a single maturity and interest rate are to be redeemed, the Series 2015A Bonds called shall be called by lot in such principal amounts and from such maturities and interest rates as the City shall determine, at a redemption price equal to the principal amount of the Series 2015A Bonds being redeemed plus accrued interest to the date fixed for redemption.
The City is authorized to sell or waive any right the City may have to call any of the Series 2015A Bonds for optional redemption, in whole or in part; provided, that such sale or waiver will
not adversely affect the excludability of interest on the Series 2015A Bonds from gross income for federal income tax purposes.
Mandatory Redemption of the Series 2015A Bonds.
The Series 2015A Bonds due January 1, 2033, are subject to mandatory redemption prior to maturity, at par and accrued interest to the date fixed for redemption, on January 1 of the following years and in the following principal amounts:
Year 2031 2032 2033*
Principal Amount
$ 6,205,000 8,275,000 73,620,000
* Final Maturity
The Scries 2015 A Bonds due January 1, 2039, are subject to mandatory redemption prior to maturity, at par and accrued interest to the date fixed for redemption, on January 1 of the following years and in the following principal amounts:
Year
2036 2037 2038 2039*
Principal Amount
$16,135,000 12,620,000 15,875,000 3,980,000
* Final Maturity
Exhibit A Preliminary Official Statement
Exhibit B-l Supplemental Opinion of Co-Bond Counsel
July_, 2015
Morgan Stanley & Co. LLC Chicago, Illinois
as Representative of the Underwriters
named in the Bond Purchase Agreement
described below (the "Underwriters")
Re: City of Chicago
$345,530,000 General Obligation Bonds, Series 2015A (the "Series 2015A Bonds ") $742,860,000 General Obligation Bonds, Taxable Series 2015B (the "Series 2015B Bonds")
Ladies and Gentlemen:
We have on this date delivered to you our approving opinions (the "Approving Opinions") in connection with the issuance by the City of Chicago (the "City") ofthe above-referenced obligations (collectively, the "Bonds"). The Series 2015A Bonds have been delivered this date to the Underwriters pursuant to the terms of the Bond Purchase Agreement dated July 16, 2015, between the City and the Underwriters (the "Series 2015A Bond Purchase Agreement") and the Series 2015B Bonds have been delivered this date to the Underwriters pursuant to the terms of the Bond Purchase Agreement dated July 15, 2015, between the City and the Underwriters (the "Series 2015B Bond Purchase Agreement" and, together with the Series 2015A Bond Purchase Agreement, the "Bond Purchase Agreements"). Capitalized terms used herein without definition shall have the meanings ascribed to such terms in the Purchase Agreements.
Based upon our examination as Bond Counsel of the proceedings described in the Approving Opinions, we are of the opinion that:
1. Pursuant to an ordinance adopted by the City Council on the 17th day of June, 2015, authorizing the issuance of the Bonds (as supplemented by a Notification of Sale, the "Bond Ordinance"), the City has duly authorized, executed and delivered the Bond Purchase Agreements, the Indentures and the Undertaking (together with the Bond Purchase Agreements and the Indentures, the "City Documents"), and, assuming the due authorization, execution, delivery and the binding effect on the other parties thereto, each of the City Documents
constitutes a legal, valid and binding obligation ofthe City, enforceable against the City in accordance with its respective terms, except that the enforceability ofthe City Documents may be limited by bankruptcy, insolvency, moratorium, reorganization and other similar laws affecting creditors' rights and by equitable principles, whether considered at law or in equity, including the exercise of judicial discretion.
2. Based upon our examination of such documents and questions of law as we have deemed relevant in connection with the offering and sale of the Bonds under the circumstances described in the Official Statement dated July 16, 2015, we are of the opinion that, under existing law, the Bonds are not required to be registered under the Securities Act of 1933, as amended, and the Bond Ordinance and the Trust Indentures are not required to be qualified under the Trust Indenture Act of 1939, as amended.
Our opinion represents our legal judgment based upon our review of the law and the facts that we deem relevant to render such opinion, and is not a guarantee of a result. This opinion is given as of the date hereof and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention or any changes in law that may hereafter occur.
This opinion is furnished by us as Bond Counsel to the City. No attorney-client relationship has existed or exists between our firm and the Underwriters in connection with the Bonds or by virtue of this opinion. This opinion is solely for the benefit of the Underwriters and the City and may not be used, quoted, relied upon or otherwise referred to for any other purpose or by any other person (including any person purchasing any of the Bonds from the Underwriters) without our prior written consent.
Very truly yours,
Exhibit B-2 Letter of Co-Bond Counsel
July_, 2015
Morgan Stanley & Co. LLC Chicago, Illinois
as Representative of the Underwriters
named in the Bond Purchase Agreement
described below (the "Underwriters")
Re: City of Chicago
$345,530,000 General Obligation Bonds, Series 2015A (the "Series 2015A Bonds") $742,860,000 General Obligation Bonds, Taxable Series 2015B (the "Series 2015B Bonds")
Ladies and Gentlemen:
We have acted as Bond Counsel in connection with the sale and issuance by the City of Chicago (the "City") of the above-referenced obligations (collectively, the "Bonds"). We have rendered our separate opinions, dated the date hereof, as to the validity, enforceability and tax status of interest on the Bonds. The Series 2015A Bonds have been delivered this date to the Underwriters pursuant to the terms of the Bond Purchase Agreement dated July 16, 2015, between the City and the Underwriters (the "Series 2015A Bond Purchase Agreement") and the Series 2015B Bonds have been delivered this date to the Underwriters pursuant to the terms of the Bond Purchase Agreement dated July 15, 2015, between the City and the Underwriters (the "Series 2015B Bond Purchase Agreement" and, together with the Series 2015A Bond Purchase Agreement, the "Bond Purchase Agreements"). Capitalized terms used herein without definition shall have the meanings ascribed to such terms in the Bond Purchase Agreements.
We have not been engaged nor have we undertaken to review or verify the accuracy, completeness or sufficiency of the information contained in or appended to the Official Statement dated July 16,2015 (the "Official Statement") or other offering material relating to the Bonds, except that in our capacity as Bond Counsel in connection with the issuance ofthe Bonds we have reviewed the information contained in the Official Statement under the captions "OFFICIAL STATEMENT Summary," "The BONDS" (except for the information relating to The Depository Trust Company and its book-entry system and operations), "Security for the Bonds - General Obligation of the City" (except for any information
referenced under such caption contained under the heading "FINANCIAL DISCUSSION AND Analysis" and in Appendix D - "Property Taxes") and Appendix A - "Summary of the Indentures," solely to determine whether such information and summaries conform to the Bonds, the ordinance adopted by the City Council of the City on the 17th day of June, 2015, authorizing the issuance of the Bonds (as supplemented by the Notification of Sale dated July 16, 2015 delivered by the Chief Financial Officer of the City, the "Bond Ordinance ") and the Trust Indentures. The purpose of our professional engagement was not to establish or confirm factual matters in the Official Statement, and we have not undertaken any obligation to verify independently any of the factual matters set forth under these captions and reviewed by us. Subject to the foregoing, the summary descriptions in the Official Statement under such captions excepting those matters set forth above, as of the date of the Official Statement and as ofthe date hereof, insofar as such descriptions purport to describe or summarize certain provisions of the Bonds, the Bond Ordinance and the Trust Indentures, are accurate summaries of such provisions in all material respects. Further, we confirm the opinions attributed to us in the Official Statement and consent to the references to such opinions contained therein. In addition, the information in the Official Statement under the caption "Tax Matters" purporting to describe or summarize our opinions concerning certain federal tax matters relating to the Bonds has been reviewed by us and is an accurate summary in all material respects. Except as specifically described in this paragraph, we express no opinion herein with respect to and have not undertaken to determine independently the accuracy, fairness or completeness of any statements contained, appended or incorporated by reference in the Official Statement.
By acceptance of this letter you recognize and acknowledge that: (i) the preceding paragraph is not a legal opinion but is rather in the nature of observations based on certain limited activities performed by specific lawyers in our firm in our role as Bond Counsel to the City; (ii) the scope of those activities performed by us for purposes of delivering this letter was inherently limited and does not purport to encompass all activities necessary for compliance with applicable securities laws; (iii) those activities performed by us rely on third party representations, warranties, certifications, statements and opinions, including and primarily, representations, warranties and certifications made by the City, and are otherwise subject to the conditions set forth herein; (iv) we have not been engaged to act, and have not acted, as counsel to the Underwriters for any purpose in connection with the issuance of the Bonds; (v) no attorney-client relationship exists or has at any time existed between us and the Underwriters in connection with the Bonds or by virtue of this letter; and (vi) this letter is based upon our review of proceedings and other documents undertaken as part of our engagement with the City, and in order to deliver this letter we neither undertook any duties or responsibilities to the Underwriters nor conducted any activities in addition to those undertaken or conducted for the benefit of, and requested by, the City. Consequently, we make no representation that our review has been adequate for the Underwriters' purposes.
This letter is given as of the date hereof and we assume no obligation to revise or supplement this letter to reflect any facts or circumstances that may hereafter come to our attention. This letter is furnished by us as Bond Counsel to the City. This letter is solely for the benefit of the Underwriters and the City and may not be used, quoted, relied upon
or otherwise referred to for any other purpose or by any other person (including any person purchasing any ofthe Bonds from the Underwriters) without our prior written consent.
Very truly yours,
Exhibit B-3
Letters of Special Pension Disclosure Counsel
Letter to Underwriters
July ,2015
Morgan Stanley & Co. LLC as Representative of the Underwriters named in the Bond Purchase Agreement described below
Re: $345,530,000 City of Chicago
General Obligation Bonds, Series 2015A (the "Series 2015A Bonds") $742,860,000 City of Chicago General Obligation Bonds, Taxable Series 2015B (the "Series 2015B Bonds")
Ladies and Gentlemen:
We have acted as special disclosure counsel to the City of Chicago (the "City"), solely in connection with the information contained under the caption "Financial Discussion and Analysis - Pensions" and in Appendix E — "Retirement Funds" (together, the "Pension Sections ") of the Preliminary Official Statement dated July 8,2015 (the "Preliminary Official Statement") and the Official Statement dated July 16,2015 (the "Official Statement"), each relating to the Series 2015A Bonds and the Series 2015B Bonds (together, the "Bonds"") issued by the City on this date.
In accordance with our understanding with the City, we have reviewed the Pension Sections, certificates of officers ofthe City and other appropriate persons, and such other records, reports, opinions and documents, and we have made such investigations of law, as we have deemed appropriate as a basis for the conclusion hereinafter expressed. As to facts material to the views expressed herein, we have, with your consent, relied upon oral or written statements or representations of officers or other representatives or agents of or consultants to the City and of or to the Municipal Employees' Annuity and Benefit Fund of Chicago, the Policemen's Annuity and Benefit Fund of Chicago, the Firemen's Annuity and Benefit Fund of Chicago, and the Laborers' and Retirement Board Employees' Annuity and Benefit Fund of Chicago (collectively, the "Retirement Funds"), including the representations and warranties of the City in the Bond Purchase Agreement dated July 16, 2015, with respect to the Series 2015 A Bonds, and the Bond Purchase Agreement dated July 15, 2015, with respect to the Series 2015B Bonds, each between the City and Morgan
Stanley & Co. LLC, on behalf of itself and the other underwriters named therein (collectively, the "Underwriters"). We have not independently verified such matters. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Official Statement.
In arriving at the conclusion hereinafter expressed, we are not expressing any opinion or view on, and with your permission are assuming and relying on, the validity, accuracy and sufficiency of the records, reports, documents, certificates and opinions referred to above (including the accuracy of all factual matters represented and legal conclusions contained therein). We have assumed that all records, reports, documents, certificates and opinions that we have reviewed, and the signatures thereto, are genuine.
We are not passing upon, and do not assume any responsibility for, the accuracy, completeness or fairness of any of the statements contained in the Pension Sections and make no representation that we have independently verified the accuracy, completeness or fairness of any such statements. In our capacity as special disclosure counsel to the City, to assist it in discharging its responsibility with respect to the Pension Sections, we participated in conferences and correspondence with your representatives, representatives of the City, the City's attorneys, Co-Disclosure Counsel to the City, counsel to the Underwriters, and other persons involved in the preparation of information for the Pension Sections, during which the contents of the Pension Sections and related matters were discussed and revised. The purpose of our professional engagement was not to establish or confirm factual matters set forth in the Pension Sections, and we have not undertaken any obligation to verify independently any of the factual matters set forth therein. Moreover, many of the determinations required to be made in the preparation of the Pension Sections involve matters of a non-legal nature. Based on our participation in the above-mentioned conferences and correspondence, and in reliance thereon and on our limited review of the records, reports, documents, certificates, statements, representations, warranties, opinions and matters mentioned above, without independent verification, we advise you as a matter of fact and not opinion that, during our engagement as special disclosure counsel to the City in connection with the Pension Sections, no facts came to the attention of the attorneys in our firm rendering legal services in connection with such limited role which caused us to believe that the Pension Sections (apart from the financial statements or other financial, operating, numerical, accounting or statistical data or forecasts, estimates, projections, assumptions or expressions of opinion, or matters of litigation contained or incorporated therein, as to which we do not express any conclusion or belief) contained as of its date or contains as of the date hereof any untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. No responsibility is undertaken or statement rendered herein with respect to any other portions of the Preliminary Official Statement or the Official Statement or any other disclosure document, materials or activity, or as to any information from another document or source referred to by or incorporated by reference in the Preliminary Official Statement or the Official Statement.
By acceptance of this letter you recognize and acknowledge that: (i) the preceding paragraph is not a legal opinion but is rather in the nature of negative observations based on certain limited activities performed by specific lawyers in our firm during our engagement to the City as special disclosure counsel in connection with the Pension Sections; (ii) the scope of those activities performed by us for purposes of delivering this letter was inherently limited and does not purport to encompass all activities necessary for compliance with applicable securities laws; (iii) those activities performed by us rely on third party representations, warranties, certifications, statements and opinions, including and primarily, representations, warranties and certifications made by the City, and are otherwise subject to the conditions set forth herein; (iv) we have not been engaged to act, and have not acted, as your counsel for any purpose in connection with the issuance ofthe Bonds; (v) no attorney-client relationship exists or has at any time existed between us in connection with the Bonds or by virtue of this letter; and (vi) this letter is based upon our review of proceedings and other documents undertaken as part of our engagement with the City, and in order to deliver this letter we neither undertook any duties or responsibilities to you nor conducted any activities in addition to those undertaken or conducted for the benefit of, and requested by, the City. Consequently, we make no representation that our review has been adequate for your purposes.
We express herein no opinion or belief herein with respect to the validity of the Bonds or the taxation thereof or of the interest thereon, and our expression of belief with respect to the Pension Sections assumes the validity ofthe Bonds and the tax treatment of the interest payable thereon for federal income tax purposes, all as set forth in the opinions of Co-Bond Counsel.
This letter is furnished by us in our limited capacity as special disclosure counsel to the City in connection with the Pension Sections and is solely for the benefit of the Underwriters. This letter may not be used, quoted, relied upon or otherwise referred to for any other purpose or by any other person (including any person purchasing any of the Bonds from the Underwriters) without our prior written consent, except that such letter may be referenced in the Preliminary Official Statement, the Official Statement and the Bond Purchase Agreement with respect to each series of the Bonds and included in the transcript of proceedings for the Bonds. This letter is given as of the date hereof and we assume no obligation to revise or supplement this letter to reflect any facts or circumstances that may hereafter come to our attention.
Respectfully submitted,
Letter to City
July ,2015
Re: $345,530,000 City of Chicago
General Obligation Bonds, Series 2015A (the "Series 2015A Bonds ") $742,860,000 City of Chicago General Obligation Bonds, Taxable Series 2015B (the "Series 2015B Bonds")
Ladies and Gentlemen:
We have acted as special disclosure counsel to you, the City of Chicago (the "City "), solely in connection with the information contained under the caption "Financial Discussion and Analysis - Pensions" and in Appendix E — "Retirement Funds" (together, the "Pension Sections ") of the Preliminary Official Statement dated July 8,2015 (the "Preliminary Official Statement") and the Official Statement dated July 16, 2015 (the "Official Statement"), each relating to the Series 2015A Bonds and the Series 2015B Bonds (together, the "Bonds") issued by the City on this date.
In accordance with our understanding with the City, we have reviewed the Pension Sections, certificates of officers ofthe City and other appropriate persons, and such other records, reports, opinions and documents, and we have made such investigations of law, as we have deemed appropriate as a basis for the conclusion hereinafter expressed. As to facts material to the views expressed herein, we have, with your consent, relied upon oral or written statements or representations of officers or other representatives or agents of or consultants to the City and of or to the Municipal Employees' Annuity and Benefit Fund of Chicago, the Policemen's Annuity and Benefit Fund of Chicago, the Firemen's Annuity and Benefit Fund of Chicago, and the Laborers' and Retirement Board Employees' Annuity and Benefit Fund of Chicago (collectively, the "Retirement Funds"), including the representations and warranties ofthe City in the Bond Purchase Agreement dated July 16,2015, with respect to the Series 2015A Bonds, and the Bond Purchase Agreement dated July 15, 2015, with respect to the Series 2015B Bonds, each between the City and Morgan Stanley & Co. LLC, on behalf of itself and the other underwriters named therein (collectively, the "Underwriters"). We have not independently verified such matters. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Official Statement.
In arriving at the conclusion hereinafter expressed, we are not expressing any opinion or view on, and with your permission are assuming and relying on, the validity, accuracy and sufficiency of the records, reports, documents, certificates and opinions referred to above (including the accuracy of all factual matters represented and legal conclusions contained therein, including, without limitation, any representations and legal conclusions regarding the due authorization, issuance, delivery, validity and enforceability of the Bonds, the tax treatment of interest on the Bonds for federal income tax purposes, and the application of Bond proceeds in accordance with the authorization therefor). We have assumed that all records, reports, documents, certificates and opinions that we have reviewed, and the signatures thereto, are genuine.
We are not passing upon, and do not assume any responsibility for, the accuracy, completeness or fairness of any of the statements contained in the Pension Sections and make no representation that we have independently verified the accuracy, completeness or fairness of any such statements. In our capacity as special disclosure counsel to the City, to assist you in discharging your responsibility with respect to the Pension Sections, we participated in conferences and correspondence with representatives ofthe City, the City's attorneys, Co-Disclosure Counsel to the City, the Underwriters, counsel to the Underwriters, and other persons involved in the preparation of information for the Pension Sections, during which the contents of the Pension Sections and related matters were discussed and revised. The purpose of our professional engagement was not to establish or confirm factual matters set forth in the Pension Sections, and we have not undertaken any obligation to verify independently any of the factual matters set forth therein. Moreover, many of the determinations required to be made in the preparation of the Pension Sections involve matters of a non-legal nature. Based on our participation in the above-mentioned conferences and correspondence, and in reliance thereon and on our limited review of the records, reports, documents, certificates, statements, representations, warranties, opinions and matters mentioned above, without independent verification, we advise you as a matter of fact and not opinion that, during our engagement as special disclosure counsel to the City in connection with the Pension Sections, no facts came to the attention of the attorneys in our firm rendering legal services in connection with such limited role which caused us to believe that the Pension Sections (apart from the financial statements or other financial, operating, numerical, accounting or statistical data or forecasts, estimates, projections, assumptions or expressions of opinion, or matters of litigation contained or incorporated therein, as to which we do not express any conclusion or belief) contained as of its date or contains as of the date hereof any untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. No responsibility is undertaken or statement rendered herein with respect to any other portions of the Preliminary Official Statement or the Official Statement or any other disclosure document, materials or activity, or as to any information from another document or source referred to by or incorporated by reference in the Preliminary Official Statement or the Official Statement.
By acceptance of this letter you recognize and acknowledge that: (i) the preceding paragraph is not a legal opinion but is rather in the nature of negative observations based
on certain limited activities performed by specific lawyers in our firm during our engagement to the City as special disclosure counsel in connection with the Pension Sections; (ii) the scope of those activities performed by us for purposes of delivering this letter was inherently limited and does not purport to encompass all activities necessary for compliance with applicable securities laws; and (iii) those activities performed by us rely on third party representations, warranties, certifications, statements and opinions, including and primarily, representations, warranties and certifications made by the City, and are otherwise subject to the conditions set forth herein.
We express herein no opinion or belief herein with respect to the validity of the Bonds or the taxation thereof or of the interest thereon, and our expression of belief with respect to the Pension Sections assumes the validity of the Bonds and the tax treatment of the interest payable thereon for federal income tax purposes, all as set forth in the opinions of Co-Bond Counsel.
This letter is furnished by us in our limited capacity as special disclosure counsel to the City in connection with the Pension Sections. This letter may not be used, quoted, relied upon or otherwise referred to for any other purpose or by any other person (including any person purchasing any of the Bonds from the Underwriters) without our prior written consent, except that such letter may be referenced in the Preliminary Official Statement, the Official Statement and the Bond Purchase Agreement with respect to each series ofthe Bonds and included in the transcript of proceedings for the Bonds. This letter is given as of the date hereof and we assume no obligation to revise or supplement this letter to reflect any facts or circumstances that may hereafter come to our attention.
Respectfully submitted,
Exhibit C
Opinion of Corporation Counsel of the City July 21, 2015
Morgan Stanley & Co. LLC, as Representative of the Underwriters named in the Bond Purchase Agreement, dated July 16, 2015, between such Underwriters and the City of Chicago
Ladies and Gentlemen:
This opinion is given to you pursuant to Section 10(a)(vi) of that certain Bond Purchase Agreement dated July 16, 2015 (the "2015A Bond Purchase Agreement") between the City of Chicago (the "City") and Morgan Stanley & Co. LLC, as representative of a group of underwriters (the "Representative"), with respect to the purchase of the City of Chicago General Obligation Bonds, Series 2015 A (the "Series 2015 A Bonds") and that certain Bond Purchase Agreement dated July 15, 2015 (the "2015B Bond Purchase Agreement" and together with the 2015A Bond Purchase Agreement, the "Bond Purchase Agreements") between the City and the Representative, with respect to the purchase of the City of Chicago General Obligation Bonds, Taxable Series 2015B (the "Taxable Series 2015B Bonds" and together with the Series 2015A Bonds, the "Bonds"). The Series 2015A Bonds are being issued in accordance with the Trust Indenture between the City and Zions First National Bank, as trustee (the "Trustee") dated as of July 1, 2015 (the "Series 2015A Indenture"). The Taxable Series 2015B Bonds are being issued in accordance with the Trust Indenture between the City and Zions First National Bank, as trustee, dated as of July 1, 2015 (the "Taxable Series 2015B Indenture," and collectively with the Series 2015A Indenture, the "Indentures"). The Bonds are authorized by an ordinance of the City adopted by the City Council of the City (the "City Council") on June 17, 2015. Unless otherwise defined herein, capitalized terms used herein shall have the meanings assigned to them in the Bond Purchase Agreements.
In connection with the issuance of the Bonds, I have caused to be examined a certified copy of the record of proceedings ofthe City Council pertaining to the issuance of the Bonds by the City, and executed counterparts, where applicable, of the following documents:
the Ordinance;
the Indentures;
the Bond Purchase Agreements; and
that certain Continuing Disclosure Undertaking dated the date hereof pursuant to the requirements of Section (b) (5) of Rule 15c-12 of the Securities and Exchange Commission (the "Undertaking").
On the basis of such examination and review of such other information, records and documents as was deemed necessary or advisable, I am of the opinion that:
The City is a home rule unit of local government duly organized and existing under the Constitution and laws of the State of Illinois with full power and authority, among other things, to adopt the Ordinance, to authorize the issuance of the Bonds, and to execute and deliver the Indentures, the Bond Purchase Agreements and the Undertaking.
The Bond Purchase Agreements, the Indentures and the Undertaking have been duly authorized, executed and delivered by, and the Ordinance has been duly adopted by, the City, and, assuming the due execution and delivery by the other parties thereto, as appropriate, such instruments constitute legal and valid obligations of the City in each case enforceable in accordance with their respective terms except as may be limited by bankruptcy, insolvency and other laws affecting creditors' rights or remedies and the availability of equitable remedies generally.
To my knowledge, compliance with the provisions of the Bonds, the Ordinance, the Indentures, the Bond Purchase Agreements and the Undertaking does not conflict in a material manner with, or constitute a material breach of or material default under, any applicable law, administrative regulation, court order or consent decree of the State of Illinois, or any department, division, agency or instrumentality thereof or of the United States of America or any ordinance, agreement or other instrument to which the City is a party or is otherwise subject.
To my knowledge, all approvals, consents and orders of and filings (except with respect to state "blue sky" or securities laws) with any governmental authority, board, agency or commission having jurisdiction which would constitute conditions precedent to the performance by the City of its obligations under the Ordinance, the Indentures, the Bond Purchase Agreement, the Undertaking and the Bonds have been obtained.
There is no litigation or proceeding pending, or to my knowledge, threatened, materially affecting the existence of the City or seeking to restrain or enjoin the issuance of the Bonds, or contesting the validity or enforceability ofthe Bonds, the Ordinance, the
Indentures, the Bond Purchase Agreements or the Undertaking, or the completeness or accuracy of the Official Statement, or the powers of the City or its authority with respect to the Bonds, the Ordinance, the Indentures, the Bond Purchase Agreements or the Undertaking.
Nothing has come to my attention which would lead me to believe that the Official Statement (excluding information under the captions "THE BONDS - Book-Entry System" relating to the Depository Trust Company ("DTC"), "RATINGS," "UNDERWRITING," and "TAX MATTERS," "APPENDIX B -ECONOMIC AND DEMOGRAPHIC INFORMATION" and "APPENDIX F -- OPINIONS OF CO-BOND COUNSEL," information sourced to sources other than the City or departments thereof, any information in or omitted from the Official Statement relating to DTC, any information in or omitted from the Official Statement relating to any information furnished by the Underwriters for use in the Official Statement, the financial statements and all other financial and statistical data contained in the Official Statement, including the Appendices thereto) contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading in any material respect.
No opinion is expressed as to any "blue sky" or other securities laws or as to the laws regarding taxation of any state or the United States of America, or any disclosure or compliance related thereto.
The statements contained herein are made in an official capacity and not personally and no personal responsibility shall derive from them. Further, the only opinions that are expressed are the opinions specifically set forth herein, and no opinion is implied or should be inferred as to any other matter or transaction.
No one other than you shall be entitled to rely on this opinion.
Very truly yours,
Stephen R. Patton Corporation Counsel
Exhibit D
Opinion of Co-Disclosure Counsel
July 21, 2015
City of Chicago, Illinois
Morgan Stanley & Co. LLC, as Representative ofthe Underwriters named in the Bond Purchase Agreements (defined herein) between such Underwriters and the City of Chicago
$1,088,390,000 CITY OF CHICAGO
$345,530,000 General Obligation Bonds, Series 2015A
$742,860,000 General Obligation Bonds, Taxable Series 2015B
Ladies and Gentlemen:
We have acted as Co-Disclosure Counsel to the City of Chicago (the "City") in connection with the offering by the City of its General Obligation Bonds, Series 2015A (the "Series 2015A Bonds") and its General Obligation Bonds, Taxable Series 2015B (the "Taxable Series 2015B Bonds" and, together with the Series 2015A Bonds, the "Bonds"). The Bonds are authorized by an ordinance of the City Council of the City (the "City Council") adopted on June 17, 2015, and the Bonds of each Series will be issued pursuant to and secured by a separate Trust Indenture each dated as of July 1, 2015 (collectively, the "Indentures"), between the City and Zions First National Bank, as bond trustee.
This opinion is being rendered pursuant to Section 10(a)(viii) of the Bond Purchase Agreement dated July 16, 2015 between the City and Morgan Stanley & Co. LLC, as representative (the "Representative") of the underwriters named therein (the "Underwriters") with respect to the Series 2015A Bonds (the "Series 2015A Bond Purchase Agreement"), and Section 10(a)(viii) of the Bond Purchase Agreement dated July 15,2015, between the City and the Representative with respect to the Taxable Series 2015B Bonds (the "Series 2015B Bond Purchase Agreement," and together with the Series 2015A Bond Purchase Agreement, the "Bond Purchase Agreements"). Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Bond Purchase Agreements.
For purposes of rendering this opinion, we have examined originals or executed copies, certified or otherwise identified to our satisfaction, of: (i) the Indentures, (ii) the
Bond Purchase Agreements, (iii) the Undertaking and (iv) the legal opinions, agreements and certificates delivered in connection with the reoffering of the Bonds. We have also participated in the preparation of the Preliminary Official Statement and the Official Statement. In our examinations, we have assumed the legal capacity of natural persons, the genuineness of signatures on, and the authenticity of, all documents so examined, the conformity to originals of all documents submitted to us as copies, and that all records and other information made available to us, and on which we have relied, are complete in all respects.
Based upon and subject to our examination as described above and subject to the qualifications set forth herein, we are of the opinion that:
No registration is required under the Securities Act of 1933, as amended, with respect to the offering of the Bonds, and neither of the Indentures is required to be qualified under the Trust Indenture Act of 1939, as amended.
The Undertaking complies with the requirements of paragraph (b)(5) of Regulation §240.15c2-12 (Rule 15c2-12) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as in effect as of the date of the Closing.
The statements contained in the Official Statement under the caption "SECONDARY MARKET DISCLOSURE" insofar as such statements purport to summarize certain provisions of the Undertaking, constitute a fair and accurate summary of such provisions.
We are not expressing (and cannot express) any opinion or view with respect to the authorization, issuance, delivery or validity ofthe Bonds, or the federal tax exemption for the interest paid on the Series 2015A Bonds. Because the purpose of our professional engagement was not to establish factual matters and because of the wholly or partially nonlegal character of many of the determinations involved in the preparation ofthe Official Statement, except as explicitly stated in paragraph 3 above, we are not passing upon nor do we assume responsibility for the accuracy, completeness or fairness of the statements contained in the Official Statement and we make no representation that we have independently verified the accuracy, completeness or fairness of such statements. Without limiting the foregoing, we assume no responsibility for, and have not independently verified, the accuracy, completeness or fairness of the financial statements, notes to financial statements, tables and other financial, economic, market and statistical data included or incorporated by reference in the Official Statement and the appendices to the Official Statement, and we have not reviewed the accounting, financial or statistical records from which such financial statements, schedules, appendices and data are derived. We note that we are not experts within the meaning ofthe Securities Act of 1933, as amended, with respect to such financial statements or schedules or the other financial, economic, market, or statistical data included or incorporated by reference therein. During the preparation of the Official Statement, however, we participated in conferences with you, Co-Bond Counsel, the City's Corporation Counsel, officials, employees and agents ofthe City and Underwriters' counsel at which conferences the contents of the Official Statement
and related matters were discussed. On the basis of the foregoing, but without independent verification of factual matters, nothing has come to our attention which would lead us to believe that the Official Statement contains any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact or omits to state a material fact necessary to make the statements therein, at the time and in the light of the circumstances under which they are made, not false or misleading; provided that we express no view as to: (i) financial statements, notes to financial statements, tables and any financial, forward-looking, technical, economic, market and statistical information included in the Official Statement or the Appendices thereto, (ii) the description of DTC and the information under the caption "THE BONDS— Book-Entry System" included in the Official Statement, (iii) any information included in APPENDIX B—"ECONOMIC AND DEMOGRAPHIC INFORMATION," APPENDIX C—"CITY OF CHICAGO BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2014," and APPENDIX E—"RETIREMENT FUNDS," or (iv) the legal opinions or forms thereof included as APPENDIX F—"OPINIONS OF CO-BOND COUNSEL."
Our opinions and views expressed herein are limited to the matters expressly stated herein and no opinion or view is implied or may be inferred beyond the matters expressly stated.
Our opinions and views expressed herein are rendered as of the date hereof and are based on existing law which is subject to change. Wc do not undertake to advise you of any changes in the opinions and views expressed herein from matters that may hereafter arise or be brought to our attention or to revise or supplement such opinions and views should the present laws of any jurisdiction be changed by legislative action, judicial decision, or otherwise.
This opinion and views herein set forth are solely for the information of the addressees hereof and are not to be quoted in whole or in part or otherwise referred to (except in a list of closing documents), nor are they to be filed with any governmental agency or other person, without our prior written consent. Other than the addressees hereof, no one is entitled to rely on this opinion and views herein set forth.
Very truly yours,
Exhibit E
Representation Letter
Morgan Stanley & Co. LLC
as Representative ofthe Underwriters
named in the Bond Purchase Agreements,
dated July 15, 2015 and July 16, 2015,
between such Underwriters and the City of
Chicago
Pursuant to the Bond Purchase Agreement dated July 16, 2015 (the "2015A Bond Purchase Agreement"), among the City of Chicago (the "City") and Morgan Stanley & Co. LLC, as representative (the "Representative") of the underwriters named therein (each an "Underwriter") relating to the City's General Obligation Bonds, Series 2015A (the "Series 2015A Bonds"), and the Bond Purchase Agreement dated July 15, 2015 (the "2015B Bond Purchase Agreement" and together with the 2015A Bond Purchase Agreement, the "Purchase Agreement"), among the City and the Representative of the Underwriters relating to the General Obligation Bonds, Taxable Series 2015B (the "Series 2015B Bonds" and, together with the Series 2015A Bonds, the "Bonds"), each of the undersigned Underwriters severally represents to the City that:
Neither the Underwriter, nor any Affiliate thereof is listed on any ofthe following lists maintained by the Office of Foreign Assets Control of the U.S. Department of the Treasury, the Bureau of Industry and Security of the U.S. Department of Commerce, the U.S. Department of State or their successors, or on any other list of persons or entities with which the City may not do business under any applicable law, rule, regulation, order or judgment: the Specially Designated Nationals List, the Denied Persons List, the Unverified List, the Entity List, the List of Statutorily Debarred Parties and the Excluded Parties List.
For purposes of this representation, "Affiliate. " when used to indicate a relationship with a specified person or entity, means a person or entity that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with such specified person or entity, and a person or entity shall be deemed to be controlled by another person or entity, if controlled in any manner whatsoever that results in control in fact by that other person or entity (or that other person or entity and any persons or entities with whom that other person or entity is acting jointly or in concert), whether directly or indirectly and whether through share ownership, a trust, a contract or otherwise.
The undersigned Underwriters agree that in the event that any Underwriter or any of its Affiliates appears on any of the lists described in paragraph (1) above, at any time prior to the Closing (as defined in the Purchase Agreement) with respect to the Bonds, that Underwriter shall be deemed to have submitted to the Representative its Withdrawal From Agreement Among Underwriters.
IN WITNESS WHEREOF, the parties hereto have caused this Representation Letter in connection with the Bonds to be executed by their duly authorized representatives as ofthe date written below.
Dated: July 16, 2015
' MORGAN STANLEY & CO. LLC WILLIAM BLAIR & COMPANY
SEIBERT BRANDFORD SHANK & CO., ACADEMY SECURITIES, INC. LLC
By: ' By:
Its: Its:
BMO CAPITAL MARKETS GKST INC. CITIGROUP GLOGAL MARKETS, INC.
By: By:
GEORGE K. BAUM & COMPANY
By:
Its:
Its: Its:
ESTRADA HINOJOSA & COMPANY, INC.
By:
Its:
J.J.B. HILLIARD, W.L. LYONS, LLC
By: Its:
By: Its:
NORTH SOUTH CAPITAL LLC
By:
Its:
IN WITNESS WHEREOF, the parties hereto have caused this Representation Letter in connection with the Bonds to be executed by their duly authorized representatives as ofthe date written below.
Dated: July 16, 2015
MORGAN STANLEY & CO. LLC WILLIAM BLAIR & COMPANY
By:
Its: Managing Director
SEIBERT BRAN LL
By: Its:
By: Its:
BMO CAPITAL MARKETS GKST INC. CITIGROUP GLOGAL MARKETS, INC.
By: Its:
By: Its:
ESTRADA HINOJOSA & COMPANY, INC.
By: Its:
GEORGE K. BAUM & COMPANY
By:
Its: ¦
J.J.B. HILLIARD, W.L. LYONS, LLC
By:
Its:
MELVIN & COMPANY
By: Its:
NORTH SOUTH CAPITAL LLC
By: Its:
IN WITNESS WHEREOF, the parties hereto have caused this Representation Letter in "connection with the Bonds to be executed by their duly authorized representatives as of the date written below.
Dated: July 16, 2015
MORGAN STANLEY & CO. LLC WILLIAM BLAIR & COMPANY
By: By:
Its: Managing Director Its:
SEIBERT BRANDFORD SHANK & CO., ACADEMY SECURITIES, INC.
LLC
By: By:
Its: Its:
J.J.B. HILLIARD, W.L. LYONS, LLC MELVIN & COMPANY
By: By:
Its: Its:
NORTH SOUTH CAPITAL LLC
By:
Its:
IN WITNESS WHEREOF, the parties hereto have caused this Representation Letter in connection with the Bonds to be executed by their duly authorized representatives as ofthe date written below.
Dated: July 16, 2015 MORGAN STANLEY & CO. LLC .
By:
Its: Managing Director
By: Its:
SEIBERT BRANDFORD SHANK & CO., ACADEMY SECURITIES, INC. LLC
By: Its:
By: Its:
BMO CAPITAL MARKETS GKST INC. CITIGROUP GLOGAL MARKETS, INC.
By: Its:
By:. Its:
ESTRADA HINOJOSA & COMPANY, INi
GEORGE K. BAUM & COMPANY
By:
Its:
J.J.B. MILLIARD, W.L. LYONS, LLC
By: Its:
By: Its:
NORTH SOUTH CAPITAL LLC
By: Its:
IN WITNESS WHEREOF, the parties hereto have caused this Representation Letter in connection with the Bonds to be executed by their duly authorized representatives as of the date written below.
Dated: July 16,2015 MORGAN STANLEY & CO. LLC
By:
Its: Managing Director
SEIBERT BRANDFORD SHANK & CO., LLC
By:
Its:
BMO CAPITAL MARKETS GKST INC.
By:
Its:
ESTRADA HINOJOSA & COMPANY, INC.
By:
Its:
By: Its:
J.J.B. HILLIARD, W.L. LYONS, LLC
WILLIAM BLAIR & COMPANY
By:
Its:
ACADEMY SECURITIES, INC.
By:
Its:
CITIGROUP GLOGAL MARKETS, INC.
By:
Its:
GEORGE K. BAUM & COMPANY
By:
Its:
MELVIN & COMPANY
By:
Its:
NORTH SOUTH CAPITAL LLC
By: Its:
IN WITNESS WHEREOF, the. parties hereto have caused this Representation Letter in connection with the Bonds to be executed by their duly authorized representatives as ofthe date written below.
Dated: July 16,2015 MORGAN STANLEY & €0. LLC
Bv:
Its: Managing Director
By:. Its:
SEJBERT BRAJ>©FORDiSHANK.& CO., ACADEMY SECURITIES, INC. LLC
By:. Its:
By-Its:
INC. CrriGK0UP;GLO©AL MARKETS, INC.
By: Its:
By: Its:
ESTRADA rJJNOJ0SA-&iCOiWAW, INC.
By:. Its:
GEORGE KcjBAUM & COMPANY
Bv:
Its:
J.J.B. HTLLIARD, W.L., LYONS', LLC MELVDN COMPANY
By: Its:
By: Its:
NORTH SOUTH CAPITAL LLC
IN WITNESS WHEREOF, the parties hereto have caused this Representation Letter in connection with the Bonds to be executed by their duly authorized representatives as of the date written below.
Dated: July 16,2015 MORGAN STANLEY & CO. LLC
By:
Its: Managing Director
S EI BERT BRANDFORD SHANK & CO., ACADEMY SECURITIES, INC. LLC
By:. Its:
By: Its:
BMO CAPITAL MARKETS GKST INC. CITIGROUP GLOGAL MARKETS, INC.
By: Its:
By:. Its:
ESTRADA HINOJOSA & COMPANY, INC.
By:. Its:
GEORGE K. BAUM & COMPANY
By:
Its:
J.J.B. HILLIARD, W.L. LYONS, LLC
By: Its:
By:. Its:
NORTH SOUTH CAPITAL LLC
By: Its:
IN WITNESS WHEREOF, the parties hereto have caused this Representation Letter in connection with the Bonds to be executed by their duly authorized representatives as of the date written below.
Dated: July 16, 2015
MORGAN STANLEY.& CO. LLC WILLIAM BLAIR & COMPANY
BMO CAPITAL MARKETS GKST INC. CITIGROUP GLOGAL MARKETS, INC.
By: By:
Its:|99|Its:
ESTRADA HTNOJOSA & COMPANY, GEORGE K. BAUM & COMPANY
INC.
By:
By: ' Its:
Its:
J.J.B. HILLIARD, W.L. LYONS, LLC MELVIN & COMPANY
By: By:
Its: Its:
NORTH SOUTH CAPITAL LLC
By: Its:
IN WITNESS WHEREOF, the parties hereto have caused this Representation Letter in connection with the Bonds to be executed by their duly authorized representatives as ofthe date written below.
Dated: July 16,2015
MORGAN STANLEY & CO. LLC WILLIAM BLAIR & COMPANY
By: By:
Its: Managing Director Its:
SEIBERT BRANDFORD SHANK & CO., ACADEMY SECURITIES, INC.
LLC
By: Its:
BMO CAPITAL MARKETS GKST INC.
By:
Its: ¦¦
ESTRADA HINOJOSA & COMPANY, INC.
By: ;
Its:
By: Its:
GEORGE K. BAUM & COMPANY
By: Its:
J.J.B. HILLIARD, W.L. LYONS, LLC
By:
Its:
MELVIN & COMPANY
By:
Its:
NORTH SOUTH CAPITAL LLC
By: Its:
IN WITNESS WHEREOF, the parties hereto have caused this Representation Letter in connection with the Bonds to be executed by their duly authorized representatives as of the date written below.
Dated: July 16,2015
MORGAN STANLEY & CO. LLC WILLIAM BLAIR & COMPANY
By: By:
Its: Managing Director Its:
SEIBERT BRANDFORD SHANK & CO., ACADEMY SECURITIES, INC. LLC
BMO CAPITAL MARKETS GKST INC
By.
Its:
By:_ Its:
ESTRADA HINOJOSA & COMPANY, INC.
By:
Its:
J.J.B. HILLIARD, W.L. LYONS, LLC
By:
Its:
NORTH SOUTH CAPITAL LLC
By: Its:
IN WITNESS WHEREOF, the parties hereto have caused this Representation Letter in connection with the Bonds to be executed by their duly authorized representatives as of the date written below.
Dated: July 16, 2015
MORGAN STANLEY & CO. LLC WILLIAM BLAIR & COMPANY
By: By:
Its: Managing Director Its:
SE1BERT BRANDFORD SHANK & CO., ACADEMY SECURITIES, INC.
LLC
By: By:
Its: Its:
BMO CAPITAL MARKETS GKST INC.
By:
Its: •
CITIGROUP GLOBAL MARKETS, INC.
By:
Its:
By: Its:
Exhibit 2
Taxable Series 2015B Bond Purchase Agreement
Bond Purchase Agreement
$742,860,000 CITY OF CHICAGO GENERAL OBLIGATION BONDS, TAXABLE SERIES 2015B
City of Chicago
July 15,2015
Ladies and Gentlemen:
The undersigned, Morgan Stanley & Co. LLC (the "Representative"), on behalf of itself and the other underwriters listed below (collectively, the "Underwriters"), hereby offers to enter into this Bond Purchase Agreement (the "Agreement") with the City of Chicago (the "City"), for the purchase by the Underwriters, and sale by the City, of all but not less than all ofthe City's General Obligation Bonds, Taxable Series 2015B (the "Series 2015B Bonds"). This offer is made subject to the acceptance by the City, evidenced by the signature of a duly authorized officer of the City in the space provided below, on or before 5:00 P.M., Chicago time on the date hereof, and upon such acceptance this Agreement shall be in full force and effect in accordance with its terms and shall be binding on the City and the Underwriters.
The Representative is authorized, and hereby represents and warrants that it is authorized, to act as Representative of the Underwriters and to execute this Agreement and has full authority to take such action as it may deem advisable with respect to all matters pertaining to this Agreement. Each Underwriter hereby severally represents to the City that it is registered and in good standing under the Securities Exchange Act of 1934, as amended (the "1934 Act"), as a municipal securities dealer.
The primary role of the Underwriters is to purchase the Series 2015B Bonds, for resale to investors, in an arm's-length commercial transaction between the City and the Underwriters. The Underwriters have financial and other interests that differ from those of the City.
Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Preliminary Official Statement, as defined herein.
1. Agreement to Sell and Purchase.
(a) Upon the terms and conditions and based upon the representations, warranties and covenants herein set forth, the Underwriters, jointly and severally, hereby agree to purchase from the City and the City hereby agrees to sell to the Underwriters the Series 2015B
Bonds at a price equal to $726,784,205.13 (which represents the aggregate principal amount of the Series 2015B Bonds less an original issue discount of $11,396,932.85 and less an Underwriters' discount of $4,678,862.02).
It shall be a condition to the City's obligation to sell and deliver the Series 2015B Bonds that all the Series 2015B Bonds be purchased and paid for by the Underwriters at the Closing (as defined in Section 7 hereof) and a condition to the Underwriters' obligation to purchase and pay for the Series 2015B Bonds that all Series 2015B Bonds be issued, sold and delivered by the City at the Closing.
The City and the Underwriters expect to execute on July 16, 2015, an agreement (the "Series 2015A Bond Purchase Agreement") with respect to the sale and delivery by the City and the purchase by the Underwriters of the General Obligation Bonds, Series 2015A ofthe City (the "Series 2015A Bonds" and, together with the Series 2015B Bonds, the "Bonds").
Bond Authorization. The Series 2015B Bonds are authorized by an ordinance ofthe City adopted by the City Council ofthe City (the "City Council") on June 17,2015 (the "Ordinance"), and the Series 2015B Bonds will be issued pursuant to and secured by a Trust Indenture dated as of July 1, 2015 (the "Trust Indenture"), between the City and Zions First National Bank, as Trustee, Bond Registrar and Paying Agent for the Series 2015B Bonds (the "Trustee"). The Series 2015B Bonds will mature, bear interest and have such other terms and conditions as are set forth on Schedule I hereto.
The Preliminary Official Statement. Attached hereto as Exhibit A is a copy of the Preliminary Official Statement of the City, dated July 8, 2015, relating to the Series 2015B Bonds (the "Preliminary Official Statement"). For purposes of Rule 15c2-12 ("Rule 15c2-12") adopted by the Securities and Exchange Commission (the "SEC") under the 1934 Act, the Preliminary Official Statement is "deemed final" by the City with respect to the Series 2015B Bonds as of its date except for the omission of such information as is permitted by Rule 15c2- 12(b)(1).
Public Offering Price. The Underwriters have agreed to make a bona tide public offering of the Scries 2015B Bonds at the initial offering prices set forth on Schedule I.
The Official Statement.
(a) The City shall provide, or cause to be provided, at its expense, to the Underwriters no later than the earlier of (i) seven (7) business days after the date of this Agreement or (ii) one (1) day prior to the Closing, three copies of the Official Statement of the City relating to the Bonds (the "Official Statement"), signed on behalf of the City by the Chief Financial Officer and the Official Statement so delivered shall be "final" for purposes of Rule 15c2-12. Such delivery of the Official Statement shall occur in sufficient time to accompany any confirmation that requests payment from any customer and in sufficient quantity to comply with the rules of the SEC and the Municipal Securities Rulemaking Board (the "MSRB").
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If on or prior to the Closing or within twenty-five (25) days after the '"end of the underwriting period" (as hereinafter defined) any event known to the City relating to or affecting the City, the Ordinance or the Series 2015B Bonds, shall occur which would cause any statement of a material fact contained in the Official Statement to be materially incorrect or materially incomplete, the City will promptly notify the Representative in writing ofthe circumstances and details of such event. If, as a result of such event, it is necessary, in the joint opinion of the City and the Representative to amend or supplement the Official Statement by stating or restating any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading, the City will forthwith prepare and furnish to the Underwriters a reasonable number of copies of an amendment of or a supplement to such Official Statement in form and substance satisfactory to the City and the Representative, at the City's sole cost and expense, which will so amend or supplement such Official Statement so that, as amended or supplemented, the Official Statement will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. For purposes of this Agreement, the term "end of the underwriting period" shall mean the later of the date of Closing or the date on which an Underwriter no longer retains an unsold balance of the Series 2015B Bonds for sale to the public. The Underwriters agree that the date on which the end ofthe underwriting period shall occur shall be the date of the Closing, unless the Underwriters otherwise notify the City in writing prior to twenty-five (25) days after the date of the Closing that, to the best of their knowledge, the Underwriters retain for sale to the public an unsold balance of the Series 2015B Bonds, in which case the end of the underwriting period shall be extended for additional periods of thirty (30) days each upon receipt of additional written notification from the Underwriters that, to the best of their knowledge, there exists an unsold balance of the Series 2015B Bonds, but in no event shall the end of the underwriting period be extended longer than sixty (60) days after the date of Closing.
The Official Statement shall be provided for distribution, at the expense of the City, in such quantity as may be requested by the Underwriters as set forth above in order to permit the Underwriters to comply with Rule 15c2-12, and the applicable rules ofthe MSRB, with respect to distribution of the Official Statement. The City shall prepare the Official Statement, including any amendments thereto, in word-searchable PDF format as described in the MSRB Rule G-32 and shall provide the electronic copy of the word-searchable PDF format of the Official Statement to the Underwriters no later than one (1) business day prior to July 21, 2015, to enable the Underwriters to comply with MSRB Rule G-32.
At or prior to the Closing, the Representative shall file, or cause to be filed, the Official Statement with the MSRB in compliance with the rules of the SEC and the MSRB. Promptly after the date after which the Underwriters are no longer obligated under Rule 15c2-12(b)(4) to deliver to potential customers the Official Statement, the Representative shall notify the City of such date.
6. Representations. Warranties and Covenants of the City. The City represents and warrants to the Underwriters as of the date hereof that:
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The City is a municipal corporation and home rule unit of local government, existing under the Constitution and laws of the State of Illinois (the "State").
The City Council has: (i) duly adopted the Ordinance, which remains in full force and effect; (ii) duly approved the execution and delivery ofthe Trust Indenture; (iii) duly authorized the use of the Preliminary Official Statement prior to the date hereof in connection with the public offering and sale of the Bonds and duly authorized the execution, delivery and distribution of the Official Statement in connection with the public offering and sale of the Bonds; and (iv) duly authorized and approved the execution and delivery ofthe Series 2015B Bonds, this Agreement and a continuing disclosure undertaking pursuant to the provisions of Section (b)(5) of Rule 15c2-12 (the "Undertaking").
With the exception of the disclosure described in the Preliminary Official Statement in the section titled "SECONDARY MARKET DISCLOSURE - Corrective Action Related to Certain Bond Disclosure Requirements", the City has not failed during the previous five years to comply in all material respects with any previous undertakings in a written continuing disclosure contract or agreement under Rule 15c2-12.
The City has full legal right, power and authority to: (i) adopt the Ordinance; (ii) execute and deliver this Agreement, the Trust Indenture, the Undertaking and the Official Statement; (iii) issue, sell and deliver the Series 2015B Bonds to the Underwriters pursuant to the Ordinance and the Trust Indenture and as provided in this Agreement; and (iv) pay for the Series 2015B Bonds from the sources pledged under the Ordinance and the Trust Indenture for their payment.
The adoption ofthe Ordinance and compliance with the provisions thereof do not, and the execution and delivery of this Agreement, the Trust Indenture, the Undertaking and the Official Statement will not, in any material manner, violate any applicable law or administrative regulation of the State or any department, division, agency or instrumentality thereof or of the United States of America (the "United States") or of any department, division, agency or instrumentality thereof, or any applicable judgment or decree to which the City is subject, or conflict with, in a material manner, or constitute a material breach of, or a material default under, any ordinance, agreement or other instrument to which the City is a party or is otherwise bound.
All approvals, consents and orders of, and filings (except, if any, under applicable state "blue sky" laws) with, any governmental authority, board, agency or commission having jurisdiction which would constitute a condition precedent to the performance by the City of its obligations under this Agreement, the Undertaking, the Ordinance, the Trust Indenture, and the Series 2015B Bonds have been obtained or made.
The financial statements of the City contained in the Official Statement fairly present the financial position and results of operations ofthe City as ofthe date and for the periods therein set forth and the City has no reason to believe that such financial statements have not been prepared in accordance with generally accepted accounting principles as applied to governmental units, consistently applied except as otherwise noted therein.
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(h) The Official Statement (excluding any description of The Depository Trust
Company ("DTC"), information under the captions "THE BONDS - Book-Entry System,"
"RATINGS," "UNDERWRITING," "TAX MATTERS," APPENDIX A — "SUMMARY
OF THE INDENTURES", APPENDIX B — "ECONOMIC AND DEMOGRAPHIC
INFORMATION (with respect to the information under the headings "— Economy," "—
Percentage of Total Non-Farm Employment by Major Industry Sector" and "and "—
Housing Market," and information relating to population, per capita personal income and
employment, and unemployment rate with respect to the United States, the State of Illinois,
Cook County and the Chicago MSA), Tables 1-10 included in APPENDIX E —
"RETIREMENT FUNDS," APPENDIX F — "OPINIONS OF CO-BOND COUNSEL,"
and information furnished by the Underwriters for use in the Official Statement) as of its
date does not, and at the Closing will not, contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading in any material respect.
(i) Information in the Third Party Sourced Retirement Fund Tables is sourced
from documents published by the Retirement Funds and the City takes no responsibility
for the accuracy and completeness of such information; however, nothing has come to the
attention of the City which would lead the City to believe that the Third Party Sourced
Retirement Fund Tables are not true and correct in all material respects;
(j) The Ordinance, the Trust Indenture, this Agreement, and the Undertaking, when duly executed and delivered by the parties thereto, as appropriate, will constitute legal, valid and binding obligations of the City enforceable in accordance with their terms (except to the extent that enforceability may be limited by bankruptcy, insolvency and other laws affecting creditors' rights or remedies and the availability of equitable remedies generally).
(k) When delivered to the Representative, and paid for by the Underwriters at the Closing in accordance with the provisions of this Agreement, the Series 2015B Bonds will be duly authorized, executed and delivered and will constitute legal, valid and binding obligations ofthe City enforceable in accordance with their terms (except to the extent that enforceability may be limited by bankruptcy, insolvency and other laws affecting creditors' rights or remedies and the availability of equitable remedies generally).
(1) Except as disclosed in the Official Statement, there is no action, suit or proceeding, at law or in equity, or before or by a court, public board or body, pending or, to the City's knowledge, threatened, against the City wherein an unfavorable decision, ruling or finding would materially adversely affect the validity or enforceability of the Series 2015B Bonds, the Ordinance, the Trust Indenture, this Agreement, or the Undertaking.
(m) Any certificate signed by any Authorized Officer ofthe City and delivered to the Representative at the Closing in connection with the issuance or sale of the Series 2015B Bonds shall be deemed to be a representation and warranty by the City to the Underwriters as to the statements made therein as of the date so delivered.
(n) The City will make available such information, execute such instruments and take such other action in cooperation with the Underwriters as the Representative may
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reasonably request to qualify the Series 2015B Bonds for offering and sale under the "blue sky" or other securities laws and regulations of such states and other jurisdictions of the United States as the Underwriters may designate in writing; provided, however, that nothing in this Section 6(n) shall require the City to consent to general service of process in any state or jurisdiction other than the State.
(o) The City will apply the proceeds of the Series 2015B Bonds in accordance with the Ordinance and the Trust Indenture.
(p) The City acknowledges and agrees that: (i) the transaction contemplated by this Agreement is an arm's length, commercial transaction between the City and the Underwriters in which the Underwriters are acting solely as a principal and not acting as a municipal advisor, financial advisor or fiduciary to the City; (ii) the Underwriters have not assumed any advisory or fiduciary responsibility to the City with respect to the transaction contemplated hereby and the discussions, undertakings and procedures leading thereto (irrespective of whether any Underwriter has provided other services or is currently providing other services to the City on other matters); (iii) the Underwriters have financial and other interests that differ from those of the City; and (iv) the City has consulted its own legal, account, tax, financial and other advisors, as applicable, to the extent it has deemed appropriate.
Closing. Subject to the conditions set forth in this Agreement, the closing (the "Closing") ofthe sale of the Series 2015B Bonds by the City and the purchase of the Series 2015B Bonds by the Underwriters, shall take place at approximately 9:00 a.m., Chicago time, on July 21,2015, at the offices of Chapman and Cutler LLP, 111 W. Monroe Street, Chicago, Illinois (or at such other time, date and place as the City and the Representative mutually agree).
At the Closing, the City shall deliver or cause to be delivered to DTC, as securities depository, for the account of the Underwriters one fully registered certificate for each, interest rate and maturity of the Series 2015B Bonds in the aggregate principal amount thereof, registered in the name of Cede & Co., as nominee for DTC.
Upon delivery ofthe Series 2015B Bonds to the Representative at the Closing, the City will deliver to the Representative the closing documents as set forth in Section 10 hereof.
The Representative will accept delivery of the Series 2015B Bonds and pay the purchase price therefor at the Closing by delivering federal funds checks or making federal funds wire transfers or otherwise confirming deposits of same day funds, as the City shall direct, to the City's account at a bank specified by the City, in an aggregate amount equal to the purchase price of the Series 2015B Bonds pursuant to Section 1 hereof.
Reliance and Further Conditions of the Underwriters. The Underwriters have entered into this Agreement in reliance upon the representations, warranties and agreements ofthe City herein and the performance by the City of its obligations hereunder, both as of the date hereof and as of the date of the Closing. The Underwriters' obligations under this
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Agreement are and shall be subject to the following further condition that at the time ofthe Closing, the Ordinance, the Trust Indenture, the Undertaking, and this Agreement shall be in full force and effect and the Ordinance and the Official Statement shall not have been amended, modified or supplemented except as may have been agreed to with respect to the Official Statement pursuant to Section 5 hereof, and the City shall have duly adopted and there shall be in full force and effect such ordinances as, in the opinion of Chapman and Cutler LLP, Chicago, Illinois, and Hardwick Law Firm, Chicago, Illinois, as co-bond counsel ("Co-Bond Counsel") shall be necessary in connection with the transactions contemplated hereby and thereby.
9. Termination of Agreement.
(a) The Underwriters shall have the right to cancel their obligations to purchase the Series 2015B Bonds and have the further right to terminate this Agreement, without liability therefor, by written notice to the City from the Representative, if, between the date hereof and the Closing:
legislation shall have been enacted by the Congress of the United States to become effective on or prior to the Closing, or a decision of a court ofthe United States shall be rendered, or a stop order, ruling, regulation or proposed regulation by or on behalf ofthe SEC or other agency having jurisdiction over the subject matter shall be issued or made, to the effect that the issuance, sale and delivery of the Series 2015B Bonds, or any similar obligations of any similar public body of the general character of the City, is in violation of, or has the effect of requiring the contemplated offering, sale and distribution of the Series 2015B Bonds to be registered under the Securities Act of 1933, as amended, or the enactment of the Ordinance or any ordinance of similar character is in violation of the Trust Indenture Act of 1939, as amended, or with the purpose or effect of otherwise prohibiting the issuance, sale or delivery of the Series 2015B Bonds as contemplated hereby or by the Official Statement or of obligations of the general character of the Series 2015B Bonds which, in the Representative's reasonable opinion, does materially adversely affect the market price or marketability of the Series 2015B Bonds, or
there shall have occurred any event which in the Representative's reasonable opinion, after consultation with its legal counsel, makes the Official Statement either (A) contain an untrue statement of a material fact or (B) omit to state a material fact required to be stated therein or necessary to make the statements contained therein not misleading in any material respect, and the City fails to prepare or furnish or fails to cause to be prepared or furnished to the Underwriters an amendment or supplement to the Official Statement, pursuant to Section 5 hereof, which will amend or supplement the Official Statement so that, as amended or supplemented, the Official Statement will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements contained therein not misleading in a material respect, or
(iii) there shall be in force a general suspension of trading on The New
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York Stock Exchange, Inc., or minimum or maximum prices for trading shall have been fixed and be in force, or maximum ranges for prices for securities shall have been required and be in force on The New York Stock Exchange, Inc., whether by virtue of a determination by that Exchange or by order of the SEC or any other governmental authority having jurisdiction, or
(iv) a general banking moratorium shall have been declared by either
federal, State or New York authorities having jurisdiction and be in force, or
(v) any legislation, ordinance, rule or regulation shall be enacted by the
City or State, or any department or agency thereof, or a decision by any court of
competent jurisdiction within the State shall be rendered which, in the reasonable
opinion of the Representative, would have a material adverse effect on the market
price or marketability of the Series 2015B Bonds, or
a war involving the United States, an outbreak or escalation of or adverse development in hostilities or terrorist activities or other national or international calamity or crisis shall have occurred which, in the reasonable opinion ofthe Representative, materially adversely affects the market price or marketability of the Series 2015B Bonds, or
there shall be any proceeding or threatened proceeding by the SEC against the City and such proceeding or threatened proceeding, in the reasonable opinion of the Representative, materially adversely affects the market price or marketability of the Series 2015B Bonds, or
an event identified in the 2015ABond Purchase Agreement shall occur giving the Underwriters the right to cancel their obligation to purchase the Series 2015A Bonds pursuant to the Series 2015A Bond Purchase Agreement.
(b) If the City shall be unable to satisfy the conditions contained in this Agreement or if the Underwriters' obligations shall be terminated for any reason permitted by this Agreement, this Agreement shall terminate and neither the City nor the Underwriters shall have any further obligations hereunder.
10. Closing Conditions.
(a) The Underwriters' obligations to purchase, to accept delivery of and to pay for the Series 2015B Bonds at the Closing shall be conditioned upon the City's performance of its obligations under Sections 6, 7 and 8 hereof and the Underwriters' receipt of the following documents:
three copies of the Official Statement manually executed by the Chief Financial Officer;
the approving opinions, dated the date of the Closing, of Co-Bond Counsel to the City, substantially in the fonn attached to the Official Statement as Appendix F;
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the letters dated the date of the closing and addressed to the Representative on behalf of the Underwriters and to the City, of Co-Bond Counsel, substantially in the form attached hereto as Exhibit B-l;
the letters dated the date of the closing and addressed to the Representative on behalf of the Underwriters and to the City, of Co-Bond Counsel, substantially in the form attached hereto as Exhibit B-2;
(v) a letter dated the date of the closing and addressed to the City of
Chapman and Cutler LLP, Special Pension Disclosure Counsel to the City in
connection with certain pension matters described in the Official Statement,
substantially in the form attached hereto as Exhibit B-3. which letter shall also
either be addressed to or accompanied by a reliance letter to the Representative on
behalf of the Underwriters;
(vi) an opinion, dated the date of the Closing and addressed to the
Representative on behalf of the Underwriters, ofthe Corporation Counsel of the City,
substantially in the form attached hereto as Exhibit C;
an opinion or opinions, dated the date of the Closing and addressed to the Representative on behalf of the Underwriters, of Mayer Brown LLP, Chicago, Illinois, as counsel for the Underwriters ("Underwriters' Counsel"), in form and substance satisfactory to the Representative;
an opinion or opinions, dated the date of the Closing and addressed to the Representative on behalf of the Underwriters, of Duane Morris LLP, Chicago, Illinois, and Shanahan & Shanahan LLP, Chicago, Illinois, Co-Disclosure Counsel to the City, substantially in the form attached hereto as Exhibit D;
(ix) a certificate, dated the date of the Closing, signed by the Chief
Financial Officer, to the effect that (A) the representations and warranties of the
City herein are correct in all material respects as of the date of the Closing; and (B)
there has been no material adverse change in the financial condition of the City
since December 31, 2014, as reflected in Appendix C to the Official Statement,
except as set forth in the Official Statement;
(x) a certificate of the Trustee to the effect that the Trustee has full legal
right, power and authority to act as the Trustee, Bond Registrar, and Paying Agent
under the Ordinance and the Trust Indenture;
a certificate, dated the date of the Closing, signed by the Representative, in form and substance satisfactory to the City and Co-Bond Counsel;
an executed copy of the Undertaking substantially in the form summarized in the Official Statement under the heading "SECONDARY MARKET DISCLOSURE";
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an executed copy of the Trust Indenture;
(xiv) a copy of an agreement between the City and DTC relating to the
safekeeping and book-entry form of the Series 2015B Bonds;
(xv) a copy, duly certified by the City Clerk of the City, of the Ordinance,
as passed by the City Council and approved by the Mayor;
evidence satisfactory to the Representative that the Series 2015B Bonds have ratings of "BBB+" (negative outlook) by Standard & Poor's, a division of The McGraw-Hill Companies, Inc., "BBB+" (negative outlook) by Fitch, and "A-" (stable outlook) by Kroil Bond Rating Agency;
such additional closing certificates and agreements related to the Series 2015B Bonds, as Co-Bond Counsel shall reasonably determine to be necessary to deliver their opinions as provided hereinabove.
(b) All of the opinions, letters, certificates, instruments and other documents mentioned above or elsewhere in this Agreement will be deemed to be in compliance with the provisions hereof if, but only if, they are in form and substance satisfactory to the Representative, in its reasonable judgment. Payment for the Series 2015B Bonds and acceptance of the Series 2015B Bonds by the Underwriters shall constitute acknowledgment by the Underwriters of the City's full performance hereunder.
11. Expenses. The Underwriters shall be under no obligation to pay, and the City shall pay, any and all expenses incident to the performance of the City's obligations hereunder, including but not limited to: (a) the cost of the preparation and printing or other reproduction of the Ordinance, the Trust Indenture, the Preliminary Official Statement and the Official Statement, as well as the cost of shipping the Official Statement; (b) the cost of the preparation and printing ofthe Series 2015B Bonds; (c) the fees and disbursements of Co-Bond Counsel and Co-Disclosure Counsel; (d) the fees and disbursements of any experts or consultants retained by the City; (e) the fees of the Trustee; and (f) the fees for the municipal bond ratings on the Series 2015B Bonds. The City shall be responsible for any meal, travel and lodging expenses of its own officials and employees. The Underwriters will pay the expenses incurred by them or any of them in connection with their public offering and distribution of the Series 2015B Bonds, including, but not limited to, the CUSIP Service Bureau charges, the fees and expenses of Underwriters' Counsel and advertising expenses directly incurred by the Underwriters.
The City shall pay for any expenses (included in the expense component of the Underwriters' discount) incurred by the Underwriters on behalf of the City in connection with the marketing, issuance and delivery of the Series 2015B Bonds, including, but not limited to, meals, transportation, lodging, and entertainment of the City's employees and representatives.
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12. Notices. Any notice or other communication to be given to the City under this Agreement shall be given by delivering the same in writing at the address set forth above, and any such notice or other communication to be given to the Underwriters shall be given by delivering the same in writing to the Representative at the following address:
Attention: William Daley, Managing Director
No Third Party Beneficiaries. Survival. Etc. This Agreement is made solely for the benefit of the City and the Underwriters (including the successors or assigns of any Underwriter), and no other person, partnership, association or corporation including any purchaser ofthe Series 2015B Bonds shall acquire or have any right hereunder or by virtue hereof. All of the representations and agreements by the City in this Agreement shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Underwriters and shall survive the delivery of and payment for the Series 2015B Bonds.
Governing Law. The rights and obligations of the parties to this Agreement shall be governed by, construed and enforced in accordance with the laws of the State, without giving effect to the conflict of laws provisions thereof.
Representations and Warranties of the Underwriters. The Underwriters represent and warrant that:
They have heretofore authorized the Representative to execute any document on behalf of or exercise any authority of and otherwise to act for, the Underwriters in all matters under or pertaining to this Agreement. Each Underwriter has warranted and confirmed to the Representative, and the Representative warrants and confirms to the City that: (i) it is duly registered under the 1934 Act, as a broker/dealer or municipal securities dealer and has duly paid the fee prescribed by MSRB Rule A-12 or is exempt from such requirements, (ii) it is (a) a member in good standing of the Financial Industry Regulatory Authority ("FINRA") or (b) otherwise eligible under FINRA rules to receive underwriting discounts and concessions available to such members with respect to underwriters of municipal securities, and (iii) it has complied with the dealer registration requirements, if any, of the various jurisdictions in which it offers Series 2015B Bonds for sale. The Underwriters represent, warrant and covenant that they are and will be in compliance with all applicable laws, rules and regulations in connection with the offering, issuance and sale ofthe Series 2015B Bonds.
To the knowledge of the Underwriters, no person holding office of the City, either by election or appointment, is in any manner financially interested, either directly in the officer's own name or indirectly in the name of any other person, association, trust or corporation, in any contract being entered into or the performance of any work to be carried out in connection with the issuance and sale of the Series 2015B Bonds upon which said officer may be called upon to act or vote.
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Each Underwriter severally represents to the City that neither the Underwriter, nor any Affiliate thereof is listed on any of the following lists maintained by the Office of Foreign Assets Control of the United States Department of the Treasury, the Bureau of Industry and Security ofthe United States Department of Commerce, the United States Department of State or their successors, or on any other list of persons or entities with which the City may not do business under any applicable law, rule, regulation, order or judgment: the Specially Designated Nationals List, the Denied Persons List, the Unverified List, the Entity List, the List of Statutorily Debarred Parties and the Excluded Parties List. Such representation shall be provided to the City in the form attached hereto as Exhibit E.
For purposes of this representation. "Affiliate," when used to indicate a relationship with a specified person or entity, means a person or entity that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with such specified person or entity, and a person or entity shall be deemed to be controlled by another person or entity, if controlled in any manner whatsoever that results in control in fact by that other person or entity (or that other person or entity and any persons or entities with whom that other person or entity is acting jointly or in concert), whether directly or indirectly and whether through share ownership, a trust, a contract or otherwise.
The Underwriters may enter into distribution agreements with certain financial institutions for the retail distribution of municipal securities, including the Series 2015B Bonds, at the initial public offering price. In accordance with such arrangements, the Underwriters may share a portion of its underwriting compensation.
Approval. The approval of the Underwriters when required hereunder or the determination of their satisfaction as to any document referred to herein shall be in writing signed by the Representative and delivered to the City.
Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the parties and their successors and assigns, and will not confer any rights upon any other person. The terms "successors" and "assigns" shall not include any purchaser of any Series 2015B Bond or Bonds from the Underwriters merely because of such purchase.
Enforceability. If any provision of this Agreement shall be held or deemed to be or shall, in fact, be invalid, inoperative or unenforceable as applied in any particular case in any jurisdiction or jurisdictions, or in all jurisdictions, because it conflicts with any provisions of any constitution, statute, rule or public policy, or for any other reason, such circumstances shall not have the effect of rendering the provision in question invalid, inoperative or unenforceable in any other case or circumstances, or of rendering any other provision or provisions of this Agreement invalid, inoperative or unenforceable to any extent whatsoever.
Counterparts. This Agreement may be executed in several counterparts, each of which shall be regarded as the original and all of which shall constitute one and the same document.
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Cooperation with City Inspector General. As acknowledged by each Underwriter's Representation Letter, each Underwriter understands and agrees that it is required to and will comply with the provisions of Chapter 2-56 ofthe Municipal Code of Chicago. Pursuant to Section 2-56-090 of the Municipal Code of Chicago, it shall be the duty of each Underwriter to cooperate with the inspector general in any investigation or hearing undertaken pursuant to Chapter 2-56. Every Underwriter shall report, directly and without undue delay, to the City's inspector general any and all information concerning conduct by any person which such Underwriter knows to involve corrupt activity, pursuant to Section 2-156-018(b) of the Municipal Code of Chicago. As acknowledged by each Underwriter's Representation Letter, any Underwriter's knowing failure to report corrupt activity as required in subsection (b) of Section 2-156-018 of the Municipal Code of Chicago, shall constitute an event of default under this Agreement. For purposes of subsection (b) of Section 2-156-018 of the Municipal Code of Chicago, "corrupt activity" shall mean any conduct set forth in subparagraph (a)(1), (2) or (3) of Section 1-23-020 of the Municipal Code of Chicago:
bribery or attempted bribery, or its equivalent under any local, state or federal law, of any public officer or employee of the City or of any sister agency; or
theft, fraud, forgery, perjury, dishonesty or deceit, or attempted theft, fraud, forgery, perjury, dishonesty or deceit, or its equivalent under any local, state or federal law, against the City or of any sister agency; or
(c) conspiring to engage in any of the acts set forth in items (a) or (b) of
above.
The Underwriter (individually and collectively) agrees and covenants that no payment, gratuity or offer of employment shall be made in connection with this Agreement, by or on behalf of a subcontractor to the Underwriter or any higher-tier subcontractor or any person associated therewith, as an inducement for the award of a subcontract or order related to this Agreement.
Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the matters covered hereby, and supersedes all prior agreements and understandings between the parties. This Agreement shall only be amended, supplemented or modified in a writing signed by both of the parties hereto.
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IN WITNESS WHEREOF, the parties hereto have caused this Bond Purchase Agreement in connection with the City of Chicago General Obligation Bonds, Taxable Series 2015B, to be executed by their duly authorized representatives as of the date first above written.
Very truly yours,
THE UNDERWRITERS
Morgan Stanley & Co. LLC
William Blair & Company
Seibert Brandford Shank & Co., LLC
Academy Securities, Inc.
BMO Capital Markets GKST Inc.
Citigroup Global Markets, Inc.
Estrada Hinojosa & Company, Inc.
George K. Baum & Company
J.J.B. Hilliard, W.L. Lyons, LLC
Melvin & Company
North South Capital LLC
By: MORGAN STANLEY & CO. LLC
Finance ofthe City Council
As Representative
Schedule I
TERMS OF CITY OF CHICAGO GENERAL OBLIGATION BONDS,
TAXABLE SERIES 2015B
Aggregate Principal Amount: $742,860,000
Dated: Date of Issuance (Expected to be July 21, 2015)
Maturities, Principal Amounts, Interest Rates, Prices and CUSIP Numbers:
Maturity Interest
(January 1) Principal Amount Rate Price CUSIP
$ 5,020,000 5.383% 100.000% I67486VX4
5.290,000 5.633 100.000 167486VY2
5.585,000 5.962 100.000 167486VZ9
5,920,000 6.212 100.000 167486WA3
6,290,000 6.361 100.000 167486WBI
2033 321.695,000 7.375 99.309 167486VV8
2042 393.060,000 7.750 97.666 167486VW6
4. Redemption.
The Series 2015B Bonds are subject to both optional and mandatory redemption prior to maturity, as described below, only in principal amounts of 51,000 and integral multiples thereof.
Optional Redemption. Optional Redemption of the Series 2015B Bonds with Make Whole Payment. The Series 2015B Bonds maturing on or before January 1, 2033, shall be subject to redemption prior to maturity at the option ofthe City, in whole or in part, on any Business Day (as defined below) at a redemption price (the "Make Whole Redemption Price") equal to the greater of: (A) the principal amount of Series 2015B Bonds to be redeemed, or (B) the sum of the present values of the remaining scheduled payments of principal and interest on such Series 2015B Bonds to be redeemed, not including any portion of those payments of interest accrued and unpaid as of the date such Series 2015B Bonds are to be redeemed, discounted to the date of redemption of such Series 2015B Bonds to be redeemed on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate (defined below) plus 50 basis points plus accrued interest on such Series 2015B Bonds being redeemed to the date fixed for redemption.
The Make Whole Redemption Price of the Scries 2015B Bonds to be redeemed will be calculated by an independent accounting firm, investment banking firm or financial advisor (the "Calculation Agent") retained by the City at the City's expense. The Bond Registrar and the City may rely on the Calculation Agent's determination of the Make Whole Redemption Price and will not be liable for such reliance. An authorized officer of the City shall confirm and transmit the
Make Whole Redemption Price as so calculated on such dates and to such parties as shall be necessary to effectuate such redemption.
The "Treasury Rate" is, as of any redemption date, the yield to maturity as of such redemption date of U.S. Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H. 15 (519) that has become publicly available four Business Days (as defined below) prior to the redemption date (excluding inflation indexed securities) (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to (i) in the case of the Series 2015B Bonds maturing on January 1 of the years 2019 through 2023, inclusive, the period from the redemption date to the maturity date of such Series 2015B Bonds to be redeemed, and (ii) in the case ofthe Series 2015B Bonds maturing on January 1, 2033, the then remaining average life of such maturity ofthe Series 2015B Bonds to be redeemed; provided, however, that if the period from the redemption date to such maturity date is less than one year, the weekly average yield on actually traded U.S. Treasury securities adjusted to a constant maturity of one year will be used. "Business Day" means any day other than a day on which banks in New York, New York, Chicago, Illinois, or the city in which the Bond Registrar maintains its designated office are required or authorized to close. The Treasury Rate will be determined by an independent accounting firm, investment banking firm or financial advisor retained by the City at the City's expense.
"Business Day" means any day other than (i) a Saturday or Sunday, (ii) a day on which banks located in the city where the Designated Corporate Trust Office of the Trustee is located are authorized or required to close, and (iii) a day on which The New York Stock Exchange, Inc., is closed.
The Treasury Rate will be determined by an independent accounting firm, investment banking firm, or financial advisor retained by the City at the City's expense.
The City is authorized to sell or waive any right the City may have to call the Series 2015B Bonds for optional redemption.
Optional Redemption of the Series 20J5B Bonds at par. The Series 2015B Bonds maturing on January 1, 2042, are subject to redemption prior to maturity at the option ofthe City, in whole or in part, on any date on or after January 1, 2025, and if less than all of the outstanding Series 2015B Bonds of such maturity are to be redeemed, the Series 2015B Bonds called shall be called in such principal amounts as the City shall determine, at a redemption price equal to the principal amount of the Series 2015B Bonds of such maturity being redeemed plus accrued interest to the date fixed for redemption.
The City is authorized to sell or waive any right the City may have to call any ofthe Series 2015B Bonds for optional redemption, in whole or in part.
If less than all of the Series 2015B Bonds are to be redeemed prior to maturity, the particular Series 2015B Bonds to be redeemed shall be selected on a pro-rata basis as described in the Official Statement.
Mandatory Redemption of the Series 2015B Bonds.
The Series 2015B Bonds due January 1, 2033, are subject to mandatory redemption prior to maturity, at par and accrued interest to the date fixed for redemption, on January 1 of the following years and in the following principal amounts:
Year Principal Amount
$ 10,665,000
9,990,000
3,050,000
3,300,000
3,620,000
3,950,000
45,105,000
55,175,000
154,145,000
2033* 32,695,000
* Final Maturity
The Series 20I5B Bonds due January I, 2042, are subject to mandatory redemption prior to maturity, at par and accrued interest to the date fixed for redemption, on January I of the following years and in the following principal amounts:
Year Principal Amount
$ 73,925,000
173,680,000
18,845,000
15,495,000
16,800,000
25,525,000
32,385,000
17,505,000
2042* 18,900,000
* Final Maturity
Exhibit A Preliminary Official Statement
Exhibit B-l Supplemental Opinion of Co-Bond Counsel
July _, 2015
City of Chicago
Morgan Stanley & Co. LLC Chicago, Illinois
as Representative ofthe Underwriters
named in the Bond Purchase Agreement
described below (the "Underwriters")
Re: City of Chicago
$ ,000 General Obligation Bonds, Series 2015A
(the "Series 2015A Bonds") $742,860,000 General Obligation Bonds, Taxable Series 2015B (the "Series 2015B Bonds")
Ladies and Gentlemen:
We have on this date delivered to you our approving opinions (the "Approving Opinions") in connection with the issuance by the City of Chicago (the "City") of the above-referenced obligations (collectively, the "Bonds"). The Series 2015A Bonds have been delivered this date to the Underwriters pursuant to the terms of the Bond Purchase Agreement dated July 16, 2015, between the City and the Underwriters (the "Series 2015A Bond Purchase Agreement") and the Series 2015B Bonds have been delivered this date to the Underwriters pursuant to the terms of the Bond Purchase Agreement dated July 15, 2015, between the City and the Underwriters (the "Series 2015B Bond Purchase Agreement" and, together with the Series 2015A Bond Purchase Agreement, the "Bond Purchase Agreements "). Capitalized terms used herein without definition shall have the meanings ascribed to such terms in the hereafter defined Official Statement.
Based upon our examination as Bond Counsel of the proceedings described in the Approving Opinions, we are of the opinion that:
1. Pursuant to an ordinance adopted by the City Council on the 17th day of June, 2015, authorizing the issuance of the Bonds (as supplemented by a Notification of Sale, the "Bond Ordinance"), the City has duly authorized, executed and delivered the Bond Purchase Agreements, the Indentures and the Undertaking (together with the Bond Purchase Agreements and the Indentures, the "City Documents"), and, assuming the due authorization, execution, delivery and the binding effect on the other parties thereto, each of the City Documents constitutes a legal, valid and binding obligation of the City, enforceable against the
City in accordance with its respective terms, except that the enforceability of the City Documents may be limited by bankruptcy, insolvency, moratorium, reorganization and other similar laws affecting creditors' rights and by equitable principles, whether considered at law or in equity, including the exercise of judicial discretion.
2. Based upon our examination of such documents and questions of law as we have deemed relevant in connection with the offering and sale of the Bonds under the circumstances described in the Official Statement dated July 16, 2015, relating to the Bonds (the "Official Statement"), we are of the opinion that, under existing law, the Bonds are not required to be registered under the Securities Act of 1933, as amended, and the Bond Ordinance and the Trust Indentures are not required to be qualified under the Trust Indenture Act of 1939, as amended.
Our opinion represents our legal judgment based upon our review of the law and the facts that we deem relevant to render such opinion, and is not a guarantee of a result. This opinion is given as of the date hereof and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention or any changes in law that may hereafter occur.
This opinion is furnished by us as Bond Counsel to the City. No attorney-client relationship has existed or exists between our firm and the Underwriters in connection with the Bonds or by virtue of this opinion. This opinion is solely for the benefit of the Underwriters and the City and may not be used, quoted, relied upon or otherwise referred to for any other purpose or by any other person (including any person purchasing any of the Bonds from the Underwriters) without our prior written consent.
Very truly yours,
Exhibit B-2 Letter of Co-Bond Counsel
July ,2015
Morgan Stanley & Co. LLC Chicago, Illinois
as Representative of the Underwriters
named in the Bond Purchase Agreement
described below (the "Underwriters")
Re: City of Chicago
$ ,000 General Obligation Bonds, Series 2015A
(the "Series 2015A Bonds") $742,860,000 General Obligation Bonds, Taxable Series 2015B (the "Series 2015B Bonds ")
Ladies and Gentlemen:
We have acted as Bond Counsel in connection with the sale and issuance by the City of Chicago (the "City") of the above-referenced obligations (collectively, the "Bonds"). We have rendered our separate opinions, dated the date hereof, as to the validity, enforceability and tax status of interest on the Bonds. The Series 2015A Bonds have been delivered this date to the Underwriters pursuant to the terms of the Bond Purchase Agreement dated July 16, 2015, between the City and the Underwriters (the "Series 2015A Bond Purchase Agreement") and the Series 2015B Bonds have been delivered this date to the Underwriters pursuant to the terms of the Bond Purchase Agreement dated July 15, 2015, between the City and the Underwriters (the "Series 2015B Bond Purchase Agreement" and, together with the Series 2015A Bond Purchase Agreement, the "Bond Purchase Agreements"). Capitalized terms used herein without definition shall have the meanings ascribed to such terms in the hereafter defined Official Statement.
We have not been engaged nor have we undertaken to review or verify the accuracy, completeness or sufficiency of the information contained in or appended to the Official Statement dated July 16, 2015 (the "Official Statement") or other offering material relating to the Bonds, except that in our capacity as Bond Counsel in connection with the issuance ofthe Bonds we have reviewed the information contained in the Official Statement under the captions "Official Statement Summary," "The Bonds" (except for the information relating to The Depository Trust Company and its book-entry system and operations), "Security for the Bonds - General Obligation of the City" (except for any information referenced under such caption contained under the heading "Financial Discussion and
Analysis" and in Appendix D - "Property Taxes") and Appendix A - "Summary of the Indentures," solely to determine whether such information and summaries conform to the Bonds, the ordinance adopted by the City Council of the City on the 17th day of June, 2015, authorizing the issuance ofthe Bonds (as supplemented by the Notification of
Sale dated July ,2015 delivered by the Chief Financial Officer ofthe City, the "Bond
Ordinance") and the Trust Indentures. The purpose of our professional engagement was not to establish or confirm factual matters in the Official Statement, and we have not undertaken any obligation to verify independently any of the factual matters set forth under these captions and reviewed by us. Subject to the foregoing, the summary descriptions in the Official Statement under such captions excepting those matters set forth above, as of the date of the Official Statement and as of the date hereof, insofar as such descriptions purport to describe or summarize certain provisions of the Bonds, the Bond Ordinance and the Trust Indentures, are accurate summaries of such provisions in all material respects. Further, we confirm the opinions attributed to us in the Official Statement and consent to the references to such opinions contained therein. In addition, the information in the Official Statement under the caption "Tax Matters" purporting to describe or summarize our opinions concerning certain federal tax matters relating to the Bonds has been reviewed by us and is an accurate summary in all material respects. Except as specifically described in this paragraph, we express no opinion herein with respect to and have not undertaken to determine independently the accuracy, fairness or completeness of any statements contained, appended or incorporated by reference in the Official Statement.
By acceptance of this letter you recognize and acknowledge that: (i) the preceding paragraph is not a legal opinion but is rather in the nature of observations based on certain limited activities performed by specific lawyers in our firm in our role as Bond Counsel to the City; (ii) the scope of those activities performed by us for purposes of delivering this letter was inherently limited and does not purport to encompass all activities necessary for compliance with applicable securities laws; (iii) those activities performed by us rely on third party representations, warranties, certifications, statements and opinions, including and primarily, representations, warranties and certifications made by the City, and are otherwise subject to the conditions set forth herein; (iv) we have not been engaged to act, and have not acted, as counsel to the Underwriters for any purpose in connection with the issuance of the Bonds; (v) no attorney-client relationship exists or has at any time existed between us and the Underwriters in connection with the Bonds or by virtue of this letter; and (vi) this letter is based upon our review of proceedings and other documents undertaken as part of our engagement with the City, and in order to deliver this letter we neither undertook any duties or responsibilities to the Underwriters nor conducted any activities in addition to those undertaken or conducted for the benefit of, and requested by, the City. Consequently, we make no representation that our review has been adequate for the Underwriters' purposes.
This letter is given as ofthe date hereof and we assume no obligation to revise or supplement this letter to reflect any facts or circumstances that may hereafter come to our attention. This letter is furnished by us as Bond Counsel to the City. This letter is solely for the benefit ofthe Underwriters and the City and may not be used, quoted, relied upon
or otherwise referred to for any other purpose or by any other person (including any person purchasing any of the Bonds from the Underwriters) without our prior written consent.
Very truly yours,
Exhibit B-3
Letters of Special Pension Disclosure Counsel Letter to Underwriters
July ,2015
Morgan Stanley & Co. LLC as Representative of the Underwriters named in the Bond Purchase Agreement described below
Re: $ City of Chicago
General Obligation Bonds, Series 2015A (the "Series 2015A Bonds ") $742,860,000 City of Chicago General Obligation Bonds, Taxable Series 2015B (the "Series 2015B Bonds ")
Ladies and Gentlemen:
We have acted as special disclosure counsel to the City of Chicago (the "City"), solely in connection with the information contained under the caption "Financial Discussion and Analysis - Pensions" and in Appendix E — "Retirement Funds"
(together, the "Pension Sections") of the Preliminary Official Statement dated July ,
2015 (the "Preliminary Official Statement") and the Official Statement dated July ,
2015 (the "Official Statement"), each relating to the Series 2015A Bonds and the Series 2015B Bonds (together, the "Bonds") issued by the City on this date.
In accordance with our understanding with the City, we have reviewed the Pension Sections, certificates of officers of the City and other appropriate persons, and such other records, reports, opinions and documents, and we have made such investigations of law, as we have deemed appropriate as a basis for the conclusion hereinafter expressed. As to facts material to the views expressed herein, we have, with your consent, relied upon oral or written statements or representations of officers or other representatives or agents of or consultants to the City and of or to the Municipal Employees' Annuity and Benefit Fund of Chicago, the Policemen's Annuity and Benefit Fund of Chicago, the Firemen's Annuity and Benefit Fund of Chicago, and the Laborers' and Retirement Board Employees' Annuity and Benefit Fund of Chicago (collectively, the "Retirement Funds "), including the representations and warranties of the City in the Bond Purchase Agreement dated July 16, 2015, with respect to the Series 2015A Bonds, and in the Bond Purchase Agreement dated July 15, 2015, with respect to the Series 2015B Bonds, each between the City and
Morgan Stanley & Co. LLC, on behalf of itself and the other underwriters named therein (collectively, the "Underwriters"). We have not independently verified such matters. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Official Statement.
In arriving at the conclusion hereinafter expressed, we are not expressing any opinion or view on, and with your permission are assuming and relying on, the validity, accuracy and sufficiency of the records, reports, documents, certificates and opinions referred to above (including the accuracy of all factual matters represented and legal conclusions contained therein). We have assumed that all records, reports, documents, certificates and opinions that we have reviewed, and the signatures thereto, are genuine.
We are not passing upon, and do not assume any responsibility for, the accuracy, completeness or fairness of any of the statements contained in the Pension Sections and make no representation that we have independently verified the accuracy, completeness or fairness of any such statements. In our capacity as special disclosure counsel to the City, to assist it in discharging its responsibility with respect to the Pension Sections, we participated in conferences and correspondence with your representatives, representatives of the City, the City's attorneys, Co-Disclosure Counsel to the City, counsel to the Underwriters, and other persons involved in the preparation of information for the Pension Sections, during which the contents of the Pension Sections and related matters were discussed and revised. The purpose of our professional engagement was not to establish or confirm factual matters set forth in the Pension Sections, and we have not undertaken any obligation to verify independently any of the factual matters set forth therein. Moreover, many of the determinations required to be made in the preparation of the Pension Sections involve matters of a non-legal nature. Based on our participation in the above-mentioned conferences and correspondence, and in reliance thereon and on our limited review ofthe records, reports, documents, certificates, statements, representations, warranties, opinions and matters mentioned above, without independent verification, we advise you as a matter of fact and not opinion that, during our engagement as special disclosure counsel to the City in connection with the Pension Sections, no facts came to the attention of the attorneys in our firm rendering legal services in connection with such limited role which caused us to believe that the Pension Sections (apart from the financial statements or other financial, operating, numerical, accounting or statistical data or forecasts, estimates, projections, assumptions or expressions of opinion, or matters of litigation contained or incorporated therein, as to which we do not express any conclusion or belief) contained as of its date or contains as ofthe date hereof any untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. No responsibility is undertaken or statement rendered herein with respect to any other portions of the Preliminary Official Statement or the Official Statement or any other disclosure document, materials or activity, or as to any information from another document or source referred to by or incorporated by reference in the Preliminary Official Statement or the Official Statement.
By acceptance of this letter you recognize and acknowledge that: (i) the preceding paragraph is not a legal opinion but is rather in the nature of negative observations based on certain limited activities performed by specific lawyers in our firm during our engagement to the City as special disclosure counsel in connection with the Pension Sections; (ii) the scope of those activities performed by us for purposes of delivering this letter was inherently limited and does not purport to encompass all activities necessary for compliance with applicable securities laws; (iii) those activities performed by us rely on third party representations, warranties, certifications, statements and opinions, including and primarily, representations, warranties and certifications made by the City, and are otherwise subject to the conditions set forth herein; (iv) we have not been engaged to act, and have not acted, as your counsel for any purpose in connection with the issuance of the Bonds; (v) no attorney-client relationship exists or has at any time existed between us in connection with the Bonds or by virtue of this letter; and (vi) this letter is based upon our review of proceedings and other documents undertaken as part of our engagement with the City, and in order to deliver this letter we neither undertook any duties or responsibilities to you nor conducted any activities in addition to those undertaken or conducted for the benefit of, and requested by, the City. Consequently, we make no representation that our review has been adequate for your purposes.
We express herein no opinion or belief herein with respect to the validity of the Bonds or the taxation thereof or of the interest thereon, and our expression of belief with respect to the Pension Sections assumes the validity of the Bonds and the tax treatment of the interest payable thereon for federal income tax purposes, all as set forth in the opinions of Co-Bond Counsel.
This letter is furnished by us in our limited capacity as special disclosure counsel to the City in connection with the Pension Sections and is solely for the benefit of the Underwriters. This letter may not be used, quoted, relied upon or otherwise referred to for any other purpose or by any other person (including any person purchasing any of the Bonds from the Underwriters) without our prior written consent, except that such letter may be referenced in the Preliminary Official Statement, the Official Statement and the Bond Purchase Agreement with respect to each series of the Bonds and included in the transcript of proceedings for the Bonds. This letter is given as ofthe date hereof and we assume no obligation to revise or supplement this letter to reflect any facts or circumstances that may hereafter come to our attention.
Respectfully submitted,
Letter to City
July ,2015
Re: $ City of Chicago
General Obligation Bonds, Series 2015A (the "Series 2015A Bonds") $742,860,000 City of Chicago General Obligation Bonds, Taxable Series 2015B (the "Series 2015B Bonds")
Ladies and Gentlemen:
We have acted as special disclosure counsel to you, the City of Chicago (the "City"), solely in connection with the information contained under the caption "Financial Discussion and Analysis - Pensions" and in Appendix E — "Retirement Funds"
(together, the "Pension Sections") of the Preliminary Official Statement dated July ,
2015 (the "Preliminary Official Statement") and the Official Statement dated July ,
2015 (the "Official Statement"), each relating to the Series 2015A Bonds and the Series 2015B Bonds (together, the "Bonds"), issued by the City on this date.
In accordance with our understanding with the City, we have reviewed the Pension Sections, certificates of officers of the City and other appropriate persons, and such other records, reports, opinions and documents, and we have made such investigations of law, as we have deemed appropriate as a basis for the conclusion hereinafter expressed. As to facts material to the views expressed herein, we have, with your consent, relied upon oral or written statements or representations of officers or other representatives or agents of or consultants to the City and of or to the Municipal Employees' Annuity and Benefit Fund of Chicago, the Policemen's Annuity and Benefit Fund of Chicago, the Firemen's Annuity and Benefit Fund of Chicago, and the Laborers' and Retirement Board Employees' Annuity and Benefit Fund of Chicago (collectively, the "Retirement Funds"), including the representations and warranties of the City in the Bond Purchase Agreement dated July 16, 2015, with respect to the Series 2015A Bonds, and in the Bond Purchase Agreement dated July 15, 2015, with respect to the Series 2015B Bonds, each between the City and Morgan Stanley, on behalf of itself and the other underwriters named therein (collectively, the "Underwriters"). We have not independently verified such matters. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Official Statement.
In arriving at the conclusion hereinafter expressed, we are not expressing any opinion or view on, and with your permission are assuming and relying on, the validity, accuracy and sufficiency of the records, reports, documents, certificates and opinions referred to above (including the accuracy of all factual matters represented and legal conclusions contained therein, including, without limitation, any representations and legal conclusions regarding the due authorization, issuance, delivery, validity and enforceability of the Bonds, the tax treatment of interest on the Bonds for federal income tax purposes, and the application of Bond proceeds in accordance with the authorization therefor). We have assumed that all records, reports, documents, certificates and opinions that we have reviewed, and the signatures thereto, are genuine.
We are not passing upon, and do not assume any responsibility for, the accuracy, completeness or fairness of any of the statements contained in the Pension Sections and make no representation that we have independently verified the accuracy, completeness or fairness of any such statements. In our capacity as special disclosure counsel to the City, to assist you in discharging your responsibility with respect to the Pension Sections, we participated in conferences and correspondence with representatives of the City, the City's attorneys, Co-Disclosure Counsel to the City, the Underwriters, counsel to the Underwriters, and other persons involved in the preparation of information for the Pension Sections, during which the contents of the Pension Sections and related matters were discussed and revised. The purpose of our professional engagement was not to establish or confirm factual matters set forth in the Pension Sections, and we have not undertaken any obligation to verify independently any of the factual matters set forth therein. Moreover, many of the determinations required to be made in the preparation of the Pension Sections involve matters of a non-legal nature. Based on our participation in the above-mentioned conferences and correspondence, and in reliance thereon and on our limited review of the records, reports, documents, certificates, statements, representations, warranties, opinions and matters mentioned above, without independent verification, we advise you as a matter of fact and not opinion that, during our engagement as special disclosure counsel to the City in connection with the Pension Sections, no facts came to the attention of the attorneys in our firm rendering legal services in connection with such limited role which caused us to believe that the Pension Sections (apart from the financial statements or other financial, operating, numerical, accounting or statistical data or forecasts, estimates, projections, assumptions or expressions of opinion, or matters of litigation contained or incorporated therein, as to which we do not express any conclusion or belief) contained as of its date or contains as of the date hereof any untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. No responsibility is undertaken or statement rendered herein with respect to any other portions of the Preliminary Official Statement or the Official Statement or any other disclosure document, materials or activity, or as to any information from another document or source referred to by or incoiporated by reference in the Preliminary Official Statement or the Official Statement.
By acceptance of this letter you recognize and acknowledge that: (i) the preceding paragraph is not a legal opinion but is rather in the nature of negative observations based
on certain limited activities performed by specific lawyers in our firm during our engagement to the City as special disclosure counsel in connection with the Pension Sections; (ii) the scope of those activities performed by us for purposes of delivering this letter was inherently limited and does not purport to encompass all activities necessary for compliance with applicable securities laws; and (iii) those activities performed by us rely on third party representations, warranties, certifications, statements and opinions, including and primarily, representations, warranties and certifications made by the City, and are otherwise subject to the conditions set forth herein.
We express herein no opinion or belief herein with respect to the validity of the Bonds or the taxation thereof or of the interest thereon, and our expression of belief with respect to the Pension Sections assumes the validity ofthe Bonds and the tax treatment of the interest payable thereon for federal income tax purposes, all as set forth in the opinions of Co-Bond Counsel.
This letter is furnished by us in our limited capacity as special disclosure counsel to the City in connection with the Pension Sections. This letter may not be used, quoted, relied upon or otherwise referred to for any other purpose or by any other person (including any person purchasing any of the Bonds from the Underwriters) without our prior written consent, except that such letter may be referenced in the Preliminary Official Statement, the Official Statement and the Bond Purchase Agreement with respect to each series of the Bonds and included in the transcript of proceedings for the Bonds. This letter is given as of the date hereof and we assume no obligation to revise or supplement this letter to reflect any facts or circumstances that may hereafter come to our attention.
Respectfully submitted,
Exhibit C
Opinion of Corporation Counsel of the City July 21, 2015
Morgan Stanley & Co. LLC, as Representative ofthe Underwriters named in the Bond Purchase Agreement, dated July [16], 2015, between such Underwriters and the City of Chicago
Ladies and Gentlemen:
This opinion is given to you pursuant to Section 10(a)(vi) of that certain Bond Purchase Agreement dated July 16, 2015 (the "2015A Bond Purchase Agreement"), between the City of Chicago (the "City") and Morgan Stanley Co. LLC, as representative of a group of underwriters, with respect to the purchase of the City of Chicago General Obligation Bonds, Series 2015A (the "Series 2015A Bonds") and the Bond Purchase Agreement dated July 15, 2015 (the "2015B Bond Purchase Agreement" and together with the 2015 A Bond Purchase Agreement, the "Bond Purchase Agreements") between the City and Morgan Stanley Co. LLC, as representative of a group of underwriters, with respect to the purchase of the City of Chicago General Obligation Bonds, Taxable Series 2015B (the "Taxable Series 2015B Bonds" and together with the Series 2015A Bonds, the "Bonds"). The Series 2015A Bonds are being issued in accordance with the Trust Indenture between the City and Zions First National Bank, as trustee (the "Trustee") dated as of July 1, 2015 (the "Series 2015A Indenture"). The Taxable Series 2015B Bonds are being issued in accordance with the Trust Indenture between the City and Zions First National Bank, as trustee, dated as of July 1, 2015 (the "Taxable Series 2015B Indenture," and collectively with the Series 2015A Indenture, the "Indentures"). The Bonds are authorized by an ordinance of the City adopted by the City Council ofthe City (the "City Council") on June 17, 2015. Unless otherwise defined herein, capitalized terms used herein shall have the meanings assigned to them in the Bond Purchase Agreements.
In connection with the issuance of the Bonds, I have caused to be examined a certified copy ofthe record of proceedings of the City Council pertaining to the issuance of the Bonds by the City, and executed counterparts, where applicable, of the following documents:
(a) the Ordinance;
the Indentures;
the Bond Purchase Agreements; and
that certain Continuing Disclosure Undertaking dated the date hereof pursuant to the requirements of Section (b) (5) of Rule 15c-12 of the Securities and Exchange Commission (the "Undertaking").
On the basis of such examination and review of such other information, records and documents as was deemed necessary or advisable, I am of the opinion that:
The City is a home rule unit of local government duly organized and existing under the Constitution and laws of the State of Illinois with full power and authority, among other things, to adopt the Ordinance, to authorize the issuance of the Bonds, and to execute and deliver the Indentures, the Bond Purchase Agreements and the Undertaking.
The Bond Purchase Agreements, the Indentures and the Undertaking have been duly authorized, executed and delivered by, and the Ordinance has been duly adopted by, the City, and, assuming the due execution and delivery by the other parties thereto, as appropriate, such instruments constitute legal and valid obligations of the City in each case enforceable in accordance with their respective terms except as may be limited by bankruptcy, insolvency and other laws affecting creditors' rights or remedies and the availability of equitable remedies generally.
To my knowledge, compliance with the provisions of the Bonds, the Ordinance, the Indentures, the Bond Purchase Agreements and the Undertaking does not conflict in a material manner with, or constitute a material breach of or material default under, any applicable law, administrative regulation, court order or consent decree of the State of Illinois, or any department, division, agency or instrumentality thereof or of the United States of America or any ordinance, agreement or other instrument to which the City is a party or is otherwise subject.
To my knowledge, all approvals, consents and orders of and filings (except with respect to state "blue sky" or securities laws) with any governmental authority, board, agency or commission having jurisdiction which would constitute conditions precedent to the performance by the City of its obligations under the Ordinance, the Indentures, the Bond Purchase Agreements, the Undertaking and the Bonds have been obtained.
There is no litigation or proceeding pending, or to my knowledge, threatened, materially affecting the existence ofthe City or seeking to restrain or enjoin the issuance of the Bonds, or contesting the validity or enforceability of the Bonds, the Ordinance, the
Indentures, the Bond Purchase Agreements or the Undertaking, or the completeness or accuracy ofthe Official Statement, or the powers of the City or its authority with respect to the Bonds, the Ordinance, the Indentures, the Bond Purchase Agreements or the Undertaking.
Nothing has come to my attention which would lead me to believe that the Official Statement (excluding information under the captions "THE BONDS - Book-Entry System" relating to the Depository Trust Company ("DTC"), "RATINGS," "UNDERWRITING," and "TAX MATTERS," "APPENDIX B -ECONOMIC AND DEMOGRAPHIC INFORMATION" and "APPENDIX F ~ OPINIONS OF CO-BOND COUNSEL," information sourced to sources other than the City or departments thereof, any information in or omitted from the Official Statement relating to DTC, any information in or omitted from the Official Statement relating to any information furnished by the Underwriters for use in the Official Statement, the financial statements and all other financial and statistical data contained in the Official Statement, including the Appendices thereto) contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading in any material respect.
No opinion is expressed as to any "blue sky" or other securities laws or as to the laws regarding taxation of any state or the United States of America, or any disclosure or compliance related thereto.
The statements contained herein are made in an official capacity and not personally and no personal responsibility shall derive from them. Further, the only opinions that are expressed are the opinions specifically set forth herein, and no opinion is implied or should be inferred as to any other matter or transaction.
No one other than you shall be entitled to rely on this opinion.
Very truly yours,
Stephen R. Patton Corporation Counsel
Exhibit D Opinion of Co-Disclosure Counsel
July 21, 2015
City of Chicago, Illinois
Morgan Stanley & Co. LLC, as Representative of the Underwriters named in the Bond Purchase Agreements (defined herein) between such Underwriters and the City of Chicago
$
CITY OF CHICAGO
$
General Obligation Bonds, Series 2015A
$742,860,000 General Obligation Bonds, Taxable Series 2015B
Ladies and Gentlemen:
We have acted as Co-Disclosure Counsel to the City of Chicago (the "City") in connection with the offering by the City of its General Obligation Bonds, Series 2015A (the "Series 2015A Bonds") and its General Obligation Bonds, Taxable Series 2015B (the "Taxable Series 2015B Bonds" and, together with the Series 2015A Bonds, the "Bonds"). The Bonds are authorized by an ordinance of the City Council of the City (the "City Council") adopted on June 17, 2015, and the Bonds of each Series will be issued pursuant to and secured by a separate Trust Indenture each dated as of July 1, 2015 (collectively, the "Indentures"), between the City and Zions First National Bank, as bond trustee.
This opinion is being rendered pursuant to Section 10(a)(viii) ofthe Bond Purchase Agreement dated July 16, 2015 between the City and Morgan Stanley & Co. LLC, as representative (the "Representative") of the underwriters named therein (the "Underwriters") with respect to the Series 2015A Bonds (the "Series 2015A Bond Purchase Agreement"), and Section 10(a)(viii) ofthe Bond Purchase Agreement dated July 15,2015, between the City and the Representative with respect to the Taxable Series 2015B Bonds (the "Series 2015B Bond Purchase Agreement," and together with the Series 2015 A Bond Purchase Agreement, the "Bond Purchase Agreements"). Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Bond Purchase Agreements.
For purposes of rendering this opinion, we have examined originals or executed copies, certified or otherwise identified to our satisfaction, of: (i) the Indentures, (ii) the
Bond Purchase Agreements, (iii) the Undertaking and (iv) the legal opinions, agreements and certificates delivered in connection with the reoffering of the Bonds. We have also participated in the preparation of the Preliminary Official Statement and the Official Statement. In our examinations, we have assumed the legal capacity of natural persons, the genuineness of signatures on, and the authenticity of, all documents so examined, the conformity to originals of all documents submitted to us as copies, and that all records and other information made available to us, and on which we have relied, are complete in all respects.
Based upon and subject to our examination as described above and subject to the qualifications set forth herein, we are of the opinion that:
No registration is required under the Securities Act of 1933, as amended, with respect to the offering of the Bonds, and neither of the Indentures is required to be qualified under the Trust Indenture Act of 1939, as amended.
The Undertaking complies with the requirements of paragraph (b)(5) of Regulation §240.15c2-12 (Rule 15c2-12) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as in effect as of the date of the Closing.
The statements contained in the Official Statement under the caption "SECONDARY MARKET DISCLOSURE" insofar as such statements purport to summarize certain provisions of the Undertaking, constitute a fair and accurate summary of such provisions.
We are not expressing (and cannot express) any opinion or view with respect to the authorization, issuance, delivery or validity of the Bonds, or the federal tax exemption for the interest paid on the Series 2015A Bonds. Because the purpose of our professional engagement was not to establish factual matters and because of the wholly or partially nonlegal character of many ofthe determinations involved in the preparation of the Official Statement, except as explicitly stated in paragraph 3 above, we are not passing upon nor do we assume responsibility for the accuracy, completeness or fairness ofthe statements contained in the Official Statement and we make no representation that we have independently verified the accuracy, completeness or fairness of such statements. Without limiting the foregoing, we assume no responsibility for, and have not independently verified, the accuracy, completeness or fairness of the financial statements, notes to financial statements, tables and other financial, economic, market and statistical data included or incorporated by reference in the Official Statement and the appendices to the Official Statement, and we have not reviewed the accounting, financial or statistical records from which such financial statements, schedules, appendices and data are derived. We note that we are not experts within the meaning of the Securities Act of 1933, as amended, with respect to such financial statements or schedules or the other financial, economic, market, or statistical data included or incorporated by reference therein. During the preparation of the Official Statement, however, we participated in conferences with you, Co-Bond Counsel, the City's Corporation Counsel, officials, employees and agents ofthe City and Underwriters' counsel at which conferences the contents ofthe Official Statement
and related matters were discussed. On the basis of the foregoing, but without independent verification of factual matters, nothing has come to our attention which would lead us to believe that the Official Statement contains any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact or omits to state a material fact necessary to make the statements therein, at the time and in the light of the circumstances under which they are made, not false or misleading; provided that we express no view as to: (i) financial statements, notes to financial statements, tables and any financial, forward-looking, technical, economic, market and statistical information included in the Official Statement or the Appendices thereto, (ii) the description of DTC and the information under the caption "THE BONDS— Book-Entry System" included in the Official Statement, (iii) any information included in APPENDIX B—"ECONOMIC AND DEMOGRAPHIC INFORMATION," APPENDIX C—"CITY OF CHICAGO BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2014," and APPENDIX E—"RETIREMENT FUNDS," or (iv) the legal opinions or forms thereof included as APPENDIX F—"OPINIONS OF CO-BOND COUNSEL."
Our opinions and views expressed herein are limited to the matters expressly stated herein and no opinion or view is implied or may be inferred beyond the matters expressly stated.
Our opinions and views expressed herein are rendered as ofthe date hereof and are based on existing law which is subject to change. We do not undertake to advise you of any changes in the opinions and views expressed herein from matters that may hereafter arise or be brought to our attention or to revise or supplement such opinions and views should the present laws of any jurisdiction be changed by legislative action, judicial decision, or otherwise.
This opinion and views herein set forth are solely for the information of the addressees hereof and are not to be quoted in whole or in part or otherwise referred to (except in a list of closing documents), nor are they to be filed with any governmental agency or other person, without our prior written consent. Other than the addressees hereof, no one is entitled to rely on this opinion and views herein set forth.
Very truly yours,
Exhibit E
Representation Letter
City of Chicago Department of
Morgan Stanley & Co. LLC
as Representative of the Underwriters
named in the Bond Purchase Agreements,
dated July 15, 2015 and July 16, 2015,
between such Underwriters and the City of
Chicago
Pursuant to the Bond Purchase Agreement dated July 16, 2015 (the "2015A Bond Purchase Agreement"), among the City of Chicago (the "City") and Morgan Stanley & Co. LLC, as representative (the "Representative") of the underwriters named therein (each an "Underwriter") relating to the City's General Obligation Bonds, Series 2015A (the "Series 2015A Bonds"), and the Bond Purchase Agreement dated July 15, 2015 (the "2015B Bond Purchase Agreement" and together with the 2015A Bond Purchase Agreement, the "Purchase Agreement"), among the City and the Representative of the Underwriters relating to the General Obligation Bonds, Taxable Series 2015B (the "Series 2015B Bonds" and, together with the Series 2015 A Bonds, the "Bonds"), each of the undersigned Underwriters severally represents to the City that:
(1) Neither the Underwriter, nor any Affiliate thereof is listed on any of the following lists maintained by the Office of Foreign Assets Control ofthe U.S. Department of the Treasury, the Bureau of Industry and Security of the U.S. Department of Commerce, the U.S. Department of State or their successors, or on any other list of persons or entities with which the City may not do business under any applicable law, rule, regulation, order or judgment: the Specially Designated Nationals List, the Denied Persons List, the Unverified List, the Entity List, the List of Statutorily Debarred Parties and the Excluded Parties List.
For purposes of this representation, "Affiliate," when used to indicate a relationship with a specified person or entity, means a person or entity that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with such specified person or entity, and a person or entity shall be deemed to be controlled by another person or entity, if controlled in any manner whatsoever that results in control in fact by that other person or entity (or that other person or entity and any persons or entities with whom that other person or entity is acting jointly or in concert), whether directly or indirectly and whether through share ownership, a trust, a contract or otherwise.
(2) The undersigned Underwriters agree that in the event that any Underwriter or any of its Affiliates appears on any of the lists described in paragraph (1) above, at any time prior to the Closing (as defined in the Purchase Agreement) with respect to the Bonds, that Underwriter shall be deemed to have submitted to the
Representative its Withdrawal From Agreement Among Underwriters.
IN WITNESS WHEREOF, the parties hereto have caused this Representation Letter in connection with the Bonds to be executed by their duly authorized representatives as of the date written below.
Dated:
MORGAN STANLEY & CO. LLC
By:
Its: Managing Director
By: Its:
SEIBERT BRANDFORD SHANK & CO., ACADEMY SECURITIES, INC. LLC
By: Its:
By: Its:
BMO CAPITAL MARKETS GKST INC. CITIGROUP GLOGAL MARKETS, INC.
By: Its:
By: Its:
ESTRADA HINOJOSA & COMPANY, INC.
By:
Its:
GEORGE K. BAUM & COMPANY
By:
Its:
J.J.B. HILLIARD, W.L. LYONS, LLC
By: Its:
By: Its:
NORTH SOUTH CAPITAL LLC
By: Its:
FN WITNESS WHEREOF, the parties hereto have caused this Representation Letter in connection with the Bonds to be executed by their duly authorized representatives as of the date written below.
Dated: July 16,2015 MORGAN STANLEY & CO. LLC
Its: Managing Director
WILLIAM BLAIR & COMPANY
By:
Its:
SEIBERT BRANDFORD SHANK & CO., ACADEMY SECURITIES, INC. LLC
By: Its:
By: Its:
BMO CAPITAL MARKETS GKST INC. CITIGROUP GLOGAL MARKETS, INC.
By: Its:
By:. Its:
ESTRADA HINOJOSA & COMPANY, INC.
By:
Its:
GEORGE K. BAUM & COMPANY
By:
Its:
J.J.B. MILLIARD, W.L. LYONS, LLC
By: Its:
By: Its:
NORTH SOUTH CAPITAL LLC
By: Its:
IN WITNESS WHEREOF, the parties hereto have caused this Representation Letter in connection with the Bonds to be executed by their duly authorized representatives as of the date written below.
Dated: July 16,2015 MORGAN STANLEY & CO. LLC
By:
Its: Managing Director
By: Its:
SEIBEJ^TBRANDFORD SHANK & CO., ACADEMY SECURITIES, INC. LI
By: Its:
BMO CAPITAL MARKETS GKST INC. CITIGROUP GLOGAL MARKETS, INC.
By:. Its:
By: Its:
ESTRADA HINOJOSA & COMPANY, INC.
By:
Its:
GEORGE K. BAUM & COMPANY
By:
Its:
J.J.B. HILLIARD, W.L. LYONS, LLC
By: Its:
By: Its:
NORTH SOUTH CAPITAL LLC
By: Its:
IN WITNESS WHEREOF, the parties hereto have caused this Representation Letter in connection with the Bonds to be executed by their duly authorized representatives as of the date written below.
Dated: July 16,2015
MORGAN STANLEY & CO. LLC WILLIAM BLAIR & COMPANY
By: By:
Its: Managing Director Its:
S EI BERT BRANDFORD SHANK & CO., ACADEMY SECURITIES, INC.
LLC
J.J.B. HILLIARD, W.L. LYONS, LLC MELVIN & COMPANY
By: By:
Its: Its:
NORTH SOUTH CAPITAL LLC
By: Its:
IN WITNESS WHEREOF, the parties hereto have caused this Representation Letter in connection with the Bonds to be executed by their duly authorized representatives as of the date written below.
Dated: July 16,2015 MORGAN STANLEY & CO. LLC
By:
Its: Managing Director
SEIBERT BRANDFORD SHANK & CO., LLC
By:
Its:
BMO CAPITAL MARKETS GKST INC.
By:
Its:
J.J.B. HILLIARD, W.L. LYONS, LLC
By: Its:
ESTRADA HINOJOSA & COMPANY,
WILLIAM BLAIR & COMPANY
By:
Its:
ACADEMY SECURITIES, INC.
By:
Its:
CITIGROUP GLOGAL MARKETS, INC.
By:
Its:
GEORGE K. BAUM & COMPANY
By:
Its:
MELVIN & COMPANY
By:
Its:
NORTH SOUTH CAPITAL LLC
By: Its:
IN WITNESS WHEREOF, the parties hereto have caused this Representation Letter in connection with the Bonds to be executed by their duly authorized representatives as of the date written below.
Dated: July 16,2015 MORGAN STANLEY & CO. LLC
By:
Its: Managing Director
SEIBERT BRANDFORD SHANK & CO., LLC
By:
Its:
BMO CAPITAL MARKETS GKST INC.
By:
Its:
ESTRADA HINOJOSA & COMPANY, INC.
By: Its:
WILLIAM BLAIR & COMPANY
By: i
Its:
ACADEMY SECURITIES, INC.
By: :
Its:
CITIGROUP GLOGAL MARKETS, INC.
By:
Its:
GEORGE K. BAUM & COMPANY
By:
Its:
MELVIN & COMPANY
By:
Its:
NORTH SOUTH CAPITAL LLC
By: Its:
IN WITNESS WHEREOF, the parties hereto have caused this Representation Letter in connection with the Bonds to be executed by their duly authorized representatives as of the date written below.
Dated: July 16,2015 MORGAN STANLEY & CO. LLC
By: .
Its: Managing Director
SEIBERT BRANDFORD SHANK & CO., LLC
By:. Its:
ACADEMY SECURITIES, INC.
By: Its:
By:. Its:
BMO CAPITAL MARKETS GKST INC. CITIGROUP GLOBAL MARKETS, INC.
By: Its:
By: Its:
ESTRADA HINOJOSA &. COMPANY, INC.
By:. Its:
GEORGE K. BAUM & COMPANY
By:
Its:
J.J.B. H1LLIARD, W.L. LYONS, LLC
By: Its:
By:. Its:
IN WITNESS WHEREOF, the parties hereto have caused this Representation Letter in connection with the Bonds to be executed by their duly authorized representatives as of the date written below.
Dated: July 16,2015 MORGAN STANLEY & CO. LLC
By:
Its: Managing Director
SEIBERT BRANDFORD SHANK & CO., ACADEMY SECURITIES, INC. LLC
By:. Its:
By: Its:
BMO CAPITAL MARKETS GKST INC. CITIGROUP GLOGAL MARKETS, INC.
By:. Its:
By:. Its:
ESTRADA HINOJOSA & COMPANY, INC.
By:
Its:
GEORGE K. BAUM & COMPANY
By:
Its:
J.J.B. HILLIARD, W.L. LYONS, LLC
By: Its:
By:. Its:
NORTH SOUTH CAPITAL LLC
By: Its:
IN WITNESS WHEREOF, the parties hereto have caused this Representation Letter in connection with the Bonds to be executed by their duly authorized representatives as of the date written below.
Dated: July 16, 2015 MORGAN STANLEY & CO. LLC
By:
Its: Managing Director
SEIBERT BRANDFORD SHANK & CO. LLC
By: Its:
By: Its:
BMO CAPITAL MARKETS GKST INC. CITIGROUP GLOGAL MARKETS, INC.
By: Its:
By: Its:
ESTRADA HINOJOSA & COMPANY, INC.
By:
Its:
GEORGE K. BAUM & COMPANY
By:
Its:
J.J.B. HILLIARD, W.L. LYONS, LLC
By: Its:
By: Its:
NORTH SOUTH CAPITAL LLC
By: Its:
IN WITNESS WHEREOF, the parties hereto have caused this Representation Letter in connection with the Bonds to be executed by their duly authorized representatives as of the date written below.
Dated: July 16, 2015
MORGAN STANLEY & CO. LLC WILLIAM BLAIR & COMPANY
By: By:
Its: Managing Director Its:
SEIBERT BRANDFORD SHANK & CO., ACADEMY SECURITIES, INC. LLC
BMO CAPITAL MARKETS GKST INC
By:
Its:
ESTRADA HINOJOSA & COMPANY, INC.
By:_ Its:
By:
Its:
J.J.B. HILLIARD, W.L. LYONS, LLC
By:
Its:
NORTH SOUTH CAPITAL LLC
By: Its:
IN WITNESS WHEREOF, the parties hereto have caused this Representation Letter in connection with the Bonds to be executed by their duly authorized representatives as of the date written below.
Dated: July 16, 2015 MORGAN STANLEY & CO. LLC
By:
Its: Managing Director
WILLIAM BLAIR & COMPANY
By:
Its:
SEIBERT BRANDFORD SHANK & CO., ACADEMY SECURITIES, INC.
LLC
By: By:
Its: Its:
BMO CAPITAL MARKETS GKST INC.
By:
Its:
CITIGROUP GLOGAL MARKETS, INC.
By:
Its:
ESTRADA HINOJOSA & COMPANY, INC.
By:
Its:
J.J.B. HILLIARD, W.L. LYONS, LLC
By: Its:
By: Its:
NORTH SOUTH CAPITAL LLC
By: Its:
IN WITNESS WHEREOF, the parties hereto have caused this Representation Letter in connection with the Bonds to be executed by their duly authorized representatives as of the date written below.
Dated: July 16,2015 MORGAN STANLEY & CO. LLC
By:
Its: Managing Director
By: Its:
SE1BERT BRANDFORD SHANK & CO., ACADEMY SECURITIES, INC. LLC
By: Its:
By: Its:
BMO CAPITAL MARKETS GKST INC. CITIGROUP GLOBAL MARKETS, INC.
By:. Its:
By:. Its:
ESTRADA HINOJOSA & COMPANY, INC.
By: Its:
GEORGE K. BAUM & COMPANY
By:
Its:
J.J.B. HILLIARD, W.L. LYONS, LLC
By:. Its:
NORTH SOUTH CAPITAL LLC
By: Its:
Exhibit 3
Official Statement Dated July 16,2015
NEW ISSUE-GLOBAL BOOK ENTRY
Subject lo compliance by Ihe Cily u>ilh certain covenants, in the respective opinions of Chapmtin mid Culler LLP, Chicago, Illinois, and the Ilardwick Lam Finn LLC, Chicago, Illinois, Co-Bond Counsel, under present law, interest on Ihe Series 2015A Bonds is excludable from gross income of the owners IhereoJ for Jederal. income tax purposes and is not included as an item, of la.i: preference in computing the federal alternative mi nimitin tax for individuals and corporations, but such interest is taken into account in computing an adjustment, used in de-termini ny the federal alternative minimum tax for certain corporal ions. Interest on the Taxable Scries 2015B Bonds is includible in gross income of Ihe owners thereof for federal income tax purposes. Interest on the Bonds is not exempt from present State of Illinois income fates. See "TAXMATTERS"hereinJor a more complete discussion.
$345,530,000 General Obligation Bonds Series 2015A
$742,860,000 General Obligation Bonds Taxable Series 2015B
Due: January 1, as shown on the inside front cover
The General Obligation Bonds, Scries 2015A (the "Scries 2015A Bonds") and the General Obligation Bonds, Taxable Series 2015B (the "Taxable Scries 2015B Bonds" and together with the Series 2015A Bonds, the "Bonds") are issuable as fully registered bonds and will be registered in the name of Cede & Co., as registered owner and nominee of The Depository Trust Company, New York, New York ("DTC"). DTC will act as securities depository for the Bonds. Purchasers of the Bonds will not receive certificates representing their interests in the Bonds purchased. Ownership by the beneficial owners ofthe Bonds will be evidenced by book-entry only. The Series 2015A Bonds are issuable in denominations of $5,000 or any integral multiple thereof. The Taxable Series 2015B Bonds are issuable in denominations of $1,000 or any integral multiple ihereof.
Interest on the Bonds will accrue from the date of issuance and be payable on each January 1 and July 1, commencing January 1, 2016. Principal of anil interest on the Bonds will be paid by Zions First National Bank, Chicago, Illinois, as tnist.ee under each of the Indentures described herein, to DTC, which in turn will remit such principal and interest payments to its participants for subsequent disbursement I o Ihe beneficial owners ofthe Bonds. As long as Cede & Co. is the registered owner as nominee of DTC, payments on the Bonds will he made to such registered owner, and disbursal of such payments will be the responsibility of DTC and its participants. See "THE BONDS — Book-Entry System."
The proceeds of the Bonds will be used to (i) repay indebtedness incurred by the Cily under its Short Term Borrowing Program described herein; (ii) fund the cost, of terminating the sale/leaseback of Ihe Orange Line rapid transit rail line; (iii) reimburse the City's General Fund for the cost of terminating an interest rate swap associated with the City's sales tax revenue bonds; (iv) fund certain capitalized interest on the Bonds; and (v) pay costs of issuance ofthe Bonds. See "PLAN OF FINANCING."
The Bonds are subject to redemption prior lo maturity as described herein. See "THE BONDS — Redemplion."
For maturities, principal amounts, interest rates, yields, prices and CUSIP numbers ofthe Bonds, see the inside front cover.
The Bonds are direct and general obligations of the City anil all taxable property in the City is subject to the levy of ad valorem property taxes to pay the Bonds and the interest thereon without limitation as to rate or amount. The City has pledged its full faith and credit for the payment of the principal of and interest on the Bonds. Sec "SECURITY FOR THE BONDS" herein.
Prospective investors should read this Official Statement in its entirety prior lo making an investment decision to purchase the Bonds.
The Bonds arc being qlfercdmh.cn , as and if issued, and subject lo I lie delivery of approving legal opinions by Chapman and Cutler LLP, Chicago, Illinois, and Ihe Ilardwick Law Firm LLC, Chicago, Illinois, Co-Bond Counsel, and to certain other conditions. Certain legal mailers mill be passed on Jor Ihe Cily by (i) its Coiporalion Counsel, (ii) in connect ion will/ Hie pivparalion of this Otlicial Statement, Dunne Morris LLP. Chicago, Illinois, and Slianalian # Shanalian LLP. Chicago, Illinois, Co-Disclosinc Counsel to the Citij. and (iii) in cnniicrlion with certain pension malteis described in this Ojlicial Statement, Chapman and Culler LLP, Chicago, Illinois. Special Disclosure Counsel, to the Cily Certain legal matters will be passed on Jor ihe Underwriters by Maijcr Brown LLP, Chicago, Illinois, Underwriters' Counsel. It is expected that the Bonds will be available for diJincry Ihiough. ihejarililies of DTC on or about -Inly 21, 2015
Sicbert Branded Shank & Co., L.L.C Academy Securities, inc. Estrada Hinojosa & Company, Inc. Melvin & Company
Morgan Stanley
BMO Capital Markets George K. Baum & Company
William Blair
Citigroup J.J.B. Hilliard, W.L. Lyons, LLC North South Capital LLC
D.ilfil July U-,, 201 fi
MATURITIES, AMOUNTS, INTEREST RATES, YIELDS, PRICES AND CUSIP NUMBERS
City of Chicago General Obligation Bonds
Scries 2015A
Maturity (January 1)
2019 2020 2021 2022 2023 2024 2026 2027 2028 2029 2034 2035
Principal Amount
$4,965,000 7,380,000 7,870,000 8,320,000 8,845,000 5,415,000 19,390,000 24,925,000 33,585,000 35,275,000 36,430,000 16,420,000
Interest Kate
5.000% 5 000 5 000 5.000 5 000 5 000 5 000 5 250 5 250 5.375 5 500 5 500
Yield
3.900% 4 110 4 400
720 4.940 5.090 5.290
370 5 450 5 530 5 660 5 670
Price
103 511% 103 579 102 874 101 537 100 366 99 385
692 98.980
206 98.539 98 179 98 008
CUSIP*
I67486WC9
167486WD7
167486WE5
167486WF2
167486WG0
167486WI-18
167486WJ4
167486WK1
167486WL9
1674S6Wrvl7
167486WP0
I67486WQ8
$88,100,000 5.500% Term Bonds due January 1.2033, Yield 5 640%, Price 98 454% CUSIP 167486WN5 $48,610,000 5.500% Term Bonds due January 1, 2039, Yield 5.690%, Price 97 553% CUSIP 167486WR6
Taxable Series 2015B
Maturity Principal
(January 1) Amount Interest Rate Yield Price CUSIP
$5,020,000 5 383% 5 383% 100 000% I67486VX4
5,290,000 5.633 5 633 100 000 I67486VY2
5,585,000 5 962 5 962 100 000 I67486VZ9
5,920,000 6.212 6 212 100 000 I67486WA3
6,290,000 6 361 6 361 100 000 I67486WB1
$321,695,000 7 375% Term Bonds due January I, 2033, Yield 7 446%, Price 99.309% CUSIP 167486VV8 $393,060,000 7.750% Teim Bonds due January 1, 2042, Yield 7 962%, Puce 97 666% CUSIP: I67486VW6
* Copyright 2(115, American Hankers Association CUSIP data herein aie provided hy Standard & Pour's, CUSIP Seiviee Bureau, a Division of The McGraw-Hill Companies, Ine "flic CUSIP numbers listed are being provided solely for ihe convenience of Ihe bondholders only at ihe lime of sale of ihe Bonds and the Cily does not make any representation with respect 10 such numbcis or undertake any responsibility for their accuracy now or al any time in the future 'I he CUSIP number fur a specific matin ity is subiect lo change after the .sale of ihe Bonds as a result ol various subsequent actions including, but mil limited lo. .i refunding in whole or in pari of such maturity or as a result ol" ihe procurement of secondary market poiifoho insurance or other similar enhancement bv investors thai is applicable to all or a portion of certain maturities of ihe Bonds
CITY OF CHICAGO
MAYOR
Rahm Emanuel
CITY TREASURER
Kurt A. Summers, Jr
CITY CLERK
Susana A. Mendoza
CITY COUNCIL COMMITTEE ON FINANCE
Edward M. Burke, Chairman
CHIEF FINANCIAL OFFICER
Carole L. Brown
CITY COMPTROLLER
Daniel Widawsky
BUDGET DIRECTOR
Alexandra Holt
CORPORATION COUNSEL
Stephen R. Patton, Esq.
CO-BOND COUNSEL Chapman and Cutler LLP Chicago, Illinois
Ilardwick Law Firm LLC Chicago, Illinois
CO-DISCLOSURE COUNSEL
Duane Morris LLP Chicago, Illinois
Shanahan & Shanahan LLP Chicago, Illinois
SPECIAL PENSION DISCLOSURE COUNSEL
Chapman and Cutler LLP Chicago, Illinois
FINANCIAL ADVISOR
Acacia Financial Group, Inc
Certain information contained in, or incorporated by reference in, this Official Statement has been obtained by the City of Chicago (the "City") from The Depository Trust Company and other sources that are deemed reliable No representation or warranty is made, however, as lo the accuracy or completeness of such information by the Underwriters or the City. The Underwriters have provided the following sentence for inclusion in this Official Statement The Underwriters reviewed the information in this Official Statement in accordance with, and as part of, their respective responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but ihe Underwriters do nol guaianlee ihe accuracy or completeness of such information This Official Statement is being used in connection with the sale of securities as referred lo hciein and may not be used, in whole or in pan, for any other purpose The delivery of this Official Statement at any time does not imply that information herein is correct as of any time subsequent to its date
No dealer, broker, salesperson or any other person has been authorized by the City or the Underwriters to give any information or to make any representation other lhan as contained in this Official Statement in connection with the offering ofthe Bonds described herein and, if given or made, such other information or representation must not be relied upon as having been authorized by any ofthe foregoing This Official Statement docs not constitute an offer to sell or the solicitation of an offer to buy any securities other lhan Ihosc described on the cover page, nor shall there he any offer lo sell, solicitation of an offer to buy or sale of such securities in any jurisdiction in which it is unlawful lo make such offer, solicitation or sale Neither this Official Stalcmcnt nor any statement lhal may have been made verbally or in writing is to be construed as a contract with the registered or beneficial owners ofthe Bonds.
This Official Statement, including the Appendices (except for certain information in (i) APPENDIX B—"ECONOMIC AND DEMOGRAPHIC INFORMATION" and (n) "Source Information'" as defined and used in APPENDIX E—"RETIREMENT FUNDS," all of which is sourced lo parties other than the City), contains certain opinions, estimates and forward-looking statements and information, including the estimates and projections set forth under the caption "FINANCIAL DISCUSSION AND ANALYSIS—General Fund—General Fund Financial Forecasts," that arc based on ihe City's beliefs as well as assumptions made by and information currently available to the City Such opinions, estimates, projections and forward-looking statements set forth in this Official Statement were not prepared with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respeel lo prospective financial information, bul, in the view of the Cily. were prepared on a reasonable basis, reflect the best currently available estimates and judgments, and present, to the best of the City's knowledge and belief, the expected course of action and the expected future financial performance ofthe City. However, this information is not fact and should not be relied upon as being necessarily indicative of future results, and readers of this Official Statement arc cautioned not to place undue reliance on such opinions, statements or prospective financial information.
Ihe prospective financial information set forth in this Official Statement, except for certain information sourced to parties other than the City, is solely the product of the City Neither the City's independent auditors, nor any other independent auditors, have compiled, examined, or performed any procedures with respect to, or been consulted in connection with the preparation of, the prospective financial information and forward-looking statements contained herein Ihe City's independent auditors assume no responsibility for the content of the prospective financial information set forth in this Official Statement, including any 2015 year-end estimates and 2016-2017 projections, disclaim any association with such prospective financial information, and have not, nor have any other independent auditors, expressed any opinion or any other form of assurance on such information or its aehicvability
References to web site addresses presented in this Ollicial Statement are for informational purposes only and ma> be in the form of a hyperlink solely for the reader's convenience Unless specified otherwise, such web sites and Ihe information or links contained therein are not incorporated into, and are not part of, this Official Statement
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY IHE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURIIIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS OFFICIAL STATEMENT ANY REPRLSENIATION TO THE CON TRARY MAY BE A CRIMINAL OFFENSE
THE BONDS HAVE NOI" BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR HAVE THE INDENTURES BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED. IN RELIANCE UPON EXEMPT IONS CONTAINED IN SUCH ACTS THE REGIST RATION OR QUALIFICATION OF THE BONDS IN ACCORDANCE WITH APPLICABLE PROVISIONS OF LAW OF THE STATES IN WHICH THE BONDS HAVE BEEN REGISTERED OR QUALIFIED AND T HE EXEMPTION I ROM REGISTRATION OR QUALIMCA ITON IN OITIER STATES CANNOT BE REGARDED AS A RECOMMENDAT ION THEREOF
IN CONNECTION WITT I THE OFFERING OF THE BONDS. THE UNDERWRIT ERS MAY OVLRALI.OT OR EFFECT TRANSAC HONS THAT STABILIZE OR MAINTAIN I HE MARKET PRICES OF THE BONDS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET" SUCH STABILIZING. II COMMENCED, MAY BE DISCONTINUED AT ANY TIME THE PRICES AND OTHER TERMS RESPECTING Till" OFFERING AND SALE OF IT IE BONDS MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITERS AFTTR THE BONDS ARE RELEASED FOR SAI E. AND THE BONDS MAY BE OFFERED AND SOLD AT PRICES OTHLR T 1 [AN THE INITIAL OFFERING PRICES. INCLUDING SALES TO DEALERS WHO MAY SELL THE BONDS INK) INVES I MEN I ACCOUNTS
OFFICIAL STATEMENT SUMMARY
777/5 summary is subject in all respects to the more complete information and definitions contained in this Official Statement Prospective investors are cautioned not to rely solely upon this summary when considering whether to purchase the Bonds. Prospective investors should review this Official Statement in its entirety prior to purchasing the Bonds.
THE ISSUER City of Chicago (the "City") See "THE CITY "
THE BONDS $1,088,390,000 City of Chicago General Obligation Bonds, consisting of
$345,530,000 General Obligation Bonds, Series"2015A (the "Series 20ISA Bonds'") and $742,860,000 General Obligation Bonds, Taxable Series 2015B (the Taxable Series 20I5B Bonds" and together with the Series 20ISA Bonds, the "Bonds") The Bonds of each Series will be dated the date of their delivery and mature in the principal amounts and on the dates as set forth on the inside cover of this Official Statement See "THE BONDS "
PAYMENT OF INTEREST Interest on the Bonds of each Series will accrue from ihe date of issuance and
be payable on each January 1 and July I, commencing January 1, 2016. The Bonds of each Series will bear interest at the rales per year as set forth on Ihe inside cover of this Official Statement Interest on the Bonds of each Series is computed on ihe basis of a 360-day year consisting of twelve 30-day months See "THE BONDS—General "
REDEMPTION
Optional Redemption The Scries 2015A Bonds maturing on and after January I, 2026 ate subject to
optional redemption, on any date occurring on or after January I, 2025, at a Redemption Price of 100% of the principal amount thereof being redeemed plus accrued interest, if any, to the date of redemption
See "THE BONDS—Redemption—Optional Redemption of the Series 21)ISA Bonds "
The Taxable Series 20I5B Bonds maturing on or before January 1, 2033 are subject to redemption prior to maturity at the option ofthe City, m whole or in part, on any Business Day at a Redemption Price equal to the greater of: (A) 100% of the principal amount of such Taxable Series 2015B Bonds to be redeemed, or (B) the sum of the present values of ihe remaining scheduled payments of principal and interest on such Bonds to be redeemed, not including any portion of those payments of interest accrued and unpaid as of the date such Bonds arc to be redeemed, discounted lo the date of redemption of such Bonds to be redeemed on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rale plus 50 basis points plus, in each case, accrued interest on such Bonds being redeemed to the dale fixed lor redemption
See "THE BONDS—Redemption—Optional Redemption ofllie Taxable Series 20158 Bonds al Make-Whole Price "
The Taxable Series 20I5B Bonds maturing on January I, 2042 are subject to optional redemption, on any date occuning on oi aflet January I. 2025. at a Redemption Puce of 100% of the principal amount thereof being redeemed plus accrued irilctcsl, if any. lo the date of redemption
See "THE BONDS—Redemption—Optional Redemption of ihe Payable Sei ies 201 SB Bonds al Pai "
S-l
Mandatory Redemption The Series 20I5A Bonds due January I, 2033 are subject to mandatory
redemption prior to maturity, al par and accrued interest lo the date fixed for redemption, on January 1 ofthe years 2031 and 2032
The Scries 2015A Bonds due January 1, 2039 are subject to mandatory redemption prior lo maturity, at par and accrued interest lo the date fixed for redemption, on January I of the years 2036 through 2038
The Taxable Series 20I5B Bonds due January I, 2033 are subject to mandatory redemption prior to maturity, at par and accrued interest to the date fixed for redemption, on January 1 ofthe years 2024 through 2032
The Taxable Scries 2015B Bonds due January I, 2042 arc subject to mandatory redemption prior lo maturity, at par and accrued interest to the date fixed for redemption, on January I of ihe years 2034 through 2041
See "THE BONDS—Redemption—Mandatory Redemption."
AUTHORITY FOR ISSUANCE The Bonds are being issued under the authority granted to the City as a home
rule unit of local government under the Illinois Constitution of 1970 and are authorized by an ordinance adopted by the City Council of the Cily (the "City Council") on June 17, 2015 (the "Bond Ordinance"). Each Series ofthe Bonds is being issued pursuant to a separate Trust Indenture, each dated as of July 1, 2015, between the City and Zions First National Bank, as trustee (the "Trustee")
USE OF PROCEEDS The proceeds of the Bonds will be used to (i) repay indebtedness incurred by
the City under us Short Term Borrowing Program described herein; (n) fund Ihe cost of terminating the sale/leascback ofthe Orange Line rapid transit rail line; (iii) reimburse the City's General Fund for the cost of terminating an interest rate swap associated with the City's sales tax revenue bonds; (iv) fund capitalized interest on the Bonds, and (v) pay costs of issuance ofthe Bonds. See "PLAN OF FINANCING" and "SOURCES AND USES OF FUNDS."
SECURITY FOR THE BONDS The Bonds of each Series will be direct and general obligations ofthe City and
all taxable property in the City is subject to the levy of ad valorem property-taxes to pay the Bonds and the interest thereon without limitation as to rate or amount. The Bonds of each Series shall be payable, as to principal and interest, from any moneys, revenues, receipts, income, assets or funds of ihe Cily legally available for such purpose, including, but not limited lo, the proceeds allocable to such Scries of a direct annual lax levied by the Cily in the Bond Ordinance upon all taxable property located in the City sufficient to pay Ihe principal of and interest on the Bonds The City has pledged its full faith and credit to the payment of the Bonds See "SECURITY FOR THE BONDS—General Obligation ofthe Cily "'
For a discussion of Ihe process by which properly taxes are levied, billed, collected and remitted to Ihe Trustee for each Series ofthe Bonds for payment of Ihe principal of" and interest on such Bonds, sec "SECURITY FOR THE BONDS—Property Tax Collection Process for the Bonds "'
INVESTMENT
CONSIDERATIONS There are a number of factors associated with owning the Bonds that
prospective investors should consider prior to purchasing the Bonds For a discussion of these factors, sec "TNVLSTMEN I'CONSIDERATIONS "
S-2
TRUSTEE Zions First National Bank, Chicago, Illinois, as trustee under each of the
Indentures
TAX MATTERS . ... . Subject to compliance by the Cily with certain covenants, in the respective
opinions of Co-Bond Counsel, under present law, interest on the Series 20I5A Bonds is excludable from gross income of the owners theieof for federal income tax purposes and is not included as an item of tax preference in computing the federal alternative minimum tax for individuals and corporations, but such interest is taken into account in computing an adjustment used in determining the federal alternative minimum tax for certain corporations Interest on the Taxable Series 2015B Bonds is includible in gross income ofthe owners thereof for federal income tax purposes Interest on Ihe Bonds is nol exempt from present State of Illinois income taxes. See ''TAX MATTERS."
RATINGS The Bonds are rated "BBB+" (negative outlook) by Standard & Poofs
Financial Services LLC, "BBB+" (negative outlook) by Fitch Ratings Inc., and "A-" (stable outlook) by Kroll Bond Rating Agency See "INVESTMENT CONSIDERATIONS—Credit Rating Downgrades" and "RATINGS."
[This Pace Intentionally i.fft Blank]
i
TABLE OF CONTENTS
OFFICIAL STATEMENT SUMMARY
INTRODUCTION
THE CITY
General
Government
THE BONDS
General
Payment ofthe Bonds
Redemption
Book-Entry System
Bonds Not Presented for Payment
Registration and Transfers
Registered Owner Treated as Absolute Owner.
SECURITY FOR THE BONDS
General Obligation ofthe City
Property Tax Collection Process for the Bonds
Additional General Obligation Debt
PLAN OF FINANCING
Repayment of Short Term Borrowing Program
Other Application of Bond Proceeds
SOURCES AND USES OF FUNDS
FINANCIAL DISCUSSION AND ANALYSIS
Annual Budget
City Fund Structure
General Fund
Service Concession and Reserve Fund
Capital Improvements
Property Taxes
Cily Workforce .
Pensions
Long-Term Leases, Concessions of City Facilities
Illinois Sports Facilities Authority
Cily Investment Policy
GENERAL OBLIGATION DEBT
Recent Developments
Long-Term General Obligation Bonds
Short Term Borrowing Program
MRI. Financing LLC Promissory Note . .
Capital Lease
USX South Works
INVESTMENT CONSIDERATIONS
Credit Rating Downgrades
Unfunded Pensions
Pension Reform Litigation
Overlapping Taxing DiMncts. . .
Structural Deficit and Debt Restructuring
Loss of Liquidity 65
Increased Debt Levels 66
Financial Condition of Chicago Public Schools. 66
Reductions and Delays in Receipt of State Revenues 66
Cap on Properly Taxes 66
Adverse Change in Laws 67
Bankruptcy 67
Uncertain Enforcement Remedies 67
Force Majeure Events 67
Forward-Looking Statements 68
LITIGATION 68
INDEPENDENT AUDITORS 70
RATINGS 70
FINANCIAL ADVISOR AND INDEPENDENT REGISTERED MUNICIPAL ADVISOR 70
UNDERWRITING 70
TAX MATTERS 72
The Series 2015A Bonds 72
The Taxable Series 2015B Bonds 74
State and Local Considerations 74
APPROVAL OF LEGAL MATTERS 74
SECONDARY MARKET DISCLOSURE 75
Annual Financial Information Disclosure 75
Reportable Events Disclosure 76
Consequences of Failure ofthe City to Provide Information 77
Amendment; Waiver 77
EMMA 78
Termination of Undertaking 78
Additional Information 78
Corrective Action Related to Certain Bond Disclosure Requirements 78
MISCELLANEOUS 80
APPENDIX A — SUMMARY OF THE INDENTURES
APPENDIX B — ECONOMIC AND DEMOGRAPHIC INFORMATION
APPENDIX C — CITY OF CHICAGO BASIC FINANCIAL STATEMENT'S FOR
THE YEAR ENDED DECEMBER 3I, 2014
APPENDIX D— PROPERTY TAXES
APPENDIX E — RETIREMENT FUNDS
APPENDIX !•" — OPINIONS OF CO-BOND COUNSEL
ii
OFFICIAL STATEMENT
$1,088,390,000 CITY OF CHICAGO
$345,530,000 General Obligation Bonds, Scries 2015A
5742,860,000 General Obligation Bonds, Taxable Scries 20I5B
INTRODUCTION
This Official Statement is furnished by the City of Chicago (the "City") to provide information with respect to the City's General Obligation Bonds, Scries 2015A (the "Series 20I5A Bonds") and General Obligation Bonds, Taxable Series 2015B (the "Taxable Series 2015B Bonds" and together with the Series 20I5A Bonds, the "Bonds"). Certain capitalized terms used in this Official Statement, unless otherwise defined, are defined in APPENDIX A—"SUMMARY OF THE INDENTURES—Glossary of Terms."
The Bonds arc direct and general obligations of the City and all taxable property in the City is subject to the levy of ad valorem property taxes to pay the Bonds and the interest thereon without limitation as lo rate or amount. The Bonds of each Series shall be payable, as lo principal and interest, from any moneys, revenues, receipts, income, assets or funds of the City legally available for such purpose, including, but not limited to, the proceeds allocable to such Scries of a direct annual tax levied by the City in the Bond Ordinance (hereinafter defined) upon all taxable property located in the City sufficient to pay the principal of and interest on the Bonds. The Cily has pledged its full faith and credit to the payment ofthe Bonds. See "SECURITY FOR THE BONDS."
The proceeds ofthe Bonds will be used to (l) repay indebtedness incurred by the City under its Short Term Borrowing Program (as defined herein); (n) fund the cost of terminating the salc/Icascback of the Orange Line rapid transit rail line; (iii) reimburse the City's General Fund for the cost of terminating an interest rate swap associated with the City's sales tax revenue bonds; (iv) fund capitalized interest on the Bonds; and (v) pay costs of issuance of the Bonds See "PLAN OF FINANCING" and "SOURCES AND USES OF FUNDS."
The Bonds are being issued under the authority granted to the Cily under the Illinois Constitution of 1970 and arc authorized by an ordinance adopted by the City Council ofthe City (the "City Council") on June 17, 2015 (the "Bond Ordinance") The Bonds of each Series will be issued pursuant lo a separate Trust Indenture, each dated as of July I. 2015 (each an "Indenture" and collectively ihe "Indentures") between the City and Zions First National Bank, Chicago, Illinois, as trustee for such Series As used herein with reference to the Bonds of a Series, the term "Trustee" refers to the Trustee for that Series of Bonds
THE CIT Y
General
Chicago is the third largest city in the United States with a population of approximately 2 7 million The City, located on the shores of Lake Michigan in ihe Midwestern United States, is the commercial and cultural center of a large and diverse regional economy that produced a gross domestic product of $590 billion in 2013 Trade, professional and business services, real estate, finance and
insurance, and education services and health care are among the Chicago region's largest industry sectors The City's transportation and distribution network includes Chicago O'Hare International Airport, ranked fifth worldwide and second in the United States in 2013 in terms of total passengers, rail traffic interchanges for the country's six largest freight railroad companies, and two ports capable of handling ocean-going ships and barges. Tourism and business travel lo Chicago accounted for an estimated 50 million visitors in 2014. See APPENDIX B—"ECONOMIC AND DEMOGRAPHIC INFORMATION."
Government
The Cily was incorporated in 1837. The City is a municipal corporation and home rule unit of local government under the Illinois Constitution of 1970 and as such, "may exercise any power and perform any function pertaining to its government and affairs including, but not limited to, the power to regulate for the protection of the public health, safety, morals and welfare; to license; to tax; and to incur debt" except that it can "impose taxes upon or measured by income or earnings or upon occupation" only if authorized by statute.
The Mayor and the City Council govern the City. The City Clerk and the City Treasurer along with the Mayor are the only three citywide elected officials. The City is divided into fifty legislative districts, or wards. Each ward is represented by an alderman who is elected by their constituency. The cilywidc officials and the fifty aldermen arc elected to serve coterminous four-year terms. The aldermen comprise the 50-person City Council, which serves as the legislative branch of government of the City. The legislative powers of the City Council are granted by the State legislature and by home rule provisions of the Illinois Constitution.
As the legislative body ofthe City, the City Council usually meets once every month to exercise general and specific powers delegated by state law. The Cily Council votes on loans extended by the Cily lhat exceed certain limits, bond issues, the City's short term borrowing programs (whether general obligation or revenue), land acquisitions and sales, zoning changes, traffic control issues, certain mayoral appointees, and financial appropriations. Its standing committees work with individual departments on the execution of city activities, and review proposed ordinances, resolutions and orders before they are voted on by the full City Council.
I he Committee on Finance of the Cily Council considers ordinances, orders or resolutions that are referred or submitted to the Committee on Finance by aldermen, the Office of ihe Mayor, various City departments, and ihe general public. The Committee on Finance has jurisdiction over financial matters, including tax levies; general obligation bonds and revenue bonds, the financing of municipal services and capital improvements; matters generally affecting the Department of Finance, the Cily Comptroller, and the City Treasurer, claims under the Workmen's Compensation Act, the Condominium Refuse Rebate Program, and all pecuniary claims against (he City.
THE BONDS
General
The Bonds of each Series mature on January I ofthe years and in the amounts set forth on the inside front cover of this Official Statement. The Bonds arc full) registered bonds The Series 20I5A Bonds are issuable in denominations of $5,000 or any integral multiple thereof The Taxable Series 20I5B Bonds are issuable in denominations of $1,000 or any integral multiple thereof
Each Bond will bear interest at the rates set forth on the inside cover of this Official Statement from the later of its date or the most recent Interest Payment Date lo which intcicsl has been paid or duly
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provided for, until the principal amount of such Bond is paid, such interest being payable on January 1 and July 1 of each year, commencing on January I, 2016. Interest on each Bond will be paid to the person in whose name such Bond is registered at the close of business on the Record Dale next preceding the applicable Interest Payment Date
The applicable Trustee for each Series will serve as bond registrar and paying agent for the Bonds of such Series. The Bonds of each Series are registered through a book-entry only system operated by The Depository Trust Company, New York, New York ("DTC) Details of payments of the Bonds of a Series when in the book-entry only system are described under "—Book-Entry System" below Except as described under "— Book-Entry System—General" below, Beneficial Owners ofthe Bonds of a Series will not receive or have the right to receive physical delivery of such Bonds, and will not be or be considered to be the Registered Owners thereof Accordingly, Beneficial Owners must rely upon (i) the procedures of DTC and, if such Beneficial Owner is not a DTC "Direct Participant" or "Indirect Participant" (as defined below), the Direct or Indirect Participant who will act on behalf of such Beneficial Owner to receive notices and payments of principal and interest or Redemption Price of the Bonds of such Scries, and to exercise voting rights and (u) the records of DTC and, if such Beneficial Owner is not a Direct or Indirect Participant, such Beneficial Owner's Direct or Indirect Participant, to evidence its beneficial ownership of such Bonds So long as DTC or its nominee is the Registered Owner of the Bonds of a Scries, references herein to Bondholders or Registered Owners of such Bonds mean DTC or its nominee and do not mean the Beneficial Owners of such Bonds The laws of some states may require that certain purchasers of securities take physical delivery of such securities in definitive form. Such limits and laws may impair the ability to transfer beneficial interests in a Bond
Payment of the Bonds
The principal ofthe Bonds of each Series and any redemption premium will be payable in lawful money of the United States of America which, at the respective dates of payment ihereof, is legal lender for the payment of public and private debts, upon presentation and surrender thereof at the Designated Corporate Trust Office ofthe applicable Trustee for such Series
Interest on each Bond of a Scries will be paid to the person in whose name such Bond is registered at the close of business on the Record Date next preceding the applicable Interest Payment Dale, by check or draft of Ihe Trustee, or, at the option of any registered owner of $1,000,000 or more in aggregate principal amount of Bonds of a Series, by wire transfer of immediately available funds to such bank in the continental United States of America as Ihe registered owner of such Bonds requests in writing to the Trustee
Redemption
The Bonds are subject to both optional and mandatory redemption prior to maturity, as described below I he Series 2015A Bonds shall be redeemed only in principal amounts of $5,000 and integral multiples thereof The Taxable Series 2015B Bonds shall be redeemed only in principal amounts of $1,000 and integral multiples thereof
Optional Redemption of Series 2015A Bonds
The Series 2015A Bonds maturing on and alter January I, 2026, are subject to redemption prior to maturity at the option ofthe City, in whole or m part, on any date on or after January 1. 2025, and if less than all ofthe outstanding Series 20I5A Bonds of a single maturity arc lo he redeemed, the Series 2015A Bonds called shall be called by lot in such principal amounts and from such maturities as the City
shall determine, at a redemption puce equal to the principal amount of the Series 20I5A Bonds being redeemed plus accrued interest to the date fixed for redemption.
The City is authorized to sell or waive any right the City may have to call any of the Scries 20I5A Bonds for optional redemption, in whole or in part; provided, that such sale or waiver will not adversely affect the excludability of interest on the Series 2015A Bonds from gross income for federal income tax purposes.
Optional Redemption of the Taxable Series 20/5B Bonds at Make-Whole Price
The Taxable Series 2015B Bonds maturing on or before January 1, 2033 shall be subject to redemption prior to maturity at the option of the City, m whole or in part, and if in part from such maturities and interest rates as the City shall determine on any Business Day al a redemption price (the "Make-Whole Redemption Price") equal to the greater of (A) 100% ofthe principal amount of such Taxable Series 20I5B Bonds to be redeemed, or (B) the sum ofthe present values ofthe remaining scheduled payments of principal and interest on such Taxable Series 20I5B Bonds to be redeemed, not including any portion of those payments of interest accrued and unpaid as of the date such Taxable Series 20I5B Bonds are to be redeemed, discounted to the date of redemption of such Taxable Series 20I5B Bonds to be redeemed on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate (defined below) plus 50 basis points plus, in each case, accrued interest on such Taxable Series 2015B Bonds being redeemed to the date fixed for redemption.
The Make-Whole Redemption Price for any Taxable Series 2015B Bonds to be redeemed will be calculated by an independent accounting firm, investment banking firm or municipal advisor (the "Calculation Agent") retained by the City at the City's expense. The 'Trustee and the City may rely on the Calculation Agent's determination of any Makc-Wholc Redemption Price and will not be liable for such reliance An Authorized Officer shall confirm and transmit the Make-Whole Redemption Price as so calculated on such dates to the Trustee and to such parties as shall be necessary to effectuate such redemption.
The "Treasury Rate" is, as of any redemption date, the yield to maturity as of such redemption date of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least four Business Days prior to the redemption date (excluding inflation indexed securities) (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to (i) in the case of Taxable Series 2015B Bonds maturing on January I of the years 2019 to 2023, inclusive, the period from the redemption date lo the maturity date of such Taxable Series 2015B Bonds to be redeemed and (ii) in the case ofthe Taxable Series 2015B Bonds maturing on January I, 2033, the then-rcmaming average life of such maturity of the Taxable Scries 2015B Bonds to be redeemed, provided, however, that if the period from the redemption date to such maturity dale is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year will be used 'The Treasury Rate shall be determined by an independent accounting firm, investment banking firm or municipal advisor retained by the City at the City's expense
The Treasury Rate will be determined by the Calculation Agent or another independent accounting firm, investment banking firm or municipal advisor retained by the Cily at the Cily"s expense
The City is authorized to sell or waive any right the City may have to call the Taxable Series 2DI5B Bonds for optional redemption
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Optional Redemption of the Taxable Series 201SB Bonds at Par
The Taxable Series 201513 Bonds maturing on January 1, 2042, are subject to redemption prior lo maturity at the option ofthe City, in whole or in part, on any date on or after January 1, 2025, and if less than all ofthe outstanding Taxable Series 20I5B Bonds of such maturity arc to be redeemed, the Taxable Series 20I5B Bonds called shall be called in such principal amounts as the City shall determine, at a redemption price equal to the principal amount ofthe Taxable Scries 2015B Bonds of such maturity being redeemed plus accrued interest to the date fixed for redemption.
The City is authorized to sell or waive any right the City may have to call any of the Taxable Series 2015B Bonds for optional redemption, in whole or in part.
Mandatory Redemption
The Series 2015A Bonds maturing on January I, 2033 and January I, 2039 are subject to mandatory redemption prior to maturity on January I of the years and in the amounts set forth below, at a Redemption Price equal to 100 percent ofthe principal amount thereof plus accrued interest to the date fixed for redemption.
Scries 2015A Bunds due .January 1, 2033
Year Principal Amount
$ 6,205,000
8,275.000
73,620.000 (maturity)
Se ries 2015A Bonds due January 1, 2039
Year Principal Amount
J 16,135.000
12,620,000
15,875,000
3.980.000 (maturity)
The Taxable Series 2015B Bonds maturing on January 1, 2033 and January I, 2042 are subject to mandatory redemption prior to maturity on January 1 ofthe years and in the amounts set forth below, at a Redemption Price equal to 100 percent ofthe principal amount thereof plus accrued interest lo ihe dale fixed for redemption
Taxable Scries 20I5B Bonds due January 1, 2033
Year Principal Amount
$ 10,665,000
9,990.000
3,050,000
3.300,000
3.620.000
3.950.000
45.105,000
55,175,000
154.145.000
32.695,1100 (maturity)
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Taxable Series 20T5B Bonds due January I, 2042
Year Principal Amount
$ 73,925,000
173,680,000
18,845,000
15,495,000
16,800,000
25,525,000
32,385,000
17,505,000
18,900,000 (maturity)
Reduction of Mandatory Redemption Amounts
The principal amount of the Bonds to be mandatorily redeemed in each year may be reduced through the earlier optional redemption thereof. In the case ofthe Series 20I5A Bonds of a maturity, any partial optional redemption of such Bonds will be credited against future mandatory redemption requirements for that maturity in such order of the mandatory redemption dates as the City may determine In the case ofthe Taxable Series 20I5B Bonds of a maturity, any partial optional redemption of such Bonds will be credited against future mandatory redemption requirements for that maturity on a pro-rata basts
In addition, on or prior to the sixtieth (60lh) day preceding any mandatory redemption date, the Trustee may, and if directed by the City shall, purchase Bonds required to be retired on such mandatory redemption date at such prices as the City shall determine. Any such Bond so purchased shall be canceled and (i) in the case of the Series 2015A Bonds, the principal amount thereof shall be credited against the payment required on such next mandatory redemption dale and (ii) in the case ofthe Taxable Series 2015B Bonds of a maturity, the principal amount thereof shall be credited against future mandatory redemption requirements for (he Taxable Series 2015B Bonds of that maturity on a pro-rata basis.
Selection of Bonds for Redemption
Series 2015A Bonds. While the Scries 2015A Bonds are registered in the book-enlry system and so long as DTC or a successor securities depository is the sole registered owner of the Series 2015A Bonds, if less than all ofthe Series 2015A Bonds of such maturity are to be redeemed prior to maturity, the particular Scries 20I5A Bonds or portions of such Bonds will be selected by lot by DTC or such successor securities depository in such manner as DTC or such successor securities depository may determine See "THE BONDS — Book-Entry System " If the Series 20I5A Bonds are not registered in the book-entry system, the following procedures for the selection of such Bonds shall apply.
If less than all the Series 20I5A Bonds shall be called for redemption under any provision ofthe Indenture pursuant lo which the Scries 2015A Bonds are issued permitting such partial redemption, (0 such redemption shall be by lot in such manner as (he Trustee may determine among such Bonds, and (ii) subject to other applicable provisions of such Indenture, the portion of any Series 20I5A Bond to be redeemed shall be in a principal amount equal to an Authorized Denomination In selecting Scries 20I5A Bonds for redemption, Ihe Trustee shall assign to each Series 2015A Bond of like Maturity Dale, a distinctive number for each minimum Authorized Denomination of such Bond and shall select by lot from the numbers so assigned as many numbers as, at such minimum Authorized Denomination lor each number, shall equal Ihe principal amount of such Bonds to be redeemed In such case, the Scries 20I5A Bonds lo be ledeemed shall be those lo which were assigned numbers so selected, piovidcd that only so much ofthe principal amount of each Scries 2015A Bond shall be redeemed as shall equal such minimum Authorized Denomination for each number assigned to it and so selected If it is determined that one or
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more, bin nol all, of Ihe integral multiples of the Authorized Denomination of principal amount represented by any Series 2015A Bond is to be called for redemption, then, upon notice of intention to redeem such integral multiple of an Authorized Denomination, the Registered Owner of such Bond shall forthwith surrender such Bond to the Trustee for (a) payment to such Registered Owner of the Redemption Price ofthe integral multiple ofthe Authorized Denomination of principal amount called for redemption, and (b) delivery to such Registered Owner of a new Series 20I5A Bond or Bonds in the aggregate principal amount of the unredeemed balance ofthe principal amount of such Bond. New Series 2015 A Bonds representing the unredeemed balance ofthe principal amount of such Bond shall be issued to the Registered Owner thereof without charge therefor.
Taxable Series 2015B Bonds. While the Taxable Series 2015B Bonds are registered in the book-entry system and so long as DTC or a successor securities depository is the sole registered owner of the Taxable Series 2015B Bonds, if less than all ofthe Taxable Series 20I5B Bonds are to be redeemed prior to maturity, the particular Taxable Scries 2015B Bonds or portions thereof lo be redeemed will be selected on a pro-rata pass-through distribution of principal basis in accordance with DTC procedures, provided that, so long as Ihe Taxable Scries 2015B Bonds arc registered in the book-entry system, the selection for redemption of such Bonds will be made in accordance with the operational arrangements of DTC then in effect and, if the DTC operational arrangements do nol allow for redemption on a pro-rata pass-through distribution of principal basis, the Taxable Scries 20I5B Bonds subject to redemption will be selected for redemption, in accordance with DTC procedures, by lot.
If the Taxable Series 2015B Bonds arc not registered in the book-entry system, any redemption of less than all of such Bonds will be allocated by the Trustee among the registered owners of such Bonds on a pro-rata basis
Notice of Redemption
Unless waived by any owner of Bonds of a Series to be redeemed, notice of the call for any such redemption shall be given by the applicable Trustee on behalf of the City by mailing the redemption notice by first class mail at least 30 days and not more than 60 days prior to the date fixed for redemption to the Registered Owner of the Bond or Bonds to be redeemed at the address shown on the Bond Register or at such other address as is furnished in writing by such Registered Owner lo the Trustee, but the failure lo mail any such notice or any defect therein as to any Bond shall not affect the validity of the proceedings for the redemption of any other Bond. Any notice of redemption mailed as provided under the applicable Indenture shall be conclusively presumed to have been given whether or not actually received by the addressee. All notices of redemption with respect to the Bonds of a Series shall state (1) the Series designation of the Bonds to be redeemed, (2) the redemption date, (3) the applicable Redemption Price, (4) if less than all outstanding Bonds of such Series are to be redeemed, the identification (and, in the case of partial redemption, the respective principal amounts and interest rates) of the Bonds to be redeemed, (5) that on the redemption date the applicable Redemption Price will become due and payable upon each such Bond or portion thereof called for redemption, and that interest thereon shall cease to accrue or compound from and after said date, (6) the place where such Bonds are to be surrendered for payment ofthe applicable Redemption Price, and (7) such other information as shall be deemed necessary by Ihe Trustee at the time such notice is given to comply with law, regulation or industry standard
With respect to an optional redemption of Bonds of a Series, such notice may state that said redemption is conditioned upon the receipt by the Trustee on or prior to the date fixed for redemption of moneys sufficient to pay the applicable Redemption Price of such Bonds If such moneys are not so received, such redemption notice shall be of no force and effect, the City shall not redeem such Bonds and such failure to deposit such funds shall nol constitute an Event of Default under the applicable Indenture
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The applicable Trustee shall give notice, in the same manner in which the notice ol' redemption was given, that such moneys were not so received and that such Bonds will not be redeemed Unless the notice of redemption shall be made conditional as provided above, on or prior to any redemption date for the Bonds, the City shall deposit with the applicable Trustee an amount of money sufficient to pay the applicable Redemption Price of all the Bonds of such Series or portions Ihereof which are to be redeemed on that dale
Book-Entry System
General
The following information concerning DTC has been furnished by DTC for use in this Official Statement and neither the City nor the Underwriters take any responsibility for its accuracy or completeness.
DTC will act as securities depository for the Bonds. The Bonds of each Scries will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond certificate will be issued for each maturity of each Series ofthe Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC.
DTC, the world's largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section I7A ofthe Securities Exchange Act of 1934 (the "Exchange Act"). DTC holds and provides asset servicing for over 3 5 million issues of U.S. and non-U.S equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U S. and non-U S securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC") DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries Access lo the DTC system is also available to others such as both U S and non-U S securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants'") DTC has a Standard & Poor's rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission (the "Commission") More information about DTC can be found at www.dlcc com
Purchases of Bonds of a Series under the DTC system must be made by or through Direct Participants, which will receive a credit for such Bonds on DTC's records The ownership interest of each actual purchaser of each Bond of a Series ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records Beneficial Owners will nol receive written confirmalion from DI'C of their purchase. Beneficial Owners are. however, expected to receive written confirmations providing details ofthe transaction, as well as periodic statements of their holdings, from the Direct or Indneci Participant through which the Beneficial Owner entered into the transaction Transfers of ownership interests in the Bonds of a Series arc to be accomplished by entries made on the books of
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Direct and Indirect Participants acting on behalf of Beneficial Owners Beneficial Owners will not receive certificates representing their ownership interests in the Bonds of a Scries, except in the event that use ofthe Book-Entry System for such Bonds is discontinued
To facilitate subsequent transfers, all Bonds of a Scries deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee. Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership DTC has no knowledge ofthe actual Beneficial Owners ofthe Bonds, DTC's records reflect only the identity ofthe Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time
Redemption notices shall be sent to DTC. If less than all of the Bonds of a Series are being redeemed. DTC's usual practice, which will apply to the Series 2015A Bonds, is to determine by lot the amount of the interest of each Direct Participant in the Scries 2015A Bonds to be redeemed. In accordance with DTC's procedures, the City has directed the Trustee to notify DTC that in the event that less than all ofthe Taxable Series 20I5B Bonds are redeemed any such redemption shall be on a pro-rata basis
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC's MM1 Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants lo whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy)
Redemption proceeds and principal and interest payments on the Bonds of a Series will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC D TC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the City or the Trustee for the Bonds of such Series, on the payment date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, any Trustee or the City, subject to any statutory or regulatory requirements as may be in effect from time to time Payment of redcmplion proceeds and principal and interest payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility ofthe City or the applicable Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC. antl disbursement of such payments to ihe Beneficial Owners will be the responsibility of Direct and Indirect Participants
DTC may discontinue providing its services as depository with respect to the Bonds of either Series at any time by giving reasonable notice to the City or the applicable Trustee Under such circumstances, in Ihe event that a successor depository is not obtained. Bond certificates are required to be printed and delivered
Discontinued Use of Book-Entry System
The Cily may decide to discontinue use ofthe system of book entry only transfers through DTC (or a successor securities depository). In that event. Bond certificates will be printed and delivered to DTC
Procedures May Change
Although DTC has agreed to these procedures in order lo facilitate transfers of securities among DTC and its Participants, DTC is under no obligation to perform or continue to perform these procedures and these procedures may be discontinued and may be changed at any time by DTC.
The information in this section concerning DTC and the Book-Entry System has been obtained from sources that the City believes to be reliable, but neither the City nor the Underwriters take any responsibility for the accuracy Ihereof.
Additional Information
For every transfer and exchange ofthe Bonds of a Series, DTC, the applicable Trustee and the Participants may charge the beneficial owner a sum sufficient to cover any tax, fee or other charge that may be imposed in relation thereto.
NEITHER THE CITY NOR THE APPLICABLE TRUSTEE WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO ANY PARTICIPANTS, OR TO THE PERSONS FOR WHOM THEY ACT AS NOMINEES WITH RESPECT TO THE BONDS OF A SERIES, OR TO ANY BENEFICIAL OWNER IN RESPECT OF THE ACCURACY OF ANY RECORDS MAINT AINED BY DTC OR ANY PARTICIPANT OR INDIRECT PARTICIPANT OF ANY AMOUNT' IN RESPECT OF THE PRINCIPAL OR INTEREST ON THE BONDS OF SUCH SERIES, OR ANY NOTICE WHICH IS PERMITTED OR REQUIRED TO BE GIVEN WITH RESPECT TO SUCH BONDS, INCLUDING ANY NOTICE OF REDEMPTION, THE SELECTION OF SPECIFIC BONDS FOR REDEMPTION, OR ANY OTHER ACTION TAKEN, BY DTC AS REGISTERED OWNER OF SUCH BONDS
In reading this Official Statement it should be understood that while the Bonds arc in the Book-Entry System, references in other sections of this Official Statement to Registered Owners should be read to include the person for which a Participant acquires an interest in the Bonds, but (a) all rights of ownership must be exercised through DTC and the Book-Entry System, and (b) notices that are to be given to Registered Owners will be given only to DTC.
Bonds Not Presented for Payment
If any Bond of a Series is not presented for payment when the principal amount thereof becomes due, either at maturity or al a date fixed for redemption thereof or otherwise, and if moneys sufficient lo pay such Bond are held by the applicable Trustee for the benefit ofthe Registered Owner of such Bond, such Tiustee shall hold such moneys for the benefit of the Registered Owner of such Bond without liability to the Registered Owner for interest T he Registered Owner of such Bond thereafter shall be restricted exclusively to such funds for satisfaction of any claims relating to such Bond
Registration and Transfers
The Bond Register for the registration and for the transfer ofthe Bonds of each Series will be kept at the Designated Corporate Trust Office ofthe applicable Trustee, as the rcgistiar for the City in
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connection with the Bonds of such Scries. See "TJTE BONDS—Book-Entry System" for a discussion of registration and transfer ofthe beneficial ownership interests in Bonds while they are in the Book-Entry System The following provisions relate to the registration and transfer of Bonds of a Series when such Bonds are in certificated form
Upon surrender for registration of transfer of any Bond of a Scries at the Designated Corporate Trust Office of the applicable Trustee, duly endorsed by, or accompanied by a written instrument or instruments of transfer in form satisfactory to such Trustee and duly executed by the Bondholder or such Bondholder's attorney duly authorized in writing in such form and with guarantee of signature as shall be satisfactory to such Trustee, the City shall execute, and such Trustee shall authenticate and deliver, in the name ofthe transferee or transferees, one or more fully registered Bonds ofthe same Series, interest rate and Maturity Date of Authorized Denominations, for a like principal amount bearing numbers not contemporaneously outstanding. Subject to the limitations described in the following paragraph, Bonds of each Scries may be exchanged al the Designated Corporate Trust Office of ihe applicable Trustee for a like aggregate principal amount of Bonds of the same Scries, interest rate and Maturity Date of other Authorized Denominations bearing numbers not contemporaneously outstanding
The applicable Trustee shall not be required to transfer or exchange any Bond of a Series during the period commencing on the Record Date next preceding any Interest Payment Date of such Bond and ending on such Interest Payment Date, or to transfer or exchange such Bond after the mailing of notice calling such Bond for redemption has been made as provided in ihe Indenture under which such Bond is issued or during the period of 15 days next preceding the giving of notice of redemption of Bonds ofthe same Series and Maturity Date.
No service charge shall be made for any transfer or exchange of Bonds of a Series, but the City or the applicable Trustee may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of such Bonds, except that no such payment may be required in the case of the issuance of a Bond or Bonds of a Series for the unredeemed portion of a Bond surrendered for redemption.
Bonds of a Scries delivered upon any registration of transfer or exchange will be valid general obligations ofthe City, evidencing the same debt as the Bonds of such Series surrendered, will be secured by the Indenture under which such Bonds were issued and will be entitled lo all of the security and benefits of such Indenture and ofthe Bond Ordinance to the same extent as such Bond surrendered
Registered Owner Treated as Absolute Owner
The City, the applicable Trustee and any applicable Paying Agent may treat the Registered Owner of any Bond of a Series as the absolute owner thereof for all purposes, whether or not such Bond shall be overdue, and shall not be bound by any notice to the contrary All payments of or on account of the principal of, premium, if any, and interest on any such Bond as provided in the Indenture under which such Bond is issued shall be made only to or upon the written order ofthe Registered Owner thereof or such Registered Owner's legal lepresentalivc, but such registration may be changed as provided m such Indenture All such payments shall be valid and effectual lo satisfy and discharge the liability upon such Bond to Ihe extent ofthe sum or sums so paid
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SECURITY FOR THE BONDS
General Obligation ofthe City
The Bonds of each Series arc direct and general obligations ofthe City and all taxable property in the City is subject to the levy of ad valorem property taxes to pay the Bonds and the interest thereon without limitation as to rate or amount. The Bonds of each Scries shall also be payable, as to principal and interest, from any moneys, revenues, receipts, income, assets or funds ofthe City legally available for such purpose, including, but not limited to, the proceeds allocable to such Series of a direct annual tax levied by the City in the Bond Ordinance (the "Bond Property Tax Levy") upon all taxable property located in the City sufficient to pay the principal of and interest on the Bonds. The Bond Property Tax Levy will be on file with the County Clerks of Cook and DuPage Counties, Illinois (the "County Clerks") at the time of issuance ofthe Bonds Sec "FINANCIAL DISCUSSION AND ANALYSIS—Property Taxes" and APPENDIX D—"PROPERT Y TAXES."
The City has pledged its full faith and credit lo the payment of the Bonds. Under Ihe Bond Ordinance, the City is obligated to appropriate amounts sufficient to pay principal of and interest on the Bonds for the years such amounts are due, and the City covenants in the Bond Ordinance to take timely action as required by law to carry out such obligation; however, if for any such year the City fails to do so, the Bond Ordinance constitutes a continuing appropriation of such amounts without any further action by the City.
If the revenues raised by the Bond Property Tax Levy would not be available in time to make any payments of principal of or interest on the Bonds when due, then the appropriate fiscal officers ofthe City arc directed in the Bond Ordinance to make such payments from any other moneys, revenues, receipts, income, assets or funds ofthe Cily that are legally available for that purpose in advance ofthe collection ofthe Bond Property Tax Levy.
Property Tax Collection Process for the Bonds
The City's annual aggregate property tax levy is used primarily to pay debt service on the City's general obligation debt and to fund Cily contributions to the City's pension plans. See ' FINANCIAL DISCUSSION AND ANALYSIS—Property Taxes." The Bond Property Tax Levy is included in the calculation ofthe City's annual aggregate property tax levy.
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Scl forth below is a general schematic ofthe process by which the properly taxes for payment of the principal of and interest on the Bonds are levied, billed, collected and remitted lo the Cily in Cook County (being the County in which approximately 99.99 percent ofthe taxable properly m the City is located) and, ultimately, to the Trustee.
Tax Levy
SKRIFS2015
Bonds
The Bond Ordinance provides for the levy and collection of a direct annual tax upon all taxable property in the City for payments of debt service on the Bonds, and a certified copy ofthe Bond Ordinance is filed with the County Clerk prior to the issuance of the Bonds
The City informs the County Clerk of its annual aggregate tax levy (which includes confirmation of the Bond Properly Tax Levy), and the County Clerk determines the property tax for the City and all overlapping taxing districts for each City parcel
Cook County ' Treasurer
The County Treasurer issues the tax bills, collects the property taxes, and remits the City's share of property taxes lo the City Treasurer
The City Treasurer deposits the portion of the property taxes earmarked for general obligation debt into the Bond Redemption and Interest Fund described below
The City Treasurer remits an amount equal to the Principal and Interest Account Requirement for each Scries to the applicable Trustee under each Indenture for deposit into the Bond Fund established under such Indenlure prior to the scheduled debt service payment dales. If propelly taxes are insufficient, payments to such Trustee are to be made from any other legally-available revenues
T he applicable Trustee makes the principal and interest payments for the Bonds of such Scries to ihe Bondholders on the scheduled debt service payment dates
As shown above, when property taxes are remitted by the Cook Countv Treasurer to the City, the pioperiy taxes for debt service are deposited and held in the Bond Redemption and Inlerest Fund maintained by the City Treasurer The Bond Redemption and Interest Fund is used for the payment of debt service on all ofthe Cnvs general obligation bonds for which a piopeitv tax lew has been pledged.
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including Ihe Bonds, and is one of a number of governmental funds used by the City lo account for its governmental activities. The Bond Redemption and Interest Fund is not held by a separate trustee and is not pledged to the payment of the Bonds. Bondholders do not have a statutory lien on the Bond Redemption and Interest Fund. See "INVESTMENT CONSIDERATIONS—Uncertain Enforcement Remedies "
There is no guarantee that the How of revenues from the Bond Property Tax Levy will always be maintained as described above. The City Council could alter the Bond Property Tax Levy or use the funds held in the Bond Redemption and Interest Fund for other uses besides debt service The Illinois General Assembly could alter the procedure by which property taxes are extended and collected If the amount of property tax revenue is insufficient to pay debt service on the Bonds, the City would still be obligated to find other sources of funds to remit to the Trustee for the payment of principal of and interest on the Bonds when due.
For additional information on real property assessment, tax levies and collections, see APPENDIX D—"PROPERTY TAXES."
Additional General Obligation Debt
The City may from time to time issue debt and incur other obligations that arc general obligations ofthe City, including commercial paper and borrowings under revolving lines of credit which comprise the City's short-term borrowing facilities (the "Short Term Borrowing Program"), all of which are secured by the full faith and credit of the City. In late 2015 or early 2016, the City expects to issue approximately $700 million of general obligation bonds to fund capital projects, for debt restructuring and to pay capitalized interest on such bonds. The City may also issue refunding bonds for cost savings depending on prevailing market conditions. See "GENERAL OBLIGATION DEBT—Long-Term General Obligation Bonds."
PLAN OF FINANCING
The proceeds ofthe Bonds will be used to (i) repay indebtedness incurred by the City under the Short Term Borrowing Program, (ii) fund the cost of terminating the sale/leaseback of the Orange Line rapid transit rail line; (iii) reimburse the City's General Fund for the cost of terminating an interest rate swap associated with the City's sales tax revenue bonds; (iv) fund certain capitalized interest on the Bonds through January I, 2018; and (v) pay costs of issuance of the Bonds.
Repayment of Short Term Borrowing Program
Proceeds of the Bonds will be used lo repay amounts outstanding under the Short Term Borrowing Program The amounts and purposes of short term borrowings to be repaid with Bond proceeds are as follows
$151 6 million for costs incurred in connection with the conversion ofthe City's general obligation variable rale bonds to fixed rale bonds, comprised of $131 6 million for bond redemptions and $20 0 million to fund bond tender prices (resulting from the rcoffcring of converted bonds at a discount) and transaction costs. Ofthe total amount, $117 4 million will be paid from proceeds ofthe Series 20I5A Bonds and $34 2 million will be paid from proceeds of the Taxable Scries 20I5B Bonds See "GENERAL OBLIGATION DEBT—Recent Developments—Variable Rale Bond Conversions "
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$192 1 million Tor termination ol'general obligation interest rate swaps associated with the City's general obligation variable rate bonds and $2 8 million for the termination of a swaption relating to general obligation fixed rate bonds Ofthe total amount for the swaps, $31.3 million will be paid from proceeds ofthe Series 2015A Bonds and $160.9 million will be paid from proceeds ofthe Taxable Series 20I5B Bonds. The amount for the swaption will be paid from proceeds ofthe Taxable Series 2015B Bonds See "GENERAL OBLIGATION DEBT—Recent Developments—Swap Terminations "
$170.0 million to fund debt service on outstanding general obligation bonds on July I, 2015 and January 1, 2016, of which $86.2 million will be paid from proceeds ofthe Scries 2015A Bonds and $83.8 million will be paid from proceeds of the Taxable Series 2015B Bonds See "GENERAL OBLIGATION DEBT—Long Term Bonds."
$46.6 million from proceeds ofthe Taxable Scries 2015B Bonds for bank fees relating lo conversion ofthe City's general obligation variable rate bonds to fixed rate bonds and the Short Term Borrowing Program, including increased fees triggered by the Moody's May 12, 2015 rating downgrade. See "GENERAL OBLIGATION DEBT—Recent Developments" and "—Short Term Borrowing Program" and "INVESTMENT CONSIDERATIONS—Credit Rating Downgrades "
$35.0 million from proceeds of the Taxable Scries 2015B Bonds to pay accrued interest and principal on acquisition financing of the former Michael Reese Hospital campus. See "GENERAL OBLIGATION DEBT—MRL Financing LLC Promissory Note."
$2 4 million from proceeds of the Taxable Series 2015B Bonds to terminate two lease/leaseback transactions for the City's 911/311 Qualified Technological Equipment See APPENDIX B—"CITY OF CHICAGO BASIC FINANCIAL STATEMENT" FOR THE YEAR ENDED December 31, 2014—Note 7(b) Capital Leases."
$62.4 million from proceeds of the Series 2015 A Bonds in payment of a judgment relating to the long-term lease of certain City public garages, and $18.5 million from proceeds ofthe Taxable Series 20I5B Bonds for a contract claim relating to the concession agreement for the City's on-street metered parking system. See "FINANCIAL DISCUSSION AND ANALYSIS—Long Term Leases, Concessions of City Facilities."
Other Application of Bond Proceeds
Proceeds ofthe Bonds will also be used in the amounts and for the purposes set forth below:
Up to $181 0 million from proceeds ofthe Taxable Series 20I5B Bonds to terminate the sale/leaseback transaction entered into by the City in 2005 with respect to the Orange Line rapid transit rail line. Sec "GENERAL OBLIGATION DEBT—Capital Lease."
$24 5 million from proceeds ofthe Taxable Scries 2015B Bonds to reimburse the General Fund for the swap termination payment relating to the City's conversion of sales lax variable rate bonds to fixed rate bonds See "GENERAL OBLIGATION DEBT—Recent Developments—Swap Terminations "
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SOURCES AND USES OF FUNDS
1 he following table sets forth the sources and uses of funds from the sale of the Bonds as described under "'PLAN OF FINANCING."
SOURCE OF FUNDS:
Principal Amount of the Bonds
Net Original Issue Discount
Total Sources of Funds .
Series 2015A Bonds
$345,530,000 (4,570,044)
$340,959,956
Taxable Series 2015B Bonds
5742,860,000 (11,396,933)
$731,463,067
Total
$1,088,390,000 (15,966,977)
$1,072,423,023
USES OF FUNDS:
Repayment of Short Term Borrowing Program
Termination of Orange Line Salc/Lcaseback
Termination of Sales Ta.\ Interest Rate Swap
Capitalized Interest
Costs of Issuance (including the Underwriters' discount).
Total Uses of Funds .
$297,244,469
41,299,228 2,416,259
$340,959,956 $731,463,067
$ 681,494,241 181,000,000 24,500,000 177,836,614 7,592,168
$1,072,423,023
Source Cily of Chicago, Department of Finance
FINANCIAL DISCUSSION AND ANALYSIS
Annual Budget
Budget Process
Fach year, the City prepares an annual budget that accounts for revenue from taxes and other sources and sets forth a plan for how the City intends to utilize those resources over the course ofthe following year. In accordance with the Illinois Municipal Code, the City produces a balanced budget, meaning that its appropriated expenditures do not exceed the amount of resources it estimates will be available for that year.
The budget process begins each summer, when City departments inform the Office of Budget and Management ("OBM") of their personnel and non-personnel needs for the upcoming year. OBM then prepares a preliminary budget based on the requests submitted by the departments and the resources OBM expects will be available to fund those needs.
Throughout the remainder of the summer, OBM continues the process of reviewing each department's operating and programmatic needs and developing detailed departmental budgets OBM also estimates citywide expenses, pension contributions, employee health care and debt service In addition, OBM prepares estimates on the amount of revenue that the City expects to collect in the following vear
In the fall, the Mayor's Office and OBM work with departments to develop one final budget for the entire Cily government OBM then compiles and balances the Mayor's proposed budget, which is introduced to the City Council on or before October 15 of each year The City Council holds committee and puhlu; hearings on the Mayor's proposed budget and may propose amendments to it Once the
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proposed budget, as amended, is adopted by the City Council, and approved by the Mayor, it becomes the Annual Appropriation Ordinance.
Budget Documents
The documents that are prepared as part of the City's budget process are set forth below. Such documents are nol prepared for investors in securities issued by the City, or as a basis for making investment decisions with respect lo any bonds, notes, or other debt obligations ofthe City, including the Bonds Prospective purchasers of the Bonds are cautioned not to rely on any of the information in the budget documents in connection with the offering ofthe Bonds.
Annual Budget Documents Purpose
Budget Overview
Budget
Recommendations
Provides a summary of the proposed budget and detailed information on the City's anticipated revenues, expenditures, and personnel.
Constitutes the Mayor's proposed budget to the City Council in accordance with Illinois state law
Consolidated Plan & Action Plan
Annual Appropriation Ordinance
The five-year plan setting forth priorities for the City's housing and non-housing community needs based on housing and community development assessments
The City's line-item budget as passed by the City Council
Capital Improvement Program
A comprehensive list of capital improvements scheduled to occur in the City over the next five years.
Budget Calendar
The general budget calendar of the City is presented in the following tabic
Annual Budget Calendar Month Action
Departments submit preliminary revenue and expense estimales lo OBM
August/September OBM receives detailed budget requests from City departments and
holds a series of meetings with each department regarding the department's needs for the coming year OBM works with the Mayor's Office lo match expenses with available resources and balance the nexl year's budget
October On or before October 15. the Mavor submits a proposed budget to
the City Council, and the City Council conducts hearings on the budget, including al least one public hearing lo gather comments on the proposed budget
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Novcnihcr/Dcccmhcr
January
Throughout The Year
Additions or changes to the proposed budget arc considered. The City Council must approve a balanced budget by December 31, at which point the Budget Recommendations become the Annual Appropriation Ordinance. The draft action plan is submitted annually to the U S Department of Housing and Urban Development lor funding consideration.
The City's Annual Appropriation Ordinance goes inlo effect
Throughout the year, OBM manages the resources allocated through the Annual Appropriation Ordinance. OBM regularly reviews revenues, expenditures, and any trends or events that may affect City finances On an ongoing basis, City departments provide information about the performance of City programs to ensure that City resources are used in a manner that maximizes taxpayer value and provides the highest quality services
City Fund Structure
The City organizes its activities by funds, each of which is accounted for separately. Each fund has a specific set of revenue sources, which are utilized to support a specific set of city services and functions. Descriptions of the City's major governmental funds and its special revenue and proprietary funds are set forth below.
City Funds
Fund Purpose
General Fund The General Fund is the City's general operating fund and supports
essential City services and activities, such as police and fire protection, trash collection, and public health programs. General Fund revenues come primarily from a variety of local and intergovernmental taxes, fees, and fines. See "—General Fund'" below
Federal, State and Grant funding, largely from the state and federal governments,
Local Grants Fund makes up a significant and recurring source of revenue for the City
and is utilized to provide a range of City services and certain
capital improvements
SpecialTaxing Areas The Special Taxing Areas Fund accounts for expenditures for
Fund special area operations and maintenance and for redevelopment
project costs as provided by tax levies on special areas, including
tax increment financing districts
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Service Concession & Reserve Fund
Established in connection wilh the long-term lease/concession of City assets to create reserves for unexpected contingencies, emergencies, or revenue shortfalls These reserves are not included in the City's annual operating budget See "—Service Concession and Reserve Fund'" below
Bond, Note Accounts for the expenditures for principal and interest as provided
Redemption and by property tax, utility tax, sales tax, transportation lax, and
Interest Fund investment income
Community Development and Improvement Projects Fund
The Community Development and Improvement Projects Fund accounts for proceeds of debt used to acquire property, finance construction, and finance authorized expenditures and supporting services for various activities See "—Capital Improvements" below
Special Revenue Funds
Proprietary Funds
The City's special revenue funds (the "Special Revenue Funds") are used to account for revenue from specific sources that by law are designated to finance particular functions, such as road repair, snow removal, the library system, emergency management and special events and tourism promotion.
The City's proprietary funds (the "Enterprise Funds") include the water fund, the sewer fund, and a separate fund for each of the City's major airports. These funds arc self-supporting, in that each I'und derives its revenue from charges and associated user fees
The revenue sources ofthe Federal, State and Local Grants Fund, the Community Development and Improvement Proiects Fund and the Enterprise Funds are restricted as to use by law and those of the Special Revenue Funds arc largely dedicated to specific services and functions. The revenues from these funds are not otherwise available to pay for general citywide expenses, including debt service on the City's general obligation bonds (including the Bonds) and the City's pension costs exceeding amounts properly allocable to the funds
General Fund
The City has historically presented information on the City's Corporate Fund in connection with its general obligation bond issues. The Corporate Fund comprises approximately 99.0 percent of the City's General Fund, which is the City's primary operating fund and accounts for all ofthe City's sources and uses of general operating revenue. The General Ftind, and not the Corporate Fund, is included in the City's basic financial statements. The City is presenting information in this Official Statement about the General Fund in order to facilitate the reader's review of the City's basic financial statements See APPENDIX C—"CITY OF CHICAGO BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31. 2014 "
The General Fund does not account for the portion ofthe City's pension obligations that are paid from the City 's property tax levy or the Enterprise Funds, nor does it account for the principal and interest payments on the Cit\ s long-term general obligation bonds that are paid from the properly lax levy For information regarding the use ofthe City's property taxes for the payment of pension costs and general obligation bond debt service, see "—Property Taxes—Use of City Properly Tax Levy,'' below
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General I 'und resources have changed over the past 5 years In 2010, 59 percent of General Fund resources came from tax revenues, 25 percent from other revenues, and 16 percent from other financing sources This compares lo 2014, when 68 percent of General Fund resources came from tax revenues, 31 percent from other revenues, and 1 percent from other financing sources. In the period from 2009 through 2011, an average of $487 million each year, or 15 percent of General Fund resources, came from non-recurring revenue sources including transfers in from the Service Concession and Reserve Fund. Beginning with the 2012 budget, the City phased out the use of reserves to subsidize the operating budget Sec "—Service Concession and Reserve Fund" below
Selected Financial Information
The following table sets forth revenues and other financing sources (collectively, "resources") and expenditures and other financing uses (collectively, "expenditures") for the General Fund on a historical basis for the years 2010 to 2014. The financial information is based on the modified accrual basis of accounting for the General Fund as reported in the City 's audited basic financial statements for the years 2010 to 2014, respectively. This table should be read in conjunction with the financial information set forth in APPENDIX C—"CITY OF CHICAGO BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2014."
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Revenues
Utility T ax Sales T ax State Income Tax Other Taxes Federal/Stale Grants Other Revenues'21 T otal Revenues
General Fund'" For Fiscal Years Ended 2010-2014
2014
2013
($ in thousands)
456.869 583,681 308,899 749.742 1,871 929,429
$473,496 620,299 278,031 803.961 2,335 998.028
2010 2011 2012
495,842 282,01 I 590.575 1,735 773,278
536,281 236,521 618,384 1,294 921,056
$ 467,411 $ 467,630 $ 462,475 $
572,185 282,779 694.383 1,074 907,760
2,610.852 2,781,166 2,920,656 3,030,491 3,176,150
Expenditures Current
Public Safety 1,828,984 1.895,404 1,956.152 1,953,572 2,020.072
General Government 903,890 863.622 864,556 885.268 929,918
Other131 296,063 278,561 258,501 267,852 270,899
Debt Service 5,004 2,849 2,160 2,382 10,369
Total Expenditures . . 3,033,941 3,040,436 3,081,369 3,109,074 3,231,258
Revenues Under Expenditures (423,089) (259,270) (160,713) (78,583) (55,108)
Other Financing Sources (Uses)' Proceeds of Debt, Net of Original Discount/Including
Premium " 16.500 95,000 55,000
Transl'ersln 502,502 372,744 31,617 21,018 39,700
Transfers Out (13,600) (14,357) (26,965) (10,583) (10,081)
T otal Other Financing
Sources (Uses) 505,402 453,387 59,652 10,435 29,619
82,313
54.706 (1,478)
194,117
135,541 5.875
(68,148)
231,302 3.903
(101,061)
335,533 (3,170)
Financing Uses Fund Balance - Beginning of Year Change in Inventory Fund Balance - End of Year
Revenues and Other Financing Sources Over (Undci) Expenditures and Other
(25,489)
167,057 (290)
$135,541 $ 135,533 $ 231,032 $ 167.057 $ 141,278
Source City of Chicago Comprehensive Annual Financial Report (the 'Cily CAFR"'), Exhibit 4 lor the respective years T he
Cily CAFR is available upon request From the Department or" Finance "' Ihe General Fund is ihe ehiefopcrjling Fund of Ihe City Ii is comprised of Ihe Corporate Fund as well as oilier non-ma|Oi
operating funds wheie fund balance is nol restricted or committed as defined by the Government Accounting Standards Hoard
(GAXFif
'"' Include? Internal Service, Licenses and Permits. Fines, Investment Income, Charges for Services and Miscellaneous Revenues
' " Include.'' I leallh. Stiecis and Sanitation. Transportation. Cultural and Reeieulional and Other Current Expenditures
General Fund Revenue
The General Fund s revenue sources consist of utility taxes, sales taxes, stale income taxes, other taxes, federal and state giants, and other revenues With the exception of federal and state grants, which
arc less than 1 percent of overall General Fund revenues, the various sources of General Fund revenues are described below
Utility Taxes. Utility taxes consist of taxes on the purchase of telecommunications services, electricity, natural gas, and cable television. T he following table sets forth the sources of utility tax revenue for the years 2010 through 2014.
Utility Tax Revenue 2010-2014
($ in thousands)
2010 2011 2012 2013 2014
Gas. $114,254 $113,681 $98,791 $122,139 $153,274
Electric 99,265 98,100 98,015 98,557 96,353
Commonwealth Edison 91,714 90,655 90,814 90,602 90,202
Telecommunication 139,516 140,998 149,336 119,348 106,129
Infrastructure Maintenance 0 65|99 9 10|Fiber Optics 0|9 9 99 10|Cable Television 22,662 24,131 25,512 26,200 27,538
Total Utility Tax $467,411 $467,630 $462,475 $456,869 $473,496
Source City CAFR, Schedule A-l for the respective years
These combined taxes have been 15 percent, on average, of total General Fund resources between 2010 and 2014 In 2010, utility taxes were $4674 million, increasing to $473.5 million in 2014. The reasons for fluctuations within the major categories of utility taxes are discussed below Infrastructure maintenance, fiber optics and cable television are excluded from the discussion because the amounts are immaterial.
Gas Tax. The City imposes natural gas-related taxes, the revenues of which arc dependent upon weather conditions and price Colder weather increases consumption and associated tax revenues, as natural gas is used lo heat homes and buildings. In 2010, natural gas-related taxes generated $114 3 million, accounting for 4 percent of total General Fund resources. Prices averaged 55.1 cents per therm during 2010 and dropped to an average of 35.3 cents per therm in 2012. Natural gas prices began lo rise in 2013, and by 2014, reached 72 2 cents per therm. Together with severely cold weather and the resulting increase in usage and higher gas prices, natural gas lax revenues rose to $153.3 million in 2014 Because the natural gas utility tax rate is a percentage of gross revenues as opposed to a per unit rate, these revenues are more directly impacted by price than electricity taxes, which are imposed entirely on a per unit basis
Electric and Commonwealth Edison Taxes. The City's electricity laxes (shown in the table above under Electric and Commonwealth Edison) are charged based on the number of kilowatt hours of electricity used Revenues from electricity taxes are dependent upon consumption and also weather conditions, particular!) summer temperatures due to the electricity needed to cool homes and buildings Elcclricity tax revenues have been 6 percent, on average, of total General Fund resources over the past five years, averaging $188 9 million each year and have held relatively constant in recent years
TelecnmiHitnicoiioirs Tax Revenue from telecommunications taxes, which are levied by the City on charges for telephone services in the City, has declined over the past decade, reflecting trends in the industry and consumer preferences In 2010, telecommunications tax revenue was $139 5 million and made up 5 percent of General Fund resources By 2014, telecommunications tax revenue had dropped lo $106 I million, accounting for 3 percent of"total General Fund resources The overall decline in revenues
was due in part to the continuing reduction in the use ol" landlines as more customers rely solely on wireless services, and also a decline in the number of wireless accounts as use of online communication services such as Skype or other technologies increase. In addition, federal law exempts most wireless data services, such as mobile broadband, from taxation. Consequently, growth in the market for such wireless services has not resulted in increased telecommunications tax revenues for the City.
Sales Taxes. The following table sets forth sources of sales tax revenue for the years 2010 through 2014
Sales Taxes 2010-2014
($ in thousands)
2010 2011 2012 2013 2014
Local Sales Taxes 5229,202 5252,530 $272,312 $267,576 $285,773
State Sales Taxes 266,640 283,751 299,873 316.105 334,526
Total Sales Tax $495,842 $536,281 $572,185 $583,681 $620,299
Source. City CAFR. Schedule A-l lor ihe respective years
Local Sales Taxes. Local sales tax revenues, as set forth in the table above, consist of four separate taxes imposed by the City pursuant to its home rule powers, the Municipal Code and state law (collectively, the "'Local Sales Taxes"):
Home Rui.f: Municipal Retailers' Occupation Tax. The Home Rule Municipal Retailers' Occupation Tax is a 1.25 percent tax imposed on the sale of most items of nonlitled tangible personal property by retailers in the City. This tax is authorized by the Home Rule Municipal Retailers' Occupation Tax Act ofthe State The tax must be imposed in increments of 0.25 percent, and can only be imposed if the City also imposes a municipal service occupation tax.
Home Rule Municipal Service Occupation Tax. The Home Rule Municipal Service Occupation Tax is a I 25 percent tax imposed on the selling price of most items of tangible personal property acquired as an incident to the purchase of a service from service providers in the City This tax is authorized by the Home Rule Municipal Service Occupation Tax Act ofthe Stale and musl be imposed at the same rate as the Home Rule Municipal Retailers Occupation Tax described above.
1 Iome Rule Municipal Use Tax on Tit led Personal Property. The I lomc Rule Municipal Use Tax on Titled Personal Property is a 1.25 percent tax imposed on the privilege of using within the City titled personal property that is purchased from a retailer and that is titled or registered at a location in the City This lax is authorized by the Home Rule Municipal Use Tax Act ofthe State.
home Rule Municipal use Tax on Nontttled Personal property The Home Rule Municipal Use fax on Nontitled Personal Property is a 1 0 percent tax imposed on the privilege of using within the City most items of nontitled personal property that arc purchased from a retailer located outside the City This tax is authorized by the Home Rule Municipal Use Tax Act ofthe State The tax must be imposed in increments oft) 25 percent tip lo the maximum rate of 1 0 percent
Currently thcie is no legal limit on the rate at which the City may impose the Home Rule Municipal Retailers' Occupation Tax, the Home Rule Municipal Service Occupation fax or the Home Rule Municipal Use Tax on T itled Personal Property Except for the Home Rule Municipal Use Tax on Nontitled Personal Property, the Local Sales "faxes arc collected by the State on behalf of the City
For purchases subject lo the Home Rule Municipal Retailer's Occupation T ax and the Home Rule Municipal Use T ax on Tilled Personal Properly, most are subject to a combined tax rate that includes, in addition to the Local Sales Taxes and the state rate of 6 25 percent, a Regional Transportation Authority sales tax rate of 1.0 percent and a Cook County sales tax rate of .75 percent
Revenue from the Local Sales Taxes that has been allocated to the General Fund after provision for sales tax revenue bonds debt service has accounted for an average of approximately 8 percent of total General Fund resources between 2010 and 2014 Beginning in the fall of 2008, receipts from Local Sales Taxes began to decline due to the recession, with revenues of $229.2 million by 2010. Moderate growth continued from 2010 until 2012, with a modest decline in 2013, due to a larger portion of Local Sales Taxes allocated to sales tax bond debt service payments Local Sales Taxes allocated to the General Fund were $285 8 million in 2014, accounting for 9 percent of General Fund resources.
Stare Sales Taxes. T he City's share of state sales lax revenues, as set forth in the table above, consist of four separate taxes imposed by the State as follows (collectively, the "State Sales Taxes"):
Illinois Retailers' Occupation Tax. The Illinois Retailers' Occupation Tax is imposed by the State at the rale of 6 25 percent on the sale of most items of nontitled tangible personal property by retailers The City receives 1 percent on the sale of such items by retailers in the City, representing 16 percent of ihe net receipts of this lax attributable to sales occurring in the City. With respeci to tax on grocery food, drugs and medical appliances, the City receives 1 percent of the net receipts on the sale of grocery food, drugs and medical appliances, representing 100 percent of the net receipts of this tax attributable to sales occurring in the City.
Illinois Service Occupation Tax The Illinois Service Occupation Tax is imposed by the State at the rate of 6.25 percent on Ihe sale of most items of nontitled tangible personal property by service providers. The Cily receives I percent on the sale of such items by retailers in the City, representing 16 percent of (he net receipts of this lax attributable to sales occurring in the City. With respect to tax on grocery food, drugs and medical appliances, the City receives 1 percent of the net receipts on the sale of grocery' food, drugs and medical appliances, representing 44.44 percent ofthe net receipts of this tax attributable lo sales occurring in the City.
ILLINOIS USE Tax The Illinois Use Tax is imposed by the Slate at the rate of 6.25 percent on the privilege of using most items of personal property purchased outside ofthe Slate. The City receives 4 percent ofthe net receipts of this tax collected on most items of nontitled personal property purchased outside ofthe State, subject to annual appropriation by the Illinois General Assembly. Subject to annual appropriation by the Illinois General Assembly, the City receives 20 percent ofthe nel receipts of this lax imposed at the rate of 1 percent on grocery food, drugs and medical appliances purchased outside ofthe State
Illinois Si rvice Use Tax. The City currently receives 4 percent ofthe net receipts ofthe Illinois Service Use Tax which is imposed by the State at the rate of 6 25 percent on the privilege of using most items of tangible personal property acquired as an incident to the purchase of a service from a service provider in the Slate, subject to annual appropriation by the Illinois General Assembly. T he City also receives 20 percent of the net receipts of this tax imposed at the rate of one percent on grocery food, drugs and medical appliances acquired as an incident to the purchase of a service from a service provider in the Slate, subject lo annual appropriation by the Illinois General Assembly.
Except as noted above, the City cunently receives its share of State Sales Tax revenues without annual appropriation by the Illinois General Assembly Any change in the tax rates or amount of nel tax
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receipts allocated to the City from Slate Sales T ax revenues would require the enactment of legislation by the Illinois General Assembly
Revenue from the State Sales faxes has accounted for an average of approximately 10 percent of total General I'und resources between 2010 and 2014 Following the recession in 2008, revenues had declined to $266.6 million in 2010. Steady growth has continued since 2010, with State Sales Tax revenues increasing 10 $334 5 million in 2014, accounting for 10 percent of total General Fund resources
Slate Income Taw State income tax revenues consist ofthe City's share ofthe state income taxes, including personal property replacement taxes. T he following table sets forth sources of state income tax revenue received by the General Fund for the years 2010 through 2014:
State Income Tax 2010-2014
($ in thousands)
2010 2011 2012 2013 2014
Income T axes $231,531 $200,341 $245,193 $275,979 $250,279
Personal Property Replacement Taxes 50,480 36,180 37,586 32,920 27,752
T otal State Income Tax . $282,011 $236,521 $282,779 $308,899 $278,031
Souice City CAFR, Schedule A-1 tor the respective years
Income Tax Like the Local Sales Taxes and the State Sales Taxes, the City's share of state income tax revenues experienced growth in pre-recession years and then, with the decline in the economy, the City's share of this tax declined to $201.0 million in 2009. The state income tax revenues received by the City increased in 2010 to $231.5 million, but then declined again in 2011 due to a combination of factors, including continued high state unemployment rates, the decline in population under the 2010 Census, a timing difference in the receipt of state distributions to the City and changes in 2010 lo the Internal Revenue Code regarding bonus depreciation.
Beginning in the second half of 2011 and continuing into 2014, income tax collections gained momentum with the recovering economy. In addition, in both 2012 and 2013, due to the timing ofthe state distributions to catch up on back payments owed to the City, 13 payments were booked as revenue. 2013 collections were also pushed upward by a one-time surge in payments associated with businesses and individuals selling assets or receiving early dividends or bonuses in anticipation of higher federal tax rates. Consequently, City income tax revenues ended 2013 at the unusually high level of $276 0 million With only 12 payments and no one-time surge in 2014, income tax revenues ended 2014 at $250 3 million.
In 2011, the State increased the personal income tax rale from 3 percent to 5 percent and the corporate income tax rate from 4 8 percent to 7 percent However, municipalities did not receive a share of this increase because ihe Stale, concurrently with increasing lax rales, reduced the percentage of total income tax receipts thai How into the local government distribution fund from which municipalities are paid their share of state income tax revenue As of January I, 2015 the personal income tax rate was reduced to 3 75 percent and the corporate income lax rate was reduced to 5 25 percent
Persona/ Property Replacement Tux 1 he personal properly rcplacemcni lax derives its revenues primarily from an additional State income tax levied by the State on corporations, partnerships, trusts and S corporations Currently, corporations pay a 2 5 percent tax on income, while partnerships, trusts, and S corporations pay a I 5 percent lax on income The personal properly replacement lax also derives some of Us revenues from various taxes imposed on utilities al various rates The tax is collecled by the Slate
and paid lo local governmenis in order to replace revenues thai were lost when the Slate eliminated the authority of local governments to collect personal properly taxes on business entities The Cily has historically utilized its personal property replacement tax revenue in part to support the General Fund and in part to pay for the City 's share of pension contributions. Beginning in 2015, the City has changed the way it records personal property replacement tax revenues in the General Fund See "—Financial Forecasts—2015 General Fund Budget" below.
The personal property replacement tax has generally followed the same patterns as income tax revenues. The personal property replacement tax levied on utilities represents approximately 15 percent ofthe aggregate lax received and is less economically sensitive In recent years, ihe expected increase in the amount of the personal property replacement tax received by the City due to the recovering economy has been negated in part by legislation enacted by the State since 2010 that allows the State to reallocate personal property replacement tax revenue for employment-related costs of certain State Board of Education personnel and state officials
Other Taxes. Other tax revenues consist of various taxes imposed by the City, such as transportation taxes, transaction taxes, recreation taxes, business taxes as well as the City's share of the state auto rental tax. The following table sels forth sources of other tax revenue for the years 2010 through 2014.
Other Taxes 2010-2014
($ in thousands)
2010 2011 2012 2013 2014
Transportation T ax
Parking $ 92,306 $ 93,449 $119,169 $124,384 $126,516
Vehicle Fuel 49,800 49,367 49,818 49,089 48,161
Ground Transportation 8,600 9,111 8,903 9,070 10,399
Transaction Tax
Real Property . . . ... 81,302 85,986 102,571 141,907 157,194
Personal Property'Lease 108,357 123,523 132,503 140,227 152,576
Motor Vehicle Lessor 5,426 5,753 6,037 6,249 6,431
Recreation Tax
Amusement . 85,682 86,055 87,843 96,739 112,895
Automatic Amusement .. 990 913 869 631 584
Liquor ... 31,508 31,584 32,620 32,048 32,113
Boat Mooring 1,317 1,439 1,361 1,275 1,309
Cigarette 19,326 18,666 18,015 16,268 24,022
Off Track Betting 929 837 694 604 547
Soft Drink 18,638 19,934 21,792 21,564 22,210
Business Tax
Hotel . . 54,348 60,082 85,634 89,851 100,407
Employers Expense 23,479 23,496 17,853 11,261|9 10|Foreign Fire Insurance . 5,133 4,598 4,791 4,601 4,422
State Auto Rental Tax 3,434 3,591 3,910 3,974 4.175
Total Other faxes $590,575 $618,384 $694,3X3 $749,742 $803,961
Source City CAFR. Schedule A-1 for the respective years
With the exception of state auto rental taxes, which arc immaterial, the various sources of other taxes arc described below.
Transportation Taxes Transportation tax revenues consist primarily of parking and vehicle fuel taxes Parking taxes, which are imposed on parking garage operators, have consistently made up the
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largest portion of this category of revenues. Rate adjustments in 2009 and 2012 contributed to greater revenue growth in those years, with an overall increase from $92.3 million in 2010 to $126.5 million in 2014 Pursuant to a change in state law, the City changed this tax from a tiered flat rate structure to a percentage-based rate effective July 1, 2013, reducing the effective tax rate for low cost parking while increasing the effective rate for high cost parking.
The vehicle fuel tax is a 5 cent per gallon tax on the sale of vehicle fuel to a retailer doing business in the City, or who purchases fuel for use in the City. Vehicle fuel tax revenues declined from $49.8 million in 2010 to $48 2 million in 2014, due largely to declines in fuel consumption as gasoline prices rose, fuel economy standards became more stringent, and fuel-efficient vehicles became more prevalent
Transaction Taxes Transaction taxes include taxes on the transfer of real estate, the lease or rental of personal properly, and the short-term lease of motor vehicles within the city. Combined transaction taxes have constituted between 6 and 10 percent of total General Fund resources between 2010 and 2014. Fluctuations in these revenue sources track closely with the economy and the real estate market.
In the years leading up to the recession, real property transfer tax collections reached record levels. The decline in the real estate market reduced these collections to $61.9 million in 2009. While commercial real estate activity started to increase in 2010 and continued to improve in 2011, the residential real estate market was slower to recover and did not show sustained growth until 2012. By
home sales increased by 19 percent and median home prices increased by 10 percent from 2012, bringing overall real property transfer tax revenues lo $141.9 million. During 2014, median home prices increased by 11 percent over 2013 while home sales decreased by 7 percent due largely to inventory shortages Due to the increase in median home prices, 2014 revenues increased to $157.2 million.
As with other transaction and consumer-driven tax revenues, collections of personal property lease transaction taxes, imposed on the lease or rental of personal property at a rate of 9 percent of the lease or rental price, increased from 2010 to 2014, reflecting improving economies. In 2010, personal properly lease transaction laxes generated $108.4 million. This revenue continued to grow, starting in 2011, mainly due to enforcement efforts. Personal property lease tax revenues were $152.6 million in
accounting for 5 percent of total General Fund resources.
Recreation Taxes Recreation taxes include taxes on amusement activities and devices, liquor, the mooring of boats, cigarettes, off-track betting and non-alcoholic beverages In 2010, recreation laxes generated $158 4 million for the City, accounting for 5 percent of total General Fund resources. By 2014, this had grown to $193 7 million, accounting for 6 percent of total General Fund resources, primarily due to the increase in amusement tax revenues Amusement tax, including Automated Amusement tax, revenues for 2014 represent 59 percent of total recreation tax revenues.
Amusement taxes apply to most large sporting events, theater, and musical performances in the City The overall increase in these revenues was due in part to a one percent increase in 2009 Amusement lax revenues also vary significantly from year lo year based on the relative success of Chicago's professional spoi ls teams and ticket prices for such sporting events
Business Taxes The City's business tax revenues consist primarily of taxes on hotel accommodations, and ihe employers"' expense tax until it was phased out at the end of 2013 Revenues from the hotel tax experienced a sharp decline in 2009 and recovered slowly m 2010, coinciding with the recession's impact on tourism, business, and convention-related travel. In 2010, hotel lax revenues were $54 3 million T he second half of 2011. however, saw hotel sales and the related tax revenues begin lo
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rebound, with strong growth in 2012, and further growth in 2013 and 2014. In 2014, revenue per available room increased by 4 percent over 2013 and hotel tax revenues were $100.4 million accounting for 3 percent of total General Fund resources
Other Revenues. Other revenues consist of internal service, licenses and permits, fines, investment income, charges for services, municipal utilities, leases, rentals and sales, and miscellaneous revenues The following table sets forth the sources of other revenues for the years 2010 through 2014
Other Revenues 2010-2014
($ in thousands)
2010 2011 2012 2013 2014
Internal Service. $274,574 $306,126 $302,924 $306,523 $305,716
Licenses and Permits 96,240 102,702 117,568 123,633 119.940
fines 258,802 263,288 290,799 313,506 338,329
Investment Income 4,200 3,378 5,439 1,436 1,573
Charges for Services 77,694 132,587 124,606 119,857 134,593
Municipal Utilities 6,405 9,060 8,415 6,429 7,257
Leases, Rentals and Sales 17,604 22,595 14,747 19,008 24,127
Miscellaneous 37,759 81,320 43,262 39,037 66,493
T otal Other Revenues $773,278 $921,056 $907,760 $929,429 $998,028
Source City CAFR. Schedule A-l for the respective years
With the exception of investment income and municipal utilities, which are immaterial sources, the various categories of other revenues, including major revenue types within the categories, arc described below.
Internal Service. Internal service revenues are transfers to the General Fund for services provided to other Cily funds and departments, such as police, fire, and sanitation services provided to the City's Enterprise Funds Such transfers constitute an average of 10 percent of General Fund resources, and have ranged from $274 6 million in 2010 to $305 7 million in 2014.
Licenses and Permits License and permit-related revenue is generated through fees for business licenses, building permits, and various other licenses and permits. License and permit activity often reflects economic health, wilh more construction commencing and businesses starting up when the economy is strong
In 2010, license and permit revenue was $96.2 million, decreasing from prior year levels as construction activity in the City declined during the recession Permit activity and related revenues began to recover in 2012 to $119 9 million in 2014.
Fines Fines consist of fines, forfeitures, and penalties, including parking tickets, red-light and speed camera tickets, and fines for items such as building code violations. These revenues have increased steadily from $258 8 million in 2010 lo $338 3 million in 2014. These revenues accounted for 11 percent of total 2014 General Fund resources This steady increase in revenues is partly a result ofthe increased use of technology, including the implementation of on-line bill payment systems and additional parking enforcement field technology Incieases in fine and penalty rates and improved debt collection have also impacted overall fine, forfeiture, and penalty revenues
Charges for Services Charges for services include revenues generated by charging for activities such as inspections, emergency medical services (EMS), police services, and other services for pnvale
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benefit In 2010, Ihese aclivilics generated $77 7 million, increasing to $134.6 million in 2014, due largely to increased reimbursement for police services and EMS fee increases.
Leases. Rentals and Sales. Leases, rentals and sales include revenues generated from activities such as the sale of vacant land and buildings, cily-ovvncd property that has been leased to the public, and sale of materials that are not used by the City. In 2010, these activities generated $17.6 million, increasing to $24 1 million in 2014, due primarily to the increase in the rental and lease of city-owned property.
Miscellaneous Miscellaneous revenues include infrequent or one-time sources of revenues, such as insurance recoveries, settlements, and cash received from fund closcouts, as well as other revenues that do not fall into one ofthe revenue categories mentioned above, such as municipal marketing fees and tax increment financing ("TIF") surpluses These activities generated $37 8 million in 2010 and $66.5 million in 20)4. T he amount of revenue varies from year to year primarily due to the availability of TIE surpluses.
General Fund Expenditures
Total General Fund expenditures, including other financing uses, have increased from $3.05 billion in 2010 to $3 24 billion in 2014. Generally, the relative proportion of total General Fund spending devoted to different activities and expense types has remained fairly consistent from year to year Across all departments and city services, personnel-related expenditures (including salaries and wages and employee healthcare costs) make up the largest portion ofthe General Fund budget, averaging 83 percent oflotal General Fund expenditures from 2010 through 2014.
General Fund expenditures consist of current operating expenditures and debt service. Debt service expenditures in the General Fund relate to debt service payments with respect to an issuance by the City in 1997 of certain building acquisition certificates which are not paid from property taxes and are not material. General Fund current expenditures are described below.
Public Safety. Each year, the largest portion of General Fund expenditures is dedicated to public safety functions, and includes departments such as Police, Fire, and the Office of Emergency Management and Communications T his also includes the activities of (i) the Department of Buildings, which ensures the safety of residential and commercial buildings in the Cily by enforcing design, construction, and maintenance standards and promoting conservation and rehabilitation through permitting and inspection processes, and (n) the Department of Business Affairs and Consumer Protection, such as business licensing and support and consumer protection activities, including the regulation ofthe local taxicab industry Public safety has remained a primary driver of expenditures, growing as a percentage of General Fund expenditures, from 60 percent in 2010 to 62 percent in 2014.
General Government. General government expenditures support functions necessary to provide essential city services, including accounting and finance, contract management, human resources, legal advice, administrative services, vehicle and facilities maintenance, community services, city development, technology and systems expertise. These expenditures have accounted for between 28 and 30 percent of General Fund expenditures, from 2010 through 2014
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Other Current Expenditures. The following table sets forth the other current expenditures ofthe General Fund by function for the years 2010 through 2014.
Other Current Expenditures 2010-2014
($ in thousands)
2010
Health $ 35,593
Streets and Sanitation 177,950
Transportation . . 70,032
Cultural and Recreational . . 544
Other . ... . 11,944
Total Other Current
Expenditures $296,063
2011 2012 2013 2014
$ 32,390 $ 24,371 $ 26.552 $ 25,902
175,829 178,065 186,992 195,390
69,683 53,815 52,420 47,309
420 13|9 9 10|239 2,237 1,888 2,298
$278,561 $258,50) $267,852 $270,899
Source City CAFR, Exhibit 4 tor ihe respective years
With the exception of Cultural and Recreational and Other expenditures set forth in the table above, which arc immaterial in amounts, the categories of Other Current Expenditures are described below.
Health. Health expenditures support the operations of the Department of Public Health, including providing health education to residents, access to care, guiding public health initiatives and monitoring and inspecting food establishments. Department of Public Health expenditures have accounted for, on average, 1 percent of General Fund expenditures from 2010 through 2014.
Streets and Sanitation Streets and sanitation expenditures support the operations of the Department of Streets and Sanitation, including garbage and recycling collection, sweeping and plowing of streets, graffiti removal, cleaning of vacant lots, demolition of garages, towing of illegally parked vehicles, abatement of rodents and planting, trimming and removal of trees. Expenditures related to the Department of Streets and Sanitation have accounted for, on average, 6 percent of General Fund expenditures from 2010 through 2014.
Transportation Transportation expenditures support the operations of the Department of Transportation and have averaged approximately 2 percent of annual General Fund expenditures between 2010 and 2014. These funds arc used to build, repair, and maintain streets, sidewalks, and bridges and complete the planning and engineering behind the City's infrastructure. Much of the City's major infrastructure construction is funded through slate and federal grants, general obligation bond financing, TIF revenues and other sources, and thus is not represented as a General Fund expenditure.
Budget Gaps
Each year, the City projects revenues and expenses for the coming year as part of its preliminary budget process Any shortfall between revenue and expenses is referred lo as the "budget gap." The budget gap is closed each year prioi to the passage of the Annual Appropriation Ordinance, in which expenditures arc balanced with forecasted available resources.
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Set forth below arc the budget gaps that were projected for fiscal years 2012 through 2015.
Budget Gaps 2012- 2015 ($ in millions)
Year
2012 2013 2014 2015
Amount
$635 7 369 0 338 7 297 3
Source City of Chicago. Office of Budget and Management
The decreasing size ofthe gap from 2012 through 2015 is the result ofthe recovering economy's impact on revenues, as well as the cost reductions made as part of the past three budgets. Initiatives such as the introduction of managed competitions for city services, the transition to grid-based garbage collection, the review and renegotiation of major contractual costs, and reforms that have reduced the City's healthcare costs have all decreased the City's structural deficit, bringing the City's expenses more closely in line with revenues Notwithstanding the gains achieved by the Cily in recent years in addressing its structural budget deficit, the budget gap in coming years is likely to widen from the 2015 level due largely to growing salaries and wages and funding requirements for City pension plans. See "— 2016-2017 General Fund Oullook" below.
The General Fund gap of $297.3 million for 2015 was less than had been projected by the City before the 2015 budget process began The 2015 budget gap was closed in the Annual Appropriation Ordinance through cost savings, closing tax loopholes and revenue enhancements and natural growth in economically sensitive revenues
General Fund Financial Forecasts
This section includes a discussion ofthe City's year-end estimates for 2015 and projections for years 2016 and 2017 for the General Fund. The estimates and projections are based on expectations and assumptions which existed at the time such estimates and projections were prepared, including, among other factors, evaluations of historical revenue and expenditure data, known changes or events, analyses of economic trends and current and anticipated laws and legislation affecting the City's finances. While the City believes that the numerous assumptions underlying the estimates and projections arc reasonable, they are subject to certain contingencies and periodic revisions which may involve substantial change. The City makes no representation or warranty that these estimates and projections will be realized The estimates and projections discussed below and elsewhere herein were not prepared with a view towards compliance with the guidelines established by the American Institute of Certified Public Accountants with respect lo prospective financial information The estimates and projections assume thai no substantive changes are made to city operations or the cost of city services. No cost-saving initiatives are incorporated into the estimates and projections T he estimates and projections arc likely to change as future decisions are made in response to actual events, new or changing needs and cilywide priorities. No assurance can be given that actual results will conform to the estimates and projections provided This prospective information is nol fact and should not be relied upon as being necessarily indicative of future results Purchasers of the Bonds arc cautioned not to place undue reliance on this prospective financial information See "INVESTMENT CONSIDERATIONS—Forward-Looking Statements."
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2015 General Fund Year-End Estimates. The following table sets forth resources and expenditures for the General Fund based on actual results for the year 2014, the 2015 budget and the year-end estimates for 2015
General Fund Resources and Expenditures Budgetary Basis
($ in millions)
2015
2014 2015 Year-End
Actual'" Budget12' Estimates'3
Tax Revenue
Utility Taxes and Fees $473 5 $451.9 $ 449.4
Transaction Taxes 316 2 326 4 345.4
Transportation Taxes 185.1 188 0 191.1
Recreation Taxes 193.7 205.0 214.5
Business Taxes 104.8 110.9 111.8
Sales Taxes 620 3 647.9 651.3
State Income Taxes 278 0 420.0 440.8
Other Intergovernmental. 6 5 5.8 6.2
TotalTax Revenue 2,178.1 2,355 9 2,410 5
Non-T ax Revenue
Licenses and Permits
Fines, Forfeitures and Penalties
Charges for Services . .
Municipal Parking . . .
Leases, Rentals, Sales
Reimbursement, Interest & Other
Total Non-Tax Revenue
Proceeds and T ransfers In
T otal Revenue Budgeted Prior Years' Surplus and Reappropriations
Total General Fund Resources Total Expenditures
119 9 136.9 129.3
338 3 369.5 338.7
134.6 132.4 122 3
7 3 6.5 7.0
24.1 30.2 25.0
373.8 470.2 460.3
998.0 1,145.7 1,082.6
39.7 33_1 41.6
3,215.8 3,534.7 3,534 7
45.5 0.0 0.0
$3,261.3 $3,534 7 $3,534 7
$3,261 3 $3,534.7 $3,535.1
"' Source Exhibit 6, City CAFR lor the year ended December 31, 2014. '"' Souice 2015 Annual Appiopnalion, as amended '" Source Office of Budget and Management
General Fund resources on a budgetary basis, which includes Budgeted Prior Years' Surplus and Reappropriations, if applicable, are expected to meet the budgeted target of $3,534.7 million in 2015. Economically sensitive revenues, such as sales laxes, personal property lease and amusement taxes, arc estimated to outperform the budget due to the improving economy. State income taxes are also anlicipaied lo be $20.8 million higher than Ihe budget as noied below. Gains from these economically sensitive revenues arc estimated to be sufficient to offset losses in public utility taxes, permits, fees and charges for services
General Fund resources are estimated to total $3,534 7 million in 2015, an increase of $273 3 million or almost 8 percent over 2014 actual icsources of $3,261 3 million, $128 8 million of this increase is the result of a change in Ihe way that the City accounts for iis personal property replacement tax
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revenue, as discussed below. Excluding Ibis amount, the growth in General Fund resources totals $144.5 million, or4 percent over 2014 actual resources
Utility taxes arc estimated to total $449 4 million in 2015, $24.1 million lower than the 2014 actual revenue of $473 5 million, and account for 13 percent of total 2015 estimated General Eund resources at year-end. The decline is due primarily to lower gas prices and anticipated cool weather during the summer months
Business taxes, including hotel taxes, are estimated to generate $111.8 million in 2015, an increase of $7 0 million over the 2014 actual amount of $104 8 million. Estimates for 2015 anticipate an approximately 2 percent increase in hotel occupancy and a more than 6 percent increase in daily room rates.
As a result of the improving economy, the revenues collected from sales taxes allocated to the General Fund is estimated to total $651 3 million in 2015, an increase of $31.0 million over the 2014 actual revenue of $620.3 million. Sales taxes in 2015 are anticipated to grow by 5 percent over the 2014 actual levels Transaction tax revenues, including real property transfer taxes and personal property lease taxes, are estimated to increase at the rate of approximately 9 percent in 2015, due to strong recovery in the economy, including commercial real estate sales and housing markets in Chicago.
State income tax revenue, which includes personal property replacement tax revenue, is estimated to total $440.8 million in 2015, an increase of 59 percent over the 2014 actual revenue of $278.0 million; $128.8 million of the increase in 2015 state income tax revenue is the result of the change in how the City budgets its personal property replacement tax revenue. A portion of the estimated increase is, however, due to actual anticipated growth in revenues as wages, capital gains, and corporate profits are expected to increase in 2015 These increases arc estimated to be offset in part by the State's increasing use of personal property replacement tax revenues to pay for its own obligations, decreasing the anticipated disbursement to the City by approximately $10.6 million in 2015.
Local non-tax revenues arc estimated to be $1,082.6 million in 2015, an 8 percent increase over
local non-tax revenues of $998 0 million Total revenue from licenses and permits is estimated to total $129.3 million in 2015, an increase of $9 4 million over the 2014 amount of $119.9 million. The
year-end estimate of fines revenue is $338.7 million, consistent with 2014 actual results Revenues from Charges for Services are expected to decrease by 9 percent in 2015 to $122.3 million compared to the 2014 actual revenue of $134 6 million, fhe 2015 estimate for reimbursements, interest, and other revenues is $460.3 million, an increase of $86 5 million, or 23 percent over the 2014 actual revenue of $373.8 million, due primarily to the increase in the 911 surcharge.
Year-end expenditures for 2015 are projected at $3,535 1 million, an increase of 8 percent over 2014 actual expenditures These estimated expenditures slightly exceed the year-end revenue estimates by $0 4 million Public safety expenditures are expected to increase by approximately 6 percent from actual 2014 public safely expenditures The estimated expenditures account for actual changes to salaries and wages governed by collective bargaining agreements, employee benefits, contractual services and utilities and motor fuel, 'fhe City has budgeted increased contributions of $89.1 million to the MEABF and LABF (each as hereafter defined) pension plans in its 2015 budget and year-end estimates based on enacted pension reforms, with such increased contributions being payable in 2016.
In 2015, the City has changed the way it accounts for the non-property tax portion of its pension contributions Historically, the City's pension contributions not paid from property taxes have been paid from personal property replacement lax revenues, which were recorded directly into the respective Retirement Funds (as hereafter dclined) and did not flow through the General Fund. Sec APPENDIX
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E—"RETIREMENT" FUNDS—Determination of City's Contributions " Going forward, the total receipt of personal properly replacement tax revenues will be deposited into the General Fund, and a portion of the City's share of pension contributions will be paid out ofthe General Fund to the Retirement Funds. The effect of this change in the 2015 budget was $128 8 million This change has the effect of increasing General Fund revenues by the amount of the personal properly replacement taxes deposited into the General Fund, and increasing General Fund expenditures by a like amount. Another change relates to the way the Enterprise Funds pay their allocable share of pension fund costs. See APPENDIX E—"RETIREMENT' FUNDS—Special Revenue and Enterprise Fund Allocation of Retirement Fund Costs." Historically, the City's pension contributions allocable to each of the Enterprise Funds were reimbursed by those Enterprise Funds to the General Fund. Going forward, the Enterprise Funds' allocable portions ofthe City's pension cost will be paid by the Enterprise Funds to the Retirement Funds.
2016-2017 General Fund Outlook. The City projects operating budget gaps for the General Fund of $430.2 million and $587.7 million for the years 2016 and 2017, respectively. Estimated contributions to the MEABF and LABF pension funds are included in the projected operating budget gaps for 2016 and 2017. Statutory obligations to the PABF and FABF pension funds will, in the absence of legislation modifying the City's contributions to these funds, increase the projected budget gaps for 2016 and 2017 by more than $500 million, with the estimated City contribution growing each year thereafter. Further, general obligation debt service payments using General Fund resources may increase significantly from 2015 levels as the City phases out the use of long-term general obligation bonds to pay current general obligation debt service. See "INVESTMENT CONSIDERATIONS—Structural Deficit and Debt Restructuring" and "—Increased Debt Levels."
The City projects General Fund revenue growth of approximately 1.5 percent over the prior year in both 2016 and 2017. 'fhe revenue growth assumptions do not take into account the change in the personal property replacement tax revenue allocation to the General Fund, as discussed above. Many economically sensitive revenues have now returned to pre-reccssion levels, and a conservative approach is taken in these projections in line with the assumption that the economy will continue to experience only moderate growth going forward.
These projections are based on the continuation of similar trends as discussed above with respect to 2015 for most revenue sources, including recreation taxes, transportation taxes, Local Sales Taxes, State Sales T axes and most local non-tax revenues, adjusting for anticipated variations in certain cases A slightly lower rate of growth in real property transfer tax revenue is expected in 2016 and 2017, as the real estate market stabilizes following rapid growth during the recovery years. Utility taxes are expected to return to normal growth trends Hotel tax revenues arc projected to grow with increased occupancy and revenue per available room, and state income tax revenues are projected to increase at approximately 2 5 percent each year in line with an improving labor market
General Fund operating expenditures are projected to outpace General Fund revenue growth during this period, increasing at an average annual rate of 5.3 percent to $3.69 billion in 2016 and $3.90 billion in 2017 These expenditures do not lake into account the change in how the City accounts for its pension contributions from personal propeity replacement taxes. Most categories of expenditures, including contractual services, worker's compensation, motor fuel, and utilities, are assumed to grow at their long-term historical average rates Less predictable expenditures, such as settlement and judgment-rclated and other miscellaneous expenses, arc based on the average of recent annual expenditure amounts Salary and wage and healthcaie expenditures, by far the largest portion ofthe City's operating expenses, are projected based on the assumption that the number of full-time equivalent positions will remain approximately flat, meaning, no significant hiring, layoffs, or vacancy eliminations will occur, and that the costs associated with those positions will experience growth in line with long-term historical trends In addition, under P A 9S-641 (as defined and described herein) with lespeel to Ihe MEABF and LABF
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pension funds, contributions will increase by approximately $50 million in 2016 (payable in 2017) and $75 million in 2017 (payable in 2018), and the General Fund portion of these payments is incorporated into the projected budget gaps for those years
Service Concession and Reserve Fund
T he City has set aside reserves for unexpected contingencies, emergencies, or revenue shortfalls These reserves, recorded in the Service Concession and Reserve Fund, are not included in the City's annual operating budget
The City established long-term reserves of $500 million and $400 million, respectively, with proceeds ofthe upfront payments from the long-term lease or concession of the Chicago Skyway and the City's metered parking system ("'Metered Parking System'"). See "—Long-term Leases, Concessions of City Facilities" below
The interest earned on the Skyway lease reserves was intended to be used for City operating expenses and has been utilized as planned The principal balance remains $500 million and the earned interest has been transferred to the General Fund each year, with the dollar amount of the transfer reflecting variations in interest rates.
The reserves from the Metered Parking System were created to replace revenues that would have been generated from parking meters by transferring interest earnings on the reserves to the General Fund, with the principal remaining intact at $400 million However, starting in 2009, the City began utilizing these long-term reserves to subsidize the City's operating budget. In 2009, $20 million was transferred to the General Fund, and in 2010, $160 million was used for City operating expenses. The 2011 budget included a $140 million transfer from the reserves for operating purposes. Utilizing these reserves reduced the principal balance substantially below the initial deposit and accordingly reduced the interest earnings generated by the reserves The ordinance establishing the reserves directed that an annual transfer of $20 million be made from the reserve fund into the General Fund to replace lost meter revenue. In order to maintain these reserves, the City amended the ordinance in 2012 to state that only interest generated from the reserves, and not principal, must be transferred for this purpose. In addition, the City began to rebuild the reserves with a $20 million deposit in 2012, a $15 million deposit in 2013, and a $5 million deposit in 2014.
Set forth in the table below is information about the City's long-term reserves as of December 31 ofthe years 2009 through 2014
Long-T erm Reserves 2009-2014
($ in millions)
Metered Parking
Year Skyway System Total'
$500 $380 $880
500 220 720
500 SO 580
500 100 600
500 115 615
500 120 620
Source Cily ol'Chicago. Ol'l'icc oI'Mudgct and Management
'" I he amounts piescnled .lie based on cost of hinds held in the Service Concession and Reserve fund The maiket \ jlue of ihe kinds may vary depending on the market value of investments
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Capital Improvements
The City's capital improvement program (see "—Annual Budget—Budget Documents" above) funds the physical improvement or replacement of city-owned infrastructure and facilities with long useful lives, such as roads, buildings and green spaces. T he capital improvements program is funded from general obligation bond issuances, revenue bond issuances (largely for water, sewer, and aviation improvements), slate and federal funding, lax increment financing, and private funding through public/private ventures.
From 2004 to 2013, the City utilized proceeds from the issuance of general obligation bonds and motor fuel tax revenue bonds (together referred to as "local bonds") to fund $1.85 billion in capital improvements. Local bonds were utilized to support the types of projects described in the table below.
Capital Improvement Projects'"
Project
Greening Facilities
Infrastructure
Aldermanic menu projects
Description
Green ways, medians, trees, fountains, community gardens, neighborhood parks, wetlands, and other natural areas.
Improvement and construction of City buildings and operating facilities, police and fire stations, health clinics, senior centers, and libraries.
Construction and maintenance of streets, viaducts, alleys, lighting, lamps, sidewalks, bridge improvements, traffic signals, bike lanes, streetscapes, and shoreline work.
Selected by members of City Council, each of whom is allotted $1 32 million of general obligation bond funding to be spent at their discretion on a specific menu of improvements in their respective wards. These funds have been used primarily for sidewalks, residential street resurfacing, street lighting, and curb and gutter replacement, with portions of these funds contributed to the Chicago Park District ($13 5 million), Board of Education of the City of Chicago ($2 6 million), and the Chicago Transit Authority ($500,000)
(l) Local bonds have also funded a I muted number of other uses, which ate discussed under "GENERAL OBLIGATION DEBT'—Long-Term General Obligation Bonds "
Set forth in the following tabic are the capital uses of local bonds from 2010 through 2014.
Capital Uses of Local Bonds 2010-2014
($ in millions)
2010 2011 2012 2013 2014
Greening $ 15 7 % 5 8 $ 4 2 $ 4.4 $4 6
Facilities 40 0 24 9 12 7 3 6 4 6
Inmisiruciuie 28 9 26 0 33 1 36 3 32 0
Aldeimanic Menu 814 102 0 84 0 84 0 84 0
Total $166 0 $158 7 $134 1 $128 3 $125 2
Somee Cilv ufChicnuo Office of liudcei and Management
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Local bond-funded capital improvements has decreased since 2009 as the debt service associated with the City's long-term general obligation debt has grown and the City has made efforts to cut overall costs.
The City's estimated expenditures for the capital improvement program over the period 2014 through 2018 is $1 3 billion The City has not determined how much of its capital expenditures over the next five years will be paid from local bonds
Property Taxes
The City levies ad valorem real property taxes pursuant to its authority as a home rule unit of local government under the Illinois Constitution of 1970 Real property taxes represent the single largest revenue source for the City As part of the City's budget process each year, the City determines the aggregate property tax levy that will be levied m the next fiscal year and collected in the following year.
EA V and Property Taxes
The City's aggregate property tax levy is divided by the equalized assessed value ("EAV") of all property in the City to determine the tax rate that will be applied to an individual taxpayer's property The tax rate is applied to the EAV ofthe taxpayer's property to determine the tax bill. Changes in EAV do not affect the amount of the City's property tax revenue because the City's property taxes are levied at a flat dollar amount. For information on real property assessment, tax levy and tax collection in Cook County, see APPENDIX D—"PROPERTY TAXES " "
The following tables present statistical data regarding the City's property tax base, tax rates, tax levies and tax collections from 2003 forward.
37
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Use of dry Properly Tax Levy
Revenue from the City' property lax levy has been utilized primarily lo pay the City's debt service and employer pension contributions A small amount of the levy is allocated to the library system.
The amounts and tax rates of Ihe City's properly tax levy for debt service and employer pension contribution by Retirement Fund arc set forth in the following tables for the years indicated.
Property Tax Levies 2010-2014'"
($ in thousands)
2010 2011 Change 2012 Change 2013 Change 2014 Change
Note Redemption
and Interest"1 $ 73,377 $ 73,377 0 00% $ 73,481 0 14% $ 74,231 1.02% $ 97,061 30 76%
Bond Redemption
and Interest. . 409,979 411.905 0 47 411,489 (0 10) 411,807 0 08 412,139 008
PABF(" 140,165 143,785 2 58 143,865 006 138,146 (3 98) 136,680 (106)
MnABF0' 132,531 126,997 (4 18) 129,138 169 122,066 (5 48) 123,239 0 96
FABF'5' . ... 64,323 66,125 2 80 65,461 (100) 81,518 24 53 81,363 (0 19)
LABF''1 13,714 11,759 (14 26) 11,202 (4 74) 10,486 (6 39) 10,934 4 27
$834,089 $833.948 (0 02)% $834,636 0.08% $838,254 0.43% $861,416 2 76%
Source Cook County Clerk's Office
Does not include ihe levy for the School Building and Improvement Fund which is accounted for in an agency fund '*' Includes Corporate, Chicago Public Library Maintenance and Operations, Chicago Public Library Building and Sites, and
City Relief Funds
For information regarding the City's unfunded pension obligations, see "—Pensions—Funded Status of Ihe Retirement Funds."'
40
Property l ax Rates Per $100 Of Equalized Assessed Valuation 2005-2014
I ax Levy Year
Bond, Nolo Municipal
Tax Krdeniptioii Policemen's Employees' Firemen's
Extension'"'2' and Annuity and Annuity and Annuity and
(in thousands) Interest''" Benefit Benefit Benefit
L.11 borers'
and Retirement
Board Employees' Annuity and Benefit
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
$718,071 719,230 749,351 834,152 834,109 834,089 833,948 834,636 838,254 861,416
$0 696607 0 569261 0 588843 0 602842 0.570806 0 588774 0 645918 0.743122 0778719 0.783368
$0 231467 0.194953 0 I9154X 0.172426 0 167552 0.170734 0 191381 0 220459 0 221494 0 210554
$0 231683 0.197399 0.174302 0.162182 0.153704 0 161435 0 169036 0 197892 0 195703 0.189848
$0 083243 0 099974 0.088581 0.080787 0.078184 0 078352 0 088014 0 100313 0.130700 0.125339
$0.011763 0.015754 0.016705 0.015651 0017166 0.016813 0.016844
$1 243 1.062 1.044 1.030 0.986 1 016 1.110 1.279 1.343 1.327
Source Cook County Clerk's Office.
(" Docs not include levy for Special Service Areas and net of collections for TIF districts
Does not include the levy for ihe Schools Building and Improvement Fund, which is accounted for in an agency fund '¦" Includes rates from the Chicago Public Libiury Bond, Note Redemption and Interest Fund
The estimated total tax levies for fiscal year 2015 is approximately $868.2 million.
As shown above, the aggregate property tax levies over the period 2008 through 2013 remained relatively constant. The increases in 2014 and 2015 arc due to property tax surpluses from TIE district terminations and do not represent increases in the total tax levy for those years. See "—TIF Districts" below
As the City's debt service and pension expenses have increased, these costs have exceeded the City's property tax levy From 2005 through 2014, an increasing portion ofthe pension contributions were paid with personal properly replacement tax revenue and a portion of such year's long-term debt service was covered using other resources In addition, since at least 2007, the City has issued general obligation refunding bonds in part to restructure some of its outstanding general obligation bonds. This has allowed the City to reduce the properly lax levies for the refunded bonds and keep the aggregate property tax levy below a desired level for that year Such debt restructuring has extended the property tax levies into the future in order to repay the refunding bonds
The City is one of several taxing districts reflected on a Chicago resident's property tax bill. The amount of property taxes collected by Cook County is divided among these districts, with the City allocated approximately 20 percent of the total bill For information on property taxes levied on real property within the City by overlapping taxing districts, see "—Overlapping Taxing Districts" below.
TIF Districts
In addition to the revenues the City receives from its general property tax levy, the City derives property tax revenue from the City 's 'I IF districts TIF revenue must be utilized for specific types of expenses in specific districts and is not available for non-specified governmental uses The City's TIF program began in 19X4 with the goal of promoting business, industrial, and residential development in
41
areas ofthe City that struggled to attract or retain housing, jobs, or commercial activity. The program is governed by a state law thai allows municipalities lo capture properly lax revenues derived from the EAV growth above the base EAV that existed before an area was designated as a TIF district for the term of the TIF district, and to use that money (the tax increment) for job training, public improvements and incentives to attract private investment to the area.
When a TIF district expires, terminates, is repealed, or the City, under certain circumstances, declares a surplus in the TIF district, the City returns the surplus funds lo the Cook County Treasurer for distribulion to the overlapping taxing districts based upon each district's share under the applicable tax code. Such surplus declaration occurs typically during the City's annual budget process.
Set forth in the following table is information about the amount of money returned to taxing districts from declared surplus or the expiration, repeal or termination of TIF districts from 2010 through 2014.
TIF Surplus 2010-2014
($ in millions)
2010 2011 2012 2013 2014
Declared $0 00 $188.00 $82 90 $25 00 $39.10
Expiration 0 02 15.10 13 70 8.40 25.40
Repeal 0 00 73.30 0 00 0.50 0.00
Termination... 0 02 0.00 0 00 9.60 0.60
Total $0 04 $276.40 $96 60 $43.50 $65 10
Source' Cily of Chicago, Office of Budget and Management.
The City receives approximately 20 percent of all surplus dollars distributed by the Cook County Treasurer to the overlapping taxing districts.
Upon the expiration, repeal or termination of TIF districts, the incremental EAV ofthe district becomes a part ofthe aggregate EAV that is available to all overlapping taxing districts. Taxing districts, including the City, have the ability to recover their portion ofthe revenue from the incremental EAV by adding it to their levy following a TIF district's dissolution. This practice yielded the City $1 1 million from three TIF districts in 2012, $3.3 million from 12 TIE districts in 2013, and $16.6 million from six TIF districts in 2014. The City will continue to receive TIF surplus on an annual basis as TIF districts arc repealed, terminated or expire.
Overlapping Taxing Districts
Various governmental entities operate as separate, independent units of government and have authority to issue bonds and levy taxes on real property within the City These governmental entities, or overlapping taxing districts, are the Board of Education ofthe City of Chicago ("CBOE"), Cook County, Illinois ("Cook County"), the Metropolitan Water Reclamation District of Greater Chicago ("MWRD"), the Chicago Park District (the "Paik District"), Community College District Number 508, County of Cook and State of Illinois ("City Colleges"), and the Cook County Forest Preserve District ("Forest Preserve")
The combined property tax rales ofthe City and overlapping taxing districts are set forth in the following table for the years 2005 to 2014
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City Workforce
The Cily has decreased its workforce from 39,654 positions (41,550 full-time equivalents, or "PTEs") in 2004 to 32,280 positions (34,045 FTEs) in 2014, a decrease of approximately 17 percent. Approximately 90 percent of the City's workforce is represented by unions The City is party to collective bargaining agreements with more than 40 different unions.
The two largest bargaining units are the Fraternal Order of Police ("FOP") and the Chicago Firefighters Union, currently with 16,065 combined sworn public safety positions. When police captains, lieutenants, and sergeants arc included, the number of unionized sworn public safety positions comes to 17.507.
The next largest group of positions is associated with the Coalition of Union Public Employees ("COUPE"), which currently represents 6,640 trades positions (7,129 FTEs). The American Federation of State, County, and Municipal Employees ("AFSCME") is the fourth largest group, representing 3,505 positions (3,679 PTEs) that provide administrative support for City government and services, and the Service Employees International Union ("'SEIU") currently represents 1,912 public safety civilian positions (2,238 FTEs), such as traffic control aides, detention aides, and police communication operators.
'I he collective bargaining agreements with each of these unions include regular salary increases, resulting in higher personnel costs each year. The current collective bargaining agreement between the City and the Fraternal Order of Police, Chicago Lodge No. 7 (FOP), covering the terms and conditions of employment of approximately 10,600 Chicago Police Officers for the period July 1, 2012 through June 30, 2017, was signed and became effective on November 18, 2014 This agreement succeeded the prior collective bargaining agreement which expired on June 30, 2012 The agreement provides for wage increases during the five (5) year term totaling approximately 10 percent, including retroactive increases effective during the period July 1, 2012 through November, 2014. The retroactively effective increases were as follows
Effective July 1,2012 2% Effective January 1,2013 2% Effective January 1,2014 2%
The City negotiated a limitation on the retroactive increases for the period July I, 2012 through June 30, 2013, in that these increases were applicable only to officers' base pay/salary and excluded all overtime earned during this period. The retroactive increases have been paid by the City with borrowings under the Short Term Borrowing Program These borrowings will be repaid with available resources from the General Fund
An agreement with the Chicago Firefighters Union, providing for an 11 percent increase over the period 2012 to 2017, was ratified by the union in June 2014. The most recent agreement with COUPE provides for wage rates set at the prevailing rales established regularly by the Illinois Department of Labor for construction trades employees, for employees not subject to prevailing rate schedules, the agreement provides for 2 percent increases each year from 2013 through 2017 The most recent agreement with AFSCME, ratified in June 2014. provides for a 10% increase over ihe five-year period 2012 to 2017. The current SEIU agieemcnt, ratified in August 2012, includes a 6 percent increase between 201 I and 2016 Agreements ratified by the unions representing police sergeants, lieutenants and captains in late 2013 and early 2014. each provide for an 8 percent salarv increase belween 2012 and 2016
45
These increases are in addition to the raises based on time in service that most employees receive Historically, non-union employees received salary increases equal to those negotiated for civilian positions, however, since 2009, the majority of non-represented employees have not received salary increases beyond normal step increases for time in service
Pensions
The following is a summary of certain aspects of the City's Retirement Funds. Additional information regarding the Retirement Funds is available in APPENDIX E— "RETIREMENT FUNDS. "
General
The City contributes to the four defined benefit retirement funds (the "Retirement Funds") which provide benefits upon retirement, death or disability to City employees and their beneficiaries. The Retirement Funds are established, administered and financed under the Illinois Pension Code (the "Pension Code") as separate legal entities and for the benefit of the members of the Retirement Funds. The four Retirement Funds are. (i) the Municipal Employees' Annuity and Benefit Fund of Chicago ("MEABF"), which covers most civil servant employees ofthe City and non-teacher employees ofthe CBOE; (11) the Laborers' and Retirement Board Employees' Annuity and Benefit Fund of Chicago ("LABF"), which covers City and certain Chicago Board of Education employees who arc employed in a title recognized as labor service, (iii) the Firemen's Annuity and Benefit Fund of Chicago ("FABF"), which covers the City's sworn firefighters and paramedics; and (iv) the Policemen's Annuity and Benefit Fund of Chicago ("PABF"), which covers the City's sworn police officers, captains, lieutenants and sergeants. As of the end of 2014, there were over 114,000 members in the plans, including active and inactive employees, retirees and beneficiaries.
The benefits paid under the Retirement Funds, contributions to the Retirement Funds and investments by the Retirement Funds are governed by the Pension Code As defined benefit pension plans, the Retirement Funds pay periodic benefits to beneficiaries, which generally consists of retired or disabled employees, their dependents and their survivors, in a fixed amount (subject to certain scheduled increases) for life, fhe amount of the benefit is determined at the time of retirement based, among other things, on the length of time worked and the salary earned. To fund benefits, both the City and the City's employees make contributions to the Retirement Funds, fhe Retirement Funds invest these contributions with the goal of achieving projected mvestment returns over time and increasing the assets of the Retirement Funds.
The Retirement Funds' actuaries perform separate actuarial valuations of each ofthe Retirement Funds on an annual basis These actuarial valuations calculate, among other things, the employer contributions, assets and liabilities of the Retirement Funds In the actuarial valuations, the actuaries make a variety of assumptions and employ actuarial methods to calculate such contributions, assets and liabilities. The assumptions and methods used by ihe actuary have a significant impact on the measures of financial position of the Retirement funds and are further described in APPENDIX E—'-RETIREMENT FUNDS."
Funded Status ofthe Retirement Funds
The Retirement Funds are presently significantly underfunded The funded status of the Retirement Funds as of December 31,2014 is set forth in the following table
46
Funding Status ofthe Retirement Funds as of December 31, 2014"'
($ in millions)
MF.ABF LABF. . 1'ABF FABF Total. ...
Actuarial Accrued Liability'2'
$12,307 I 2,107 1 11.334 S 4,338 6
Total Assets $5,17') 5 1,388 1 3,062 0 1,036.0
Unfunded Actuarial Accrued
Liability"1
$7,127 6 719 0 8.272 8 3,302 6
$10,665.6 $30,087 6 $19,422.0
Kii tided
Ratio14' 42 1%
65.9 27.0 23 9 35.5%
Source Actuarial Valuations ofthe respective Retirement Funds for the fiscal year ended December 31,2014. '" Amounts measured al fair markel value where applicable Columns may not sum due to rounding
"Actuarial Accrued Liability" is the dollar value of plan liabilities (as determined by an actuary) See APPENDIX E—
"RETIREMENT FUNDS—Actuarial Methods—Actuarial Accrued Liability " '" Unfunded Actuarial Accrued Liability'' or "UAAL" is the dollar value by which the plan s liabilities (as determined by an
actuary) exceed the assets of such pension plan See APPENDIX F.—"RETIREMENT FUNDS—The Actuarial Valuation—
Actuaries and the Actuarial Process." '" "Funded Ratio" represents Ihe plan's assets divided by its liabilities (as assets and liabilities arc determined by an actuary)
Sec APPENDIX E—' RE I'IREMCNT FUNDS—I he Actuarial Valuation—Aauaries and the Actuarial Process "
The funded status ofthe Retirement Funds has deteriorated steadily over time, as demonstrated in the table below
Funded Status of the Retirement Funds 2005-20141"
($ in millions)
Year
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
MEABF
UAAL
Funded Ratio
$2,893 3 68 7%
2,635 0 72 2
2,958 7 70 3
5,642 6 45 7
5,663 9 47 7
6,393 I 46 0
7,239.7 41 1
8,292 7 38 5
8,407 2 39 2
7 127 6'"' 42 I12'
PABF
Funded
UAAL Ratio
$3,767.9 51 2%
3,747 5 52 8
3,887 I 52 7
5,4816 35 4
5,410 1 38 1
5,770 4 37 3
6,346 9 33 4
6,839 4 32 11
7,017 I 318
8,272 8 27 0
FABF
Funded
UAAL Ratio
$1,608 2 44 2%
1,696 6 45 1
1,746 4 45 7
2,397 1 27 6
2,377 2 30 7
2.548 9 30 3
2.858 I 25.8
2,987.7 25 7
3.012 0 27 0
3,302 6 23 9
LABF
Funded
UAAL Ratio
$83 2 95.2%
28 0 98.4
25 5 98.6
726 7 62 1
642.8 67 5
602 8 70 3
839 3 610
965 I 58 7
925 8 612
7I9 0,2) 65 9|3>
Total
Funded
UAAL Ratio
$8,352 7 613%
8,107.1 63.6
8,617.8 62 9
14,248 0 40 9
14,094 0 43.6
15,3152 42 7
17,284.0 37.9
19,083.9 36 1
19,362 2 36 8
19,422 0 35 5
Source Ihe Comprehensive Annual Financial Reports for ihe Retirement Funds (the "Kelircinenl Fund CAI Rs ) for llseal
years 2004 through 2014 "'All calculations based on the fair market value of asscls
'"' Reduction in LABF and MI AHF UAAL and ineiease in Funded Ratio .ne due in large pail lo the enactment of P A 98-64 I Sec Appends C—"RI-1 IREMI.N f FUNDS — I cgislamc Changes— P A 98-641 "
The City believes that the decrease in the Retuement Funds' funding levels over the past ten years is due to adveise economic factors (lesultmg in investment ictiiins below assumed levels combined
47
with a decreasing asset base), inadequacy of legislatively-mandated employee and City contributions, automatic annual increases ("AAls") and changes in benefit levels, changes in actuarial assumptions and the changed demographic of both the City's workforce and retirees of the Funds
Adverse Economic Factors. The financial downturns of 2001 and 2008 resulted in significant drops in the asset values ofthe Retirement Funds. From 2000 to 2002, the combined aggregate funded ratio ofthe Retirement Funds declined from approximately 87 percent to approximately 62 percent, due primarily to investment losses. Investment performance improved in the mid-2000s, but this growth was on a smaller asset pool due to prior losses. During 2008, the Retirement Funds sustained a more than $4 0 billion loss in asset value, and the combined Retirement Funds' funded ratio decreased from approximately 63 percent to approximately 41 percent Although the investment performance ofthe Retirement Funds has recovered since 2008, the Retirement Funds' funded ratio continued to decline to approximately 36 percent in 2014
Contribution Levels. City employees contribute a fixed percentage of their salary to the Retirement Funds. Historically, the City's contributions to the Retirement Funds had been determined on the basis of a formula established in the Pension Code This formula required the City to levy an amount equal to the employee contributions two years prior to the year in which the tax was levied multiplied by a factor established by statute for each Retirement Fund (the "Multiplier"'). The Multiplier is not related to the contribution which would be determined by an actuary pursuant to an actuarial valuation or the benefits actually earned by employees. Furthermore, the Multiplier does not adjust for changes in the economy affecting returns on pension fund investments, changes in demographics, inflation, or changes in benefits. As a result, the Multiplier for each Retirement Fund has been significantly lower than the Multiplier which would have been necessary to fully fund the Retirement Funds on an actuarial basis in recent years.
48
The following table compares the City's statutory contributions pursuant to the Pension Code lo the amounts calculated by the Retirement Funds' actuaries to be needed to fully fund the Retirement Funds for the years 2005 through 2014.
Retirement Funds City Contribution Requirements 2005-2014'"
($ in thousands)
Fiscal Year
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Actuarially Required Contribution
S 698,185 785,111 865,776 886,215 990,381 1,112,626 1,321,823 1,470,905 1,695,278 1,740,972
Actual City ontribulion'
$423,515 394,899 395,483 416,130 423,929 425,552 416,693 440,120 442,970 447,399
Percentage of Actuarially
Required Contribution Contributed
60.7% 50.3 45.7 47 0 42.8 38 2 31 5 29 9 26.1 25.7
Sources Actuarial Valuations of the Retirement Funds as of December 31 ofthe years 2010 through 2014 "' Data is presented in the aggregate for the Reliiemenl Funds and uses assumptions and methods employed by each of the Retirement Funds For the dula presented as of December 31 for Ihe years 2003 through 2006, contribution information includes amounts related to other post-employment benefits Beginning in 2007, as a result of a change in GASB standards, contribution information is presented exclusive of amounts related to other posl-employinenl benefits The City began to report other post-employment benellts separately in the City CAFR beginning in 2006 121 Includes Ihe portion of the personal property replacement tax contributed to the Retirement Funds in each year
Changes in Benefits. Over time, additional benefits have accrued under or been written into the Pension Code. Most notably, AAIs written into the Pension Code significantly increased the cost of benefits AAIs provide annual increases in pension payments regardless ofthe then prevailing inflation rates Legislation passed by the State in 2010 reduced the AAIs and instituted other cost saving provisions for all four pension funds for employees hired on or after January 1, 2011 Sec APPENDIX E—"RETIREMENT FUNDS—Legislative Changes— P.A. %-OSSO "
Legislative changes to the Pension Code also increased the total cost of benefits owed, though to a lesser degree than the automatic AAIs. Among other changes, certain benefit minimums were raised and the definition of pensionable pay was expanded
Workforce and Retiree Demographics. In addition to investment losses and benefit increases, the makeup ofthe City's workforce and retirees has added to the unfunded liability ofthe Retirement Funds fhe slatutonly-sct employee and employer contribution percentages did not change to account for shifts in basic demographic factors such as the longer lifespans of retnees and the pro|ccted future benefit costs In addition, the City's prior early retirement incentive plans increased the number of retirees drawing benefits and decreased the number of employees contributing to the Retirement Funds
40
Changes to PABF and FABF
Public Act 096-1495 ("P.A. 96-1495"), enacted in 2010, made changes to the Pension Code with respect to PABF and FABF In addition to making some changes to benefits for PABF and FABF employees beginning employment on or after January 1, 2011, P A. 96-1495 alters the manner in which the City contributes to PABF and FABF beginning in 2016. P A. 96-1495 removes the Multiplier from the funding calculation, instead requiring the Cily lo contribute lo PABF and FABF the amount actuarially required to achieve a funded ratio of 90 percent by fiscal year 2040. PA. 96-1495 will significantly increase the City's contributions to PABF and FABF in 2016 and will impose a significant financial burden on the City. Sec APPENDIX E—"RETIREMENT FUNDS—Legislative Changes— P.A. 96-1495 "
The following table sets forth a projection ofthe funded ratios of and City contributions to PABF and FABF in future fiscal years.
Projected Funded Ratios and Contributions PABF AND FABF1" ($ in millions)
PABF FABF
Fiscal Funded Employer Funded Employer
Year Ratio Contribution'2' Ratio Contribution'2'
28.7% $ 187,815 25 0% $109,813
30 3 592,863 266 246,132
32 0 675,826 28 2 184,086
33 6 695,124 29.8 292,439
35 3 713,810 31.5 301,752
36 9 732,200 33.2 311,205
2025 45 5 834,435 42 6 363.224
2030 55.9 951,072 54 9 414.140
2035 70 4 1,073,628 70 4 442,417
2040 90.0 1,146,889 90.0 463,527
Source The Actuarial Valuations of PABF and l-'AHl- as of December 31, 2014 ' ' Projections aie calculated on an accrual basis
Represents contributions expected (o he made by ihe Cily during (he fiscal year
Based on the amounts budgeted by the City for the 2015 contribution and the 2014 actuarial reports with respect to the projected 2016 contribution, the City's required contribution to PABF and FABF will increase by approximately $549 million for 2016
Senate Bill 777 ("SB 777") passed both houses ofthe Illinois General Assembly as of May 31, 20)5 SB 777 would extend the period by which the unfunded liabilities of PABF and FABF are amortized to a 90 percent Funded Ralio from 2040 to 2055 (the "Revised Amortization Period") and institute a phase-in period during 2016-2020 to reduce the City's required payment in the initial years to allow for a more gradual phase-m ofthe requirements of PA 96-1495 (the "Phase-in Period") The Revised Amortization Period would reduce the annual funding obligation required to reach a 90 percent Funded Ralio, but extend ihe number of years over which such payments would need lo be made. A motion to reconsider the vote on SB 777 was filed in the Illinois Senate on May 31. 2015, and, as such, SB 777 has not been sent to the Governor for consideration The Illinois General Assembly may consider other legislation that could affect the City payment obligations for PABF and FABF and/or funding
50
sources for those obligations, including a City-owned casino The City makes no representation as lo whether or when SB 777 or any such other legislation would he enacted
The City expects that the City Council will consider options for addressing its pension funding requirement for PABF and FABF, including improvements in operating efficiencies and incremental revenues, after the Illinois General Assembly concludes its 2015 regular session. If an increase in property taxes were the sole source of incremental City contributions to PABF and FABF, and those contributions were not reduced by a Revised Amortization Period or Phase-in Period, the projected amount ofthe increase for payment in 2016 would be $549 million on a total estimated 2015 aggregate lax levy of $4.2 billion, including the Cily and overlapping taxing jurisdictions. The City is required to file its levy requirement with Cook County by no later than the last Tuesday of December 2015, and the property taxes from the levy would be collected in two installments in the spring and fall of 2016.
Changes to MEABF and LABF
Public Act 098-0641 ("P A 98-641"), enacted in June 2014, makes changes to the Pension Code with respect to MEABF and LABF. The law was supported by the City and developed with input from labor organizations. PA. 98-641 is designed to address the underfunding, and projected insolvency, of MEABF and LABF through a combination of increases in the City's contributions, increases in employee contributions, and decreases in the AA1 adjustments. Among other changes, PA 98-641 increases employee contribution rates, makes changes to AAIs and provides for AAIs to be skipped in 2017, 2019 and 2025. Furthermore, P.A. 98-641 modifies the manner in which the City contributes to MEABF and FABF. P.A 98-641 retains the Multiplier, with stepped increases in the applicable Multipliers, as the method of calculating the City's contribution through 2020 Beginning in 2021, the City will be required to contribute to MEABF and LABF the amount necessary, as determined by an actuary, to achieve a funded ratio of 90 percent by 2055. See APPENDIX E—"RETIREMENT FUNDS —Legislative Changes—P.A. 98-641"
51
The following table sets forth a projection of the Funded Ratios of and City contributions to MEABF and LABF in future fiscal years.
Projected Funded Ratios and Contributions MEABF AND LABI7"1 ($ in millions)
MEABF LABF
Employer
Funded Contribution Funded Employer
Fiscal Year Ratio ul Ralio Contribution'
404% $156 1 63 5% $14.5
38 9 242.7 61.7 24.0
38 3 275.2 60 0 28.5
38 3 381 4 58.9 37.8
38 8 464.6 57 7 46.3
39 4 542.6 57 0 56 1
2025 417 596.9 55 8 76 4
2030 43 3 645 2 54.9 86 9
2035 44 8 701 8 54.9 97 6
2040 48.4 778 3 57 3 106 8
Source The Actuarial Valuations of MEABF and LABF as of December 31,2014. '" Projections calculated on a cash basis
Represents contributions expected to be made by Ihe City during the fiscal year
City and Stale Pension Litigation
City Pension Litigation. P.A 98-641 is currently subject to challenge in a lawsuit alleging its unconstitutionality. See "LITIGATION—City Pension Litigation" below and APPENDIX E— "RETIREMENT FUNDS—Effect on MEABF and LABF if P.A 98-641 Found Unconstitutional."
State Pension Litigation. On May 8, 2015, the Illinois Supreme Court affirmed the decision of the Sangamon County Circuit Court that Public Act 98-0599 (the "State Pension Reform Act") is unconstitutional The State Pension Reform Act would have provided for certain cost-saving and other reforms to the State's four largest pension plans. The State Pension Reform Act was challenged on behalf of various classes of annuitants, current and former workers, and labor organizations alleging, among other things, that the legislation violates Section 5 of Article XIII of the Illinois Constitution Sec APPENDIX E—"RETIREMENT FUNDS—Background Information Regarding the Retirement Funds— Overlapping taxing Bodies—State Pension Reform Act and Litigation "
Allocation of Pension Costs Among City Funds
The City allocates to the Special Revenue Funds and Enterprise Funds their share ofthe City's annual contribution to the Retirement Funds For further information, see APPENDIX E—"RETIREMENT FUNDS—Special Revenue and Enterprise Fund Allocation of Retirement Fund Costs ''
Overlapping Taxing Disrr/cls
The overlapping taxing districts within the City maintain five pension funds for their respective employees that are supported by local property taxes. Statistical data for the four City pension funds and the five overlapping taxing district's pension funds is set forth in the table below.
City and Overlapping Taxing Districts Pension Funds Supported by Local Property Taxes 2013" *
Unfunded
Actuarial Unfunded
Accrued Liability
Liability Per Funded
(S in millions) Capita'21 Ratio
Overlapping Taxing Districts
MWRD $ 1,006 4 $ 192 54.1%
CookCounty 5,255.1 1,003 61.5
Forest Preserve . .. 95 0 18 65.8
CBOE,3) 9,458 4 3,479 515
Park District 483 7 178 45 5
Subtotal $16,298.6 $ 4,870
City Pension Funds $19,748 4 S 7,263 34.4%
TOTAL $36,047.0 $I2,I3314'
Source Most recent audited financial statements or CAFR ofthe oveilapping taxing districts
Excludes City Colleges, the employees of which arc members of ihe State Universities Retirement System which is funded by Ihe State, excludes Ihe Chicago Transit Authority pension fund which is supported by local sales taxes, real estate transfer laxes, subsidies from the Regional Transportation Authority and fares
121 Per capita amounts arc based on the U S Census Bureau's 2013 population estimate ofthe City (2,718,782) and of Cook County (5,240,780) as described in APPENDIX 13—'ECONOMIC AND DEMOGRAPHIC INFORMATION—Population " The Cily's population was used to calculate the per capita numbers for the Cily and for the CBOE and the Park District, each of which has boundaries coterminous with the City Cook County 's population was used to calculate the per capita numbers for Cook County, the Forest Preserve, which has boundaries coterminous with Cook County, and MWRD which, though nol coterminous with Cook County, has boundaries which oveilap in excess of 98% with the boundaries of Cook County, measured by EAV
''' CBOE makes contributions to the Chicago Teachers" Fund
'¦" Represents the average burden on a resident ofthe City as a result ofthe unfunded pension liabilities of Ihe City and the overlapping taxing districts.
'fhe information set forth in the preceding table may not incorporate the various reforms that have been adopted for certain of these pension funds, and should not be relied upon for the financial condition ofthe funds currently The information is presented only to provide an indication ofthe magnitude ofthe unfunded pension liabilities ofthe overlapping taxing districts when combined with the unfunded pension liabilities ofthe City
Long-Term Leases, Concessions of City Facilities
The City is a party to long-term lease or concession agreements with respect to certain City-owned facilities, as described below
In 2005, the City entered into a 99-year lease of the Chicago Skyway (the "Skyway Lease"), under which Skyway Concession Company, LLC, was granted the right to collect and retain toll revenue from the Skyway In return, the City received an upfront payment of $ I 83 billion
In 2006, the City entered into the Chicago Downtown Public Parking System Concession and Lease Agreement (the "Parking Garages Lease Agreement") with Chicago Loop Parking, LLC ("CLP"), by which CLP was granted a 99-year concession to operate the public parking garages commonly referred to as Millennium Park, Grant Park North, Grant Park South and Last Monroe (collectively the "Parking Garages"). Under the Parking Garages Lease Agreement, CLP was granted the right to operate and collect revenue from the Parking Garages in return for an upfront payment of $563 million lo Ihe City The Parking Garages Lease transaction is in litigation, plaintiffs have challenged the validity ofthe lease. Sec 'LITIGATION—Parking Garages Litigation."
In 2008, the City entered into Ihe Chicago Metered Parking System Concession Agreement (the "Parking Meters Concession Agreement") with Chicago Parking Meters, LLC ("CPM"), by which CPM was granted a 75-year concession to operate the City's on-street metered parking system (the "Metered Parking System"), including the right to collect revenues derived from the metered parking spaces. In return, the City received an upfront payment of $1.15 billion.
The City established long-term reserves with portions ofthe upfront payments from the Skyway Lease and the Metered Parking System. See "—Service Concession and Reserve Fund" above
Under each ofthe Skyway Lease, the Metered Parking Concession Agreement and the Parking Garages Lease, the lessee/concessionaire has the right lo terminate Ihe transaction and receive payment from the City for the fair market value of the respective City facilities in the event that the City, Cook County or the State were to take certain actions which materially adversely affected the value of the respective City facilities.
"i he Parking Garages Lease Agreement includes a provision by which cerlain events can require the City to compensate the lessee. One of those events is the granting of a license for the operation of a public garage that was not in existence as ofthe date ofthe Parking Garages Lease Agreement within a cerlain distance from the Parking Garages. The City recently paid the lessee a judgment of approximately $62 million as compensation for granting a public garage license for a new parking garage within the specified distance from the Parking Garages.
The Parking Meters Concession Agreement includes a provision by which the City can be required to compensate CPM if usage of the Metered Parking System by vehicles displaying disabled parking placards (which are exempt from paying for on-street metered parking) exceeds a certain threshold Pursuant lo this provision, Ihe City paid CPM $18 5 million for such usage by vehicles displaying a disabled parking placard during 2013
The amounts paid by ihe Cily under the Parking Garages Lease Agreement and the Parking Meters Concession Agreement were borrowed under the Short Term Borrowing Program Bond proceeds will be used to pay down the Short Term Borrowing Program by these amounts See "PLAN OF FINANCING—Repayment of Short Term Borrowing Program."
Illinois Sports Facilities Authority
fhe Illinois Sports Facilities Authority ("ISFA") is a state agency authorized to construct and operate sports facilities and provide financial assistance for governmental owners of spoits facilities or their tenants Beginning in 1980, the ISFA issued various series of bonds (and refunding bonds) for the
54
development of U.S. Cellular Field and a portion ofthe Chicago lakefront including Soldier Field The ISFA bonds are payable from State and City annual subsidy payments of $5 million each, with the City's subsidy taken from the City's share of the local government distributive fund, and a 2 percent hotel tax imposed by the ISFA (the "ISFA Hotel Tax") The State advances to the ISFA certified annual operating expenses less the amount of the subsidies The Stale withholds collections from the ISFA Hotel Tax lo repay advanced amounts. If the ISFA Hotel Tax is not sufficient to repay the State advance, the deficiency is automatically withdrawn from the City's share ofthe local government distributive fund. During 2011, the ISFA hotel tax was inadequate to fully repay the Stale advance, and the deficiency of $185,009 was deducted from the City's share ofthe local government distributive fund. This is the only payment the City has made to date Future City payments arc dependent on hotel occupancy rates.
City Investment Policy
The investment of City funds is governed by the Municipal Code of Chicago (the "Municipal Code"). Pursuant to the Municipal Code, the City Treasurer has adopted a Statement of Investment Policy and Guidelines for the purpose of establishing written cash management and investment guidelines to be followed by the City Treasurer's office in the investment of City funds See APPENDIX C— "CITY OF CHICAGO BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,2014—Notes (I) and (4)."
GENERAL OBLIGATION DEBT
Recent Developments
On April 29, 2015, Mayor Emanuel announced a series of fiscal reforms to be implemented over the next four years to strengthen the City's financial practices The reforms included (i) converting to fixed rate all ofthe City's outstanding general obligation variable rate bonds; (ii) terminating the interest rate swaps associated with the City's general obligation variable rate bonds; (in) ending by 2019 the practice of paying near-term debt with long-term bonds; (iv) increasing operating budget funding for legal settlements and judgments, and (v) increasing the City's reserve funds
The City has implemented the first two components of the Mayor's fiscal reform agenda, the variable bond conversions and the interest rate swap terminations, as more fully described below.
Variable Rate Bond Conversions
As of April 1, 2015, the City had four series of general obligation variable rate demand bonds outstanding in the aggregate principal amount of $805,640,000 "Ihe general obligation variable rate bonds paid daily or weekly rates of interest and were convertible at the option of the City to fixed rate bonds While in the weekly or daily mode, the general obligation variable rate bonds were payable from bank letters of credit issued under reimbursement agreements between the City and the banks. The City was obligated to reimburse the banks for all letter of credit draws under the reimbursement agreements
Pursuant to notice from the City, on April 29 and May 8, 2015, the respective bond trustees provided notice to bondholders that the general obligation variable rale bonds were lo be converted to fixed rate bonds or redeemed
On May 12, 2015, Moody's Investors Service ("Moody's"') downgraded its rating on the City's outstanding general obligation bonds See "INVESTMENT CONSIDERATIONS—Credit Rating Downgrades " The downgrade resulted in events of default under the variable rale bond reimbursement agreements The City entered into foibearance agreements pursuant to which the letter of credit banks
55
agreed to forbear from exercising their respective rights resulting from the downgrade, which included the right to require the City to make accelerated reimbursement payments
As of June 8, 2015, the City redeemed or converted to fixed rate all ofthe City's outstanding general obligation variable rate bonds. The City used $151 6 million from the Short Term Borrowing Program to (i) redeem $131.6 million of general obligation variable rate bonds in order that the remaining converted bonds would be within the original property tax levy for the bonds, and (ii) fund $20 0 million of bond tender prices (resulting from the rcoffcring ol' converted bonds at a discount and costs of issuance) and transaction costs The City will use proceeds of the Bonds to pay down the amount borrowed under the Short Term Borrowing Program. See "PLAN OF FINANCING—Repayment of Short Term Borrowing Program."
Interest Rate Swap Terminations
The City entered into a number of interest rate swaps with respect to its general obligation variable rate bonds. The interest rate swaps provided the City with synthetic fixed rates on its general obligation variable rate bonds or altered the index used to calculate the variable rate amount being paid to the City by the swap counterparty under the swap. As of June 8, 2015, the City terminated all ofthe interest rate swaps associated with its general obligation variable rate bonds The total amount of the termination payments paid by the City in connection with swap terminations was $192.1 million, all of which was funded from borrowings under the Short Term Borrowing Program.
The City also previously terminated a swaption relating to general obligation fixed rate bonds for $4.9 million, which was paid from borrowings under the Short Term Borrowing Program. Of that amount, $2.8 million remains outstanding.
On June 2, 2015, the City terminated the interest rate swap associated with the City's sales tax variable rate revenue bonds, 'fhe City funded the swap termination payment of $24.5 million from sales tax revenues that had been deposited in the General Fund pursuant to the trust indenture governing the sales tax revenue bonds and bond premium received by the City upon the reoffering ofthe sales tax variable rate revenue bonds as fixed rate bonds.
The City will use proceeds of the Bonds to pay down amounts borrowed under the Short Term Borrowing Program to fund the swap and swaption termination payments and to reimburse the General Fund for the sales tax revenues used lo make the swap termination payment in connection with the conversion of ihe sales tax variable rate revenue bonds to fixed rates. See "PLAN OF FINANCING— Repayment of Short Term Borrowing Program."
Long- Term General Obligation Bonds
A significant portion of Ihe Cily's long-lcrm general obligation bonds, including the Bonds, arc backed by the full faith and credit ofthe City, and all taxable properly within the City is subject to the levy of laxes to pay the principal of and interest on general obligation bonds without regard to rate or amount As described below, certain general obligation bonds of ihe Cily do not have a specific revenue source, such as a properly tax levy, pledged for their repayment
Ihe Cily has three types of long-term general obligation bonds outstanding For a significant portion ofthe City's long-term general obligation bonds (including the Bonds), an annual property tax levy has been established and pledged to the payment of debt service on such bonds ("Tax Levy Bonds") For certain other long-term general obligation bonds issued by the City (which make up a small subset of the Cily's general obligation bonds), either (i) an annual property lax levy has been established but is
56
annually abated if certain other specified revenues are available that year for payment of debt service (''Alternative Revenue Bonds"), or (n) no annual property tax levy has been established for debt service and payments of debt service are appropriated from sources of revenue other lhan property taxes ("Pledge Bonds"). Alternative Revenue Bonds include the City's General Obligation Bonds (Modern Schools Across Chicago Program), Series 2007 A-K, Series 201 OA and Series 201 OB, and General Obligation Bonds (Emergency Telephone System), Scries 1999 and Scries 2004 Pledge Bonds include the City's General Obligation Building Acquisition Certificates (Limited Tax), Series 1997, and the general obligation note issued by the City in connection with the acquisition by the City ofthe former Michael Reese Hospital campus (the "MRL Note") All other long-term general obligation bonds ofthe City are Tax Levy Bonds.
Long-term general obligation bonds are generally issued annually by the City to pay for capital projects, general obligation refundings for savings, general obligation debt restructuring, legal settlements and judgments, and, from time to time, the retroactive employment wage and salary increases (including related pension costs).
Over the last five years, the City has issued approximately $350 million of long-term general obligation bonds per year to fund capital improvements, equipment and legal judgments and settlements For information on the use of long-term general obligation bonds for capital projects, see ' FINANCIAL DISCUSSION AND ANALYSIS—Capital Improvements." The City currently intends to curtail the use oflong-tcrm general obligation bonds lo fund settlements and judgments in future budgets
Since 2007, proceeds from long-term general obligation bonds in the range of $90 million to $170 million per year have been used to restructure the Cily's general obligation annual debt service. The City will use approximately $170 million of Bond proceeds to repay amounts borrowed under the Short Term Borrowing Program used to fund payment ofthe debt service on certain City general obligation bonds on July 1, 2015 and January I, 2016 The City expects lo use approximately $220 million of proceeds from its next issuance of general obligation bonds to pay the debt service on the City's general obligation bonds on July 1, 2016 and January 1, 2017. The City currently plans to eliminate the use of general obligation bonds for debt restructuring by 2019 See "INVESTMENT CONSIDERATIONS—Structural Deficit and Debt Restructuring "
Following arc selected debl statistics regarding the City's long-term general obligation bonds from 2005 through 2014.
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Long-Term General Obligation Bonds Selected Debt Statistics 2005-2014
Total Est. Fair Cash
Aggregate Debt Value'2' Ralio of Debt to
Year (S in thousands/" ($ in thousands) Fair Cash Value'2' Per Capita1'
$5,123,729 $283,137,884 181% $1,76923
5,422,232 329,770,733 1 64 1,872 31
5,805,921 320,503,503 181 2,004 80
6,126,295 310,888,609 197 2,115.42
6.866,270 280,288,730 2 45 2,370 94
7,328,452 231,986,396 3 16 2,718 67
7,628,222 222,856,064 3 42 2,829 88
7.939,682 206,915,723 3 84 2,945 43
7,670,298 - 3 71 2,845.49
8,339,626 - 4.03 3,093.79
Source City of Chicago, Department of Finance
Source The Civic Federation Excludes railroad property, pollution control facilities and portion of City in DuPage County. 2013 and 2014 information is not available at lime of publication The ratios of debt lo fair cash value for 2013 and 2014 are bused on 2012 estimated fair cash value '''' Population source U S Census Bureau From 2005 through 2009, per capita calculation is based on ihe 2000 population of 2,896,016 From 2010 through 2014, per capita calculation is based on the 2010 population of 2,695,598
The City's long-term general obligation debt service schedule for 2015 to 2043 is set forth in the following table.
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Short Term Borrowing Program
The City issues commercial paper notes and maintains revolving lines of credit (the "Short Term Borrowing Program"'). Borrowings under the Short Term Borrowing Program are general obligations of the City but do not have a specific revenue source, such as a property tax levy, pledged for their repayment
The Short Term Borrowing Program is used by the City for working capital in anticipation of receipt of other revenue, and to fund capital projects, debt refinancing or restructuring and the payment of non-capital expenditures, such as settlements and judgments or retroactive payment of employment salaries and wages, which arc typically repaid from proceeds of later issuances of general obligation bonds
The City has increased its borrowing capacity under the Short Term Borrowing Program over time. By ordinance, the current maximum aggregate principal amount of debt that can be outstanding under the Short Term Borrowing Program is $1 0 billion. The City has sized its borrowing capacity for interim funding in anticipation of receiving revenues or issuing long-term general obligation bonds and to cover General fund operating expenses.
The following table shows the City's lowest and highest outstanding balances and the total amount available for borrowing under the current commitments in place for the Short Term Borrowing Program for the years 2010 through 2014 and for the period January 1, 2015 through June 30, 2015.
Short-Term Borrowings 2010-2014
($ in thousands)
Lowest Outstanding Highest Outstanding Total Available
Year Principal Amount Principal Amount Principal Amount
$27,448 $198,101 $ 200,000
30,092 198,112 200,000
32,676 166,513 300,000
72,517 415,256 500.000
77,294 415,294 900,000
2015,u 263,174 835,042 1.000,000
Source Cily of Chicago, Department of Finance
For the period January I, 2015 through June 30, 2015
Moody's May 12, 2015 downgrade ofthe Cily's general obligation credit rating triggered an event of default under the credit agreements in place under the Short Term Borrowing Program as ofthe date of the downgrade. The affected banks participating in the Short Term Borrowing Program have agreed to forbear from exercising their respective rights for a period ending September 30. 2015, to allow the City sufficient time to complete the planned conversion ofthe general obligation variable rale bonds to fixed rate bonds, to refinance ihe Short Term Borrowing Program with general obligation bonds and to restructure the Short Term Borrowing Program going forward.
Set forth in the following table is information about the credit components of the Short Term Borrowing Program as of June 30, 2015
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Short Term Borrowing Program
($ m thousands)
Facility
Commercial Paper Line of Credit Line ol'Credit Line of Credit Line of Credit Line of Credit'" Total
Scries or Year
2002C/D 2013 2014 2014 2014 2015
Borrowing Authority
5100,000 348,413 100,000 100,000 200,000 151,587
51.000,000
Amount Outstn nding (July 16, 2015)
$95,105 172,540 100.000 98.865 200,000 151,587
$818,097
Expiration or
Termination
9/30/2015 11/30/2015 6/30/2016 9/30/2015 4/25/2016 9/30/2015
Bank
HMO Harris Bank of America Morgan Stanley Barclays Bank JPMorgan DN'f Asset Trust':'
Source Cily of Chicago, Department of Finance
'" fhe line of credit was available only to pay the redemption prices and other costs of ihe conversions of the general
obligation variable rate bonds The City is currently prohibited from borrowing under the Short Term Borrowing Program without the approval or consent of the related banks notwithstanding the repayment of amounts outstanding under the Short Term Borrowing Program with proceeds of the Bonds The City is negotiating with current and potential new credit providers for amended or new credit facilities that would permit new borrowing under the Short Term Borrowing Program at the City's discretion. The City expects to have amended or new credit facilities in place for the Short Term Borrowing Program shortly after the issuance of the Bonds that provides for an aggregate borrowing capacity of $500 million to $750 million. The City has received expressions of interest from current and potential credit providers in excess of the anticipated size of the program. See "INVESTMENT CONSIDERATIONS—Loss of Liquidity "
Proceeds ofthe Bonds will be used to repay all but approximately $140 million ofthe amounts currently outstanding under the Short Term Borrowing Program. The approximate amounts, uses and anticipated source of repayment ofthe outstanding borrowings under the Short Term Borrowing Program after the application ofthe proceeds of Ihe Bonds arc as follows'
$45 million in lieu ofthe issuance of tax anticipation notes by the City to be repaid with property taxes expected to be collected shortly after the date of issuance ofthe Bonds
$58 million for retroactive employment compensation under the FOP collective bargaining agreement to be repaid with general City revenues over two years.
$23 million for Millennium Park operations lo be repaid with general City revenues over several years.
• $10 million for City Hall renovations to be repaid with building rent savings over several years
$3 million for repayment of Lincoln-Belmonl-Ashland TIF bonds lo be repaid with 111-revenues
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MRL Financing LLC Promissory Note
In 2009, the City purchased the former Michael Reese Hospital campus in connection with the City's bid for the 2016 Summer Olympics. The purchase was implemented by the MRL Note issued by the City to the seller, which is currently outstanding in the amount of $81 9 million The MRL Note is a general obligation ofthe City not supported by a properly tax levy. Interest payments for the first five years were not required to be paid until June 30, 2014, at which time the City was required to either pay the accrued interest or add it lo the outstanding principal amount. At thai lime, the City was also required to begin making quarterly interest payments and annual principal payments The City used the Short Term Borrowing Program to make the accrued interest payment of $19 9 million on June 30, 2014. the first regularly scheduled interest payment of $1.4 million in September 2014, and the scheduled principal and interest payment of approximately $11 million on June 30, 2015 The quarterly interest amounts of $1.4 million for December 2014, and $1.3 million for March 2015, were paid from funds available in the Genera) Fund. The City anticipates using the amounts available from the General Fund and/or the Short Term Borrowing Program lo make continued debt service payments due under the MRL Note until such time as ihe property is sold, given that the funding costs of the Short Term Borrowing Program are less than having interest capitalized at the interest rate on the MRL Note (5.95 percent). When the property is sold, in whole or in part, the City currently expects to use such sale proceeds to pay the MRL Note
The City intends to use proceeds of the Bonds to repay borrowings under the Short Term Borrowing Program used lo make debt service payments on the MRL Note. See "PLAN OF FINANCING—Repayment of Short Term Borrowing Program "
Capital Lease
The City received grant funding from the federal government in the 1980s to build a train line (the "Grant-Funded Track") connecting Midway Airport with the rapid transit rail system operated by the Chicago Transit Authority ("CTA"). The Grant-Funded Track is owned by the City and is operated and maintained by the CTA as part of its Orange Line In 2005. the City entered into a sale/Ieaseback agreement with a trust (the "Trust") pertaining to the Grant-Funded Track, with the lease term ending in 2031 (the "Orange Line Lease"). In connection with Ihe Orange Line Lease, Ihe City posted as collateral a letter of credit (which varies in amount up to a maximum $180.7 million) issued by PNC Bank, National Association ("PNC Bank") expiring on February 13, 2018 The letter of credit provides collateral for repayment ofthe investment by the Trust's equity investor in ihe Orange Line Lease An evenl of default is triggered under the letter of credit reimbursement agreement with PNC Bank if the City's general obligation rating falls below BBB- by Fitch, Baa3 by Moody's or BBB- by S&P Also, a covenant to use reasonable efforts to replace the letter of credit within 30 days is triggered if the rating is below Baal or BBB+ by Moody's or S&P, respectively Due to a credit rating downgrade by Moody's on February 27. 2015, the City was required under the agreement with PNC Bank to use reasonable efforts to replace the PNC Bank letter of credit with other collateral by March 29, 2015 On March 23, 2015, the letter of credit reimbursement agreement with PNC Bank was amended to change the applicable rating threshold for the 30-day covenant to below I3aa2 or BBB+ by Moody's or S&P, respectively On May 12, 2015. Moody's downgraded its rating on the Cily's outstanding general obligation bonds, which triggered a default under the letter of credit reimbursement agreement In response, the City entered into a forbearance agreement with PNC Bank that extends through September 30. 2015, unless earlier terminated under the terms ofthe agreement.
The City intends to use a portion of the proceeds of the Bonds to terminate the Orange Line Lease, reacquire title to the Grant-Funded Track and terminate the PNC Bank letter of credit See 'PLAN OF FINANCING— Other Application of Bond Proceeds "
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USX South Works
The City entered into a tax-increment financing redevelopment agreement dated December 23, 2010 (Ihe "Lakeside I'll-" Agreement") in connection with the redevelopment of the currently vacant former U S Steel plant along the shore of Lake Michigan on the southeast side ofthe City The terms of the Lakeside TIF Agreement require the City, upon the fulfillment by the developer of certain specified leasing, sale, financing and other conditions, to issue a series of general obligation bonds secured by or otherwise payable from citywide properly laxes and a series of special assessment bonds secured by or otherwise payable from a special assessment levy on the redevelopment project site. Pursuant to the Lakeside TIF Agreement, the proceeds of such general obligation and special assessment bonds may be used to pay for certain costs ofthe redevelopment project, located in the Chicago Lakeside Development-Phase 1 TIF Redevelopment Project Area (the "TIF Area"), including public infrastructure. If and when the general obligation and special assessment bonds arc issued, the Lakeside TIF Agreement provides that such bonds will be paid from the incremental taxes collected in the TIF Area to the extent available rather than from citywide property laxes. The debt service on the general obligation bonds will be based on the first 50 percent of the incremental taxes projected at the time of issuance and have a first lien on the incremental taxes; the debt service on the special assessment bonds will be based on the second 50 percent of the incremental taxes projected at the time of issuance and have a second lien on the incremental taxes If the incremental taxes are insufficient to pay the debt service on the general obligation and special assessments bonds. (1) debt service on the general obligation bonds will be paid first by a letter of credit posted by the developer m an amount equal to 100 percent of maximum annual debt service on the general obligation bonds and then if necessary by citywide property taxes; and (2) debt service on the special assessment bonds will be paid by the special assessment levy The Lakeside TIF Agreement estimated that there will be approximately $96,000,000 of redevelopment project costs eligible to be paid with the proceeds ofthe general obligation and special assessment bonds but did not otherwise estimate the principal amounts ofthe general obligation and special assessment bonds.
INVESTMENT CONSIDERA TIONS
The follcnving discussion of investment considerations should be reviewed by prospective investors prior to purchasing the Bonds. Any one or more of the investment considerations discussed herein could lead to a decrease in the market value and the liquidity of the Bonds or, ultimately, a payment default on the Bonds. There can be no assurance that other factors not discussed herein will not become material in the future.
Credit Rating Downgrades
The interest rale Ihe City pays on new issuances of general obligation debt is highly dependent on the City's credit ratings, and downward changes in the City's ratings have resulted and may continue to result in significantly higher interest rates payable by the City on bond issuances and other borrowings.
On May 12, 2015, Moody's downgraded to Bal from Baa2 its rating on the City's outstanding general obligation bonds and the outlook remained negative On July 3, 2015, Fitch affirmed its BBB+ rating on the City's outstanding general obligation bonds with a negative outlook and removed the rating from negative rating watch On July 7, 2015, Kroll affirmed its long-term rating of A- with a stable outlook on the City's general obligation bonds On July 8, 2015, S&P lowered its rating to BBB+ from A- on the City's outstanding long-term fixed rate general obligation bonds with a negative outlook and removed the ruling from negative credit watch
The rating agencies have indicated that further downgrades to the City's credit rating could result from the courts declaring P A. 98-641, the Slate law which changed the Pension Code for MLABf and
LABF, unconstitutional, the failure to implement a pension funding solution in 2015, growth in the debt and unfunded pension liabilities ofthe City or overlapping governments, widening budget gaps, loss of liquidity, or draws on City reserve funds. The City cannot predict if or when, or on what basis, the rating agencies may take further action with respect to the City's credit ratings, and no assurances can be provided that the City's credit rating will not be subject to further downgrades as a result ofthe factors stated above or other factors.
I'nfunded Pensions
The Retirement Funds have significant unfunded liabilities and low funding ratios Under current law, the City's required contributions to PABF and FABF will significantly increase beginning in 2016. The City has not identified the sources of funds to meet the City's pension obligations for PABF and FABF in 2016 or thereafter, and it is likely that, without further changes to the Pension Code, the City will have to seek increases in taxes or implement cutbacks in City services or some combination thereof to meet its obligations to such pension funds. If the City were to raise taxes substantially or reduce and/or eliminate essential city services, residents or businesses may choose to relocate to states or municipalities with a lower tax burden or better services. A drop in population or business activity could have an adverse impact on the Cily's economy.
Pension Reform Litigation
On May 8, 2015, the Illinois Supreme Court determined that the State Pension Reform Act is unconstitutional Sec "FINANCIAL DISCUSSION—Pensions—City and State Pension Litigation— State Pension Litigation." P.A. 98-641, ihe law which modified required contribution and benefit amounts for MEABF and LABF, remains subject to litigation which may be affected by the decision of the Supreme Court regarding the State Pension Reform Act. See "LITIGATION-Pension Litigation." 'fhe City believes P.A 98-641 is distinguishable from the Stale Pension Reform Act. As a threshold matter, the City's position is that P.A. 98-641 docs not violate the Pension Clause of the Illinois Constitution and protects benefits being paid from MEABF and LABF that are projected (in the absence of P A 98-641) to be insolvent in approximately 11 and 14 years, respectively. PA. 98-641 was developed in consultation with numerous affected collective bargaining units.
If the courts determine that P.A. 98-641 is constitutional, the City would be required lo make increased pension payments as set forth in APPENDIX E—"RETIREMENT FUNDS—Determination of City's Contributions—City's Required Contributions to LABF and MEABF Pursuant to P.A 98-641 " If the courts determine that P.A. 98-641 is unconstitutional, the City's obligation to fund MEABF and LABF may revert to the prior, lower levels of funding based on the multiplier formula set fonh in Ihe prior law In that instance, the unfunded liabilities of MEABF and LABF would remain unresolved Sec APPENDIX E—"RETIREMENT FUNDS—Effect on MEABF and LABF if PA 98-641 Found Unconstitutional "
If a court were to determine that PA. 98-641 is unconstilulional, ihe City's credit ratings on its general obligation bonds, including the Bonds, could be downgraded See "—Credit Rating Downgrades" above
Overlapping Taxing Districts
A number of overlapping taxing districts whose jurisdictional limits overlap with the City have Ihe power to raise taxes, including property taxes See "FINANCIAL DISCUSSION AND ANALYSIS—Property Taxes—Overlapping Taxing Districts '' The City does not control the amount or liming of the taxes levied h\ these overlapping taxing districts Depending on the amount of such
64
increase(s), an increase in the amount of taxes by these overlapping taxing districts could potentially be harmful lo Ihe City's economy and/or may make it more difficult for the Cily lo increase laxes, including property taxes, to pay for its unfunded pensions
Structural Deficit and Debt Restructuring
Over the past ten years, the City has experienced an imbalance of tax revenues relative to operating expenditures resulting in operating budget gaps Since 2012, Ihe City has reduced the General Fund budget gap each year through targeted cuts, revenue enhancements, and improved operating efficiencies However, the City projects large budget gaps in 2016 and 2017 due to operating budget shortfalls and increased pension obligations See "FINANCIAL DISCUSSION AND ANALYSIS— General Fund—General Fund Financial Forecasts—2016-2017 General Fund Outlook."
Since al least 2007, the City has used proceeds from general obligation bonds with extended maturities to fund a portion ofthe City's general obligation annual debt service The City expects to use approximately $170 from proceeds of the Bonds and approximately $220 million from proceeds of its next issuance of general obligation bonds to restructure annual debt service in this manner. Sec "GENERAL OBLIGATION DEBT— Long-Term General Obligation Bonds." This practice has the effect of extending and increasing the City's overall debt levels Unless the City is able to pay its annual general obligation debt service from recurring revenue sources, the City's interest costs and outstanding debt are likely to continue to rise. The City currently plans lo eliminate the use of general obligation bonds to pay general obligation debt service by 2019.
Recurring operating budget gaps and increases in the City's debt burden could result in the need for new or enhanced revenue sources, including tax increases, or reduction of essential city services.
Loss of Liquidity
fhe City utilizes the Short Term Borrowing Program for working capital and interim funding of capital projects, debt refinancing or restructuring and the payment of non-capital expenditures such as settlements and judgments Moody's May 12, 2015, downgrade triggered an event of default under the credit agreements in place under the Short Term Borrowing Program as of the date of the downgrade. The Cily cannot borrow under the credit facilities while an event of default is continuing unless the credit facility provider otherwise agrees even after the City pays down amounts outstanding under the Short Perm Borrowing Program with proceeds ofthe Bonds.
The City is currently negotiating with current and potential new credit providers for amended or new credit arrangements that would permit new borrowing under the Short Term Borrowing Program. If the City is unable to negotiate amended or new credit arrangements, the City's liquidity position may be adversely affected and, to meet its obligations, alternative funding arrangements or other measures may be required. No assurance can be given as to whether the City will be successful in negotiating amended or new credit arrangements for the Short Term Borrowing Program, what the actual terms might be or whether the amounts available will be sufficient for the City's liquidity needs
Following the event of default resulting from the Moody's May 12, 2015, rating downgrade, the City executed forbearance agreements with each of the banks providing credit under the Short Term Borrowing Program as of the date of the downgrade. A further downgiade by Moody's and/or a downgrade below investment grade by S&P or Filch could result in the termination of the forbearance agreements and/or a default under the credit agreement with DNT Asset Trust Although the Cily will use proceeds ofthe Bonds to repay a significant portion of the outstanding borrowings under the Short I erm Borrowing Program, further rating downgrades may make it more difficult for ihe City to successfully
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negotiate revolving credit arrangements for its Short Term Borrowing Program See "GENERAL OBLIGATION DEBT—Short Term Borrowing Program "
Increased Debt Levels
Upon issuance of the Bonds, the City's long-term general obligation debt will increase. In addition, the City expects to issue additional long-term general obligation debt later in 2015 or early in 2016. Sec "SECURITY FOR THE BONDS—Additional General Obligation Debt." The City's annual debt service on its long-term general obligation debt will increase accordingly. Further increases m the City's long-term general obligation debt and annual debt service could crowd out spending for other City services and/or require substantial increases in property taxes or other revenue sources. See "GENERAL OBLIGATION DEBT—Long-Term General Obligation Bonds."
Financial Condition of Chicago Public Schools
CBOE, which is responsible for the governance, organizational and financial oversight of Chicago Public Schools, has reported a substantial budget deficit for 2016 and increasing deficits in subsequent years, due in large part to CBOE's pension funding obligations. See "FINANCIAL DISCUSSION AND ANALYSIS—Pensions—Overlapping Taxing Districts " While CBOE is a separate governmental entity and the City has no legal obligation to contribute financially to CBOE, any failure of CBOE to resolve its current and future deficits or resolving them by budget cuts and/or increases in property taxes, without State assistance, could have an adverse effect on the City's economy and/or property tax base
Reductions and Delays in Receipt of State Revenues
State tax revenue received by the City includes the City's local share ofthe State's sales and use taxes, income tax and personal property replacement tax. The State is itself facing a substantial budget deficit and Governor Rauncr has made a number of proposals to close the Slate's budget gap. Among them is a reduction in the local government distributive share of the State's income tax If such a reduction were to become law, the City would lose significant income tax receipts. This proposal, or any other that reduces the State taxes received by the City, would have an immediate and adverse effect on the City's budget.
There could also be significant delays in the receipt of stale lax revenue by the Cily. I he Stale has in the past delayed by months the distribution to local governments of their respective shares of state taxes due to the Stale's own budget problems. Although the delay in receipt of state taxes would not affect the payment of principal or interest on the Bonds when due, in the event of significant delay in receipt of stale lax revenue, the City may be forced to delay payments to vendors, service providers or other recipients of City funds.
Cap on Property Taxes
The Illinois Property fax Code limits, among other things, the amount of properly tax that can be extended for non-home rule units of local government located in Cook County and five adjacent Counties (the "Stale Tax Cap"). As a home rule unit of government, the City is not subject to the State Tax Cap. A number of bills have been introduced in the Illinois General Assembly to limit or freeze property taxes, including those imposed by home rule units of local government such as the City The application ofthe Slate Tax Cap to the City or any other measure that would limit or freeze property taxes would require three-fifths vole of each house of the Illinois General Assembly If ihe City were to become .subject lo a State-imposed property lax limitation icstnclion in the future similar to the State lax Cap or any other
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restriction or freeze on property taxes, the City's ability to levy property taxes in amounts needed for its future funding needs may be adversely affected.
Adverse Change in Laws
There are a variety of State and federal laws, regulations and constitutional provisions that apply to the City's ability to raise taxes, fund its pension obligations or to reorganize its debts There is no assurance that there will not be any change in, interpretation of or addition to such applicable laws, regulations and provisions. Any such change, interpretation or addition may have a material adverse effect, either directly or indirectly, on the City or the taxing authority of the City, which could materially adversely affect the City's operations or financial condition.
Bankruptcy
Municipalities cannot file for protection under the U.S. Bankruptcy Code unless specifically authorized to be a debtor by state law or by a governmental officer or organization empowered by state law to authorize such entity to be a debtor in a bankruptcy proceeding State law docs not currently permit municipalities in Illinois to tile for bankruptcy; however, legislation was recently introduced in the General Assembly of the State which, if enacted, would permit Illinois municipalities to file for bankruptcy under the U.S. Bankruptcy Code. No assurance can be provided as to whether any such legislation that would permit municipalities such as the City to flic for bankruptcy will be enacted into law
Uncertain Enforcement Remedies
The Bonds are direct and general obligations ofthe City and all taxable property in the City is subject to levy to pay the debt service on the Bonds. The Bonds arc not secured by a statutory lien on the Bond Interest and Redemption Fund, any real property in the City or any physical assets ofthe City. The maturity ofthe Bonds cannot be accelerated in the event that the City fails to pay any installment of interest on, or principal of, the Bonds when due
The remedies available to bondholders upon nonpayment of principal of or interest on the Bonds arc uncertain and in many respects dependent upon discretionary judicial actions There currently is no established judicial precedent addressing the rights of bondholders to compel the City to levy taxes or to enforce any other bondholder remedy. See APPENDIX A—"SUMMARY OF THE INDENTURES—Default and Remedies "
Force Majeure Events
There are certain unanticipated events beyond the City's control that could have a material adverse impact on the City's operations and financial conditions if they were to occur These events include fire, flood, earthquake, epidemic, adverse health conditions or other unavoidable casualties or acts of God, freight embargo, labor strikes or work stoppages, civil commotion, new acts of war or escalation of existing war conditions, sabotage, terrorism or enemy action, pollution, unknown subsurface or concealed conditions affecting the environment, and any similar causes. No assurance can be provided that such events will not occur, and, if any such events were to occur, no prediction can be provided as to the actual impact or seventy ofthe impact on the City's operations and financial condition
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Forward-Looking Statements
This Official Statement contains certain statements relating to future results that are forward-looking statements. When used in this Official Statement, the words "estimate," "intend," "expect" and similar expressions identify forward-looking statements. Any forward-looking statement is subject to uncertainty and risks that could cause actual results to differ, possibly materially, from those contemplated in such forward-looking statements. Inevitably, some assumptions used to develop forward-looking statements will not be realized or unanticipated events and circumstances may occur. Therefore, bondholders and potential investors should be aware that there are likely to be differences between forward-looking statements and actual results; those differences could be material. The City does not undertake any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
LITIGATION
There is no litigation pending in any court or, to the knowledge of the City, threatened, questioning the corporate existence of the City, or which would restrain or enjoin the remarketing or delivery of the Bonds, or which concerns the proceedings of the City taken in connection with the Bonds or the Cily's pledge of its full faith, credit and resources lo the payment of the Bonds
The City is a defendant in various pending and threatened individual and class action litigation relating principally to claims arising from contracts, personal injury, property damage, police conduct, discrimination, civil rights actions and other matters. The City believes that the ultimate resolution of these matters will not have a material adverse effect on the financial position ofthe City.
Property Tax Rate Objections: 2005 and following. The City's property tax levies for 2005 and following have varied between approximately $720 million and $835 million annually, excluding the School Building and Improvement Fund levy. Objections have been filed in the Circuit Court of Cook County (the "Circuit Court") to these levies, which objections remain pending The City is unable to predict the outcome ofthe proceedings concerning the objections.
E2 Nightclub Litigation. The City was a defendant in 57 wrongful death and personal injury lawsuits arising out of a stampede of patrons at the E2 Nightclub on February 17, 2003. The sole remaining claim against the City in this litigation was that police officers blocked, locked, or jammed access to the entry-exit door, causing a stampede of patrons to pile up on the only stairway leading to the door. On April II, 2012, the Circuit Court granted the City's motion for summary judgment and dismissed the sole remaining claim against the City with prejudice The City docs not know whether the plaintiffs will appeal the issuance of summary judgment. If the plaintiffs do appeal, the City will vigorously defend the Circuit Court's judgment in the appellate court
Automated Traffic Enforcement Ticketing Litigation. In July 2010, individual plaintiffs, seeking to maintain a class action, filed suit against the City and other defendants to challenge the City's use since 2003 of an automated red-light ticketing system. The plaintiffs allege, among other things, that the 2006 statute authorizing eight Illinois counties to enact red-light camera ordinances is unconstitutional local legislation and that the City lacks home-rule authority to enact a red-light camera ordinance and adjudicate violations administratively The plaintiffs sought an injunction against the operation ofthe City's red-light ticketing system and restitution of fines paid The Circuit Court granted the City's motion to dismiss the case; the Illinois Appellate Court affirmed in an unpublished decision The Illinois Supreme Court took the case, but two justices recused themselves and a majority ofthe remaining justices did not reach a consensus This had the effect of affirming the Appellate Court decision While the appeal was pending, the same attorney filed another putative class action case in the Circuit Court, with
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different named plaintiffs raising similar claims about the automated red-light ticketing system The City has filed a motion lo dismiss that case, which is pending in the Circuit Court fhe City will continue to defend this matter vigorously On March 23, 2015, individual plaintiffs, seeking to maintain a class action, filed a separate lawsuit alleging that the City has exceeded its home rule authority and has violated Illinois state law and City ordinances by issuing notices of violation and determinations of liability for automated speed enforcement violations and automated red-light violations that allegedly do not comply with state and local requirements They seek declaratory judgment, injunctive relief and, in an unjust enrichment claim, seek restitution of fines paid. The City filed a motion to dismiss on May 6, and will continue lo defend this case vigorously
Parking Garages Litigation. On February 13, 2013, Independent Voters of Illinois Independent Precincl Organization and an individual plaintiff filed a complaint challenging the facial validity ofthe Parking Garages Lease Agreement. The plaintiffs allege that certain compensation provisions in the Parking Garages Lease Agreement violate the legal prohibition against the delegation, by a governmental entity, of its police powers to a private parly. On January 16, 2014, the Circuit Court dismissed Ihe case, on motions by both the City and CLP. Plaintiffs have appealed; the appeal is pending. The Cily will continue to defend this case vigorously.
HDD Certifications Litigation. This is a False Claims Act case m which Albert C Hanna (the "Relator") has sued the City in federal district court for the Northern District in Illinois (the "District Court") seeking to recover funds on behalf of the U S government. The Relator alleges thai the City has an affirmative obligation to dismantle racial and ethnic segregation in housing under Title VI ofthe Civil Rights Act of 1964 and the Fair Housing Act and that the City has falsely claimed to do so in certifications made by the City to the U.S. Department of Housing and Urban Development ("HUD") as a condition of receiving federal funding through certain HUD-funded grant programs. The Relator seeks the return to the federal government of approximately $880 million in funds received by the City under these programs and asks the court to treble that amount, as allowed by statute. The City moved to dismiss the complaint and the District Court dismissed it with leave to amend The plaintiff filed an amended complaint and the City has moved to dismiss that complaint. The City will continue to vigorously defend this case.
Pension Litigation. P.A. 98-0641, which became law on June 9, 2014, reforms MEABF and LABF through a combination of increased employer contributions and changes to employee contributions and retiree benefits. In December 2014, shortly before P A 98-0641 was to go into effect, two lawsuits were filed by plaintiffs, who are individual participants in the two affected pension funds and (in one of the lawsuits) unions representing participants, in the Circuit Court challenging the constitutionality of P A 98-0641 Plaintiffs argue that P A 98-0641 violates the Pension Clause ofthe Illinois Constitution and seek a preliminary and permanent injunction prohibiting its enforcement. The City was allowed to intervene to defend the constitutionality of P A. 98-0641 On February 19, 2015, the Circuit Court entered an order staying the preliminary injunction proceedings pending further court order and pending the outcome ofthe Illinois Supreme Court's review ofthe State Pension Reform Act. On July 9, 2015, a hearing was held in the Circuit Court on the parties1 cross motions for summary judgment At the conclusion ofthe hearing, the Circuit Court staled that its judgment on the motions would be' delivered on July 24, 2015 fhe City has been defending and will continue to defend this matter vigorously The City expects that whatever decision is entered by the Circuit Court in this lawsuit, the decision will be appealed, and the constitutionality of P A 98-641 will ultimately be decided on appeal
Retiree Healthcare Litigation. In Undenvood v. City of Chicago, retired employees ofthe City filed suit in Stale court to challenge planned changes lo the healthcare benefits of retirees fhe complaint advanced state law claims, including alleged violation ofthe Pension Clause ofthe Illinois Constitution, and federal law claims I he City removed the case to federal court based on the federal law claims The
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federal district court dismissed the case in its entirety. As to plaintiffs' claim that the planned changes violate the Pension Clause, the district court predicted that the Illinois Supreme Court would rule in a separate case then pending before the Illinois Supreme Court that the healthcare benefits are not protected by the Pension Clause. Thereafter, the Illinois Supreme Court ruled in that separate case that the healthcare benefits in question, which were promised to State retirees, are protected under the Pension Clause fhe City argued on appeal to the federal appellate court that it should affirm the district court dismissal, including the state law claims, on an alternative ground On February 25, 2015, the federal appellate court affirmed the dismissal of the federal law claims and declined to rule on the state law claims on the ground that the state law claims involved a question of Illinois slate law, which it ordered returned lo the Illinois state court for decision. The City and olhcr defendants filed a motion in the Circuit Court to dismiss the case Oral argument on the motion is scheduled for Oclober I, 2015. The City has been defending and will continue to defend this matter vigorously.
INDEPENDENT AUDITORS
The basic financial statements of the City as of and for the year ended December 31, 2014, included in APPENDIX C to this Official Statement, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing in APPENDIX C.
RATINGS
The Bonds are rated "BBB+" (negative outlook) by S&P, "BBB+" (negative outlook) by Fitch, and "A-" (stable outlook) by Kroll.
A rating reflects only the view of the rating agency giving such rating. A rating is nol a recommendation to buy, sell or hold securities, and may be subject to revision or withdrawal at any time. An explanation of the significance of such rating may be obtained from such organization. There is no assurance that any rating will continue for any given period of time or that any rating will nol be revised downward or withdrawn entirely if, in the judgment of the rating agency, circumstances so warrant. Any such downward revision or withdrawal of a rating may have adverse consequences for the City or an adverse effect on the price at which the Bonds may be resold Sec ''"INVESTMENT CONSIDERATIONS—Credit Rating Downgrades."
FINANCIAL ADVISOR AND INDEPENDENT REGISTERED MUNICIPAL ADVISOR
The City has retained Acacia Financial Group, Inc. to act as financial advisor (the "Financial Advisor'') in connection with the offering of the Bonds. The Financial Advisor is not obligated to undertake, and has not undertaken to make, an independent verification of, or to assume responsibility for the accuracy, completeness or fairness of the information contained in this Official Statement. The Financial Advisor is a "municipal advisor" as defined in Rule l5Bal-l ofthe Commission
fhe City has retained Martin J Luby LLC as its independent registered municipal advisor (the "IRMA") pursuant to Rule 15Ba I - l-(d)(3)(vi) ofthe Commission to evaluate financing proposals and recommendations in connection with the City's various bond issuance programs and othei financing ideas being considered by the City; however, the IRMA will not advise on the investment of City funds held by the Office of the City Treasurer fhe IRMA's compensation is not dependent on the offering ofthe Bonds
UNDERWRITING
Morgan Stanley & Co LLC, as representative on behalf of itself and the other underwriters listed on the cover of this Official Statement (the "Underwriters"), has agreed, subject to certain conditions, to
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purchase the Scries 20I5A Bonds at a price equal to $338,783,430 15 (which represents the aggregate principal amount of the Series 2015A Bonds less an Underwriters' discount of $2,176,525.60 and less a net original issue discount of $4,570,044.25), and the Taxable Series 2015B Bonds at a price equal to $726,784,205 13 (which represents the aggregate principal amount ofthe Taxable Series 2015B Bonds less an Underwriters' discount of $4,678,862.02 and less an original issue discount of$l 1.396,932 85 ).
The obligation ofthe Underwriters to accept delivery ofthe Series 20I5A Bonds is subject to various conditions set forth in a Bond Purchase Agreement dated July 16, 2015, between the Underwriters and the City The obligation ofthe Underwriters to accept delivery ofthe Taxable Series 20I5B Bonds is subject to various conditions set forth in a Bond Purchase Agreement dated July 15, 2015, between the Underwriters and the City. The Underwriters are obligated to purchase all of the Bonds if any of the Bonds are purchased
Morgan Stanley, parent company of Morgan Stanley & Co LLC, an underwriter of the Bonds, has entered into a retail distribution arrangement with Morgan Stanley Smith Barney LLC As part of the distribution arrangement, Morgan Stanley & Co. LLC may distribute municipal securities to retail investors through the financial advisor network of Morgan Stanley Smith Barney LLC. As part of this arrangement, Morgan Stanley & Co LLC may compensate Morgan Stanley Smith Barney LLC for its selling efforts with respect to the Bonds.
Academy Securities has entered into distribution agreements ("Distribution Agreements") with e*Trade Securities LLC, TD Amentrade Inc , BNY Mellon Capital Markets LLC, Ladenburg Thalmann & Co Inc., R Scelaus & Co, Maxim Group LLC, Newbridge Independent Services, National Alliance Capital Markets, JHS Capital Advisors Inc., World First Financial Services Inc , Bonwick Capital Partners LLC, Commonwealth Equity Services, Winslow Evans & Crocker, Sccurcvcst Financial Group, Moors & Cabot Inc , Crews & Associates Inc., Hennion & Walsh Inc., Celadon Financial Group, Douglas & Co. Municipals, Inc., National Securities Corp, Ross Sinclaire & Associates LLC, E K. Riley Investments LLC, First Integrity Capital Partners. SWBC Investment Services LLC, Dctwilcr Fcnlon & Co, Intercoastal Capital Markets, Inc., W1I Mell & Co., and Fulcrum Securities LLC for the retail distribution of certain municipal securities such as the Bonds at the original issue prices. Pursuant to the Distribution Agreements (if applicable to the Bonds), Academy Securities may share a portion of its underwriting compensation with these firms.
BMO Capital Markets is the trade name for certain capital markets and investment banking services of Bank of Montreal and its subsidiaries, including BMO Capital Markets GK.ST Inc , which is a direct, wholly-owned subsidiary of BMO Financial Corp , which is itself a wholly-owned subsidiary of Bank of Montreal North South Capital LLC has entered into an agreement with BMO Capital Markets GK.ST Inc whereby BMO Capital Markets is compensated for the assumption ofthe underwriting and retention risk ofthe Bonds in the form of a percentage ofthe overall commission (takedown) paid to North South Capital
Citigroup Global Markets Inc , an underwriter ofthe Bonds, has entered into a retail distribution agreement with each of TMC Bonds LLC ( "IMC") and UBS Financial Services Inc ("UBSFS") Under these distribution agreements, Citigroup Global Markets Inc may distribute municipal securities to retail investors through the financial advisor network of UBSFS and the electronic primary offering platform of TMC As part of this arrangement. Citigioup Global Markets Inc. may compensate TMC (and TMC may compensate its electronic platform member firms) and UBSFS for their selling efforts with respect, to the Bonds
George K Baum & Company and Pershing LLC, a subsidiary of The Bank of New Yoik Mellon Corporation, have a distribution agreement enabling Pershing LLC lo obtain and distribute certain municipal securities underwritten by or allocated to George K Baum & Company Under the distribution
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agreement, George, K. Baum & Company will allocate a portion of received takedowns, fees or commissions to Pershing for bonds sold under the agreement.
TAX MATTERS
The Scries 2015A Bonds
Federal tax law contains a number of requirements and restrictions which apply to the Series 20I5A Bonds, including investment restrictions, periodic payments of arbitrage profits to the United States, requirements regarding the proper use of bond proceeds and the facilities financed therewith, and certain other matters. The City has covenanted to comply with all requirements that must be satisfied in order for the interest on the Series 2015A Bonds to be excludable from gross income for federal income tax purposes Failure to comply with cerlain of such covenants could cause interest on the Series 20I5A Bonds lo become includible in gross income for federal income lax purposes retroactively lo the date of issuance ofthe Scries 20 ISA Bonds
Subject to the City's compliance with the above-referenced covenants, under present law, in the opinion of Co-Bond Counsel, interest on the Series 20 ISA Bonds is excludable from the gross income of the owners thereof for federal income tax purposes and is not included as an item of tax preference in computing the federal alternative minimum tax for individuals and corporations, but interest on the Series 2015A Bonds is taken into account, however, in computing an adjustment used in determining the federal alternative minimum tax for certain corporations.
In rendering Us opinion, Co-Bond Counsel will rely upon certifications of the City with respect to certain material facts within the City's knowledge. Co-Bond Counsel's opinion represents its legal judgment based upon its review ofthe law and the facts that it deems relevant to render such opinion and is not a guarantee of a result.
The Code includes provisions for an alternative minimum lax ("AMT") for corporations in addition to the corporate regular tax in certain cases. The AMT, if any, depends upon the corporation's alternative minimum taxable income ("AMTI"), which is the corporation's taxable income with certain adjustments One of the ad justment items used in computing the AMTI of a corporation (with certain exceptions) is an amount equal to 75 percent of the excess of such corporation's "adjusted current earnings" over an amount equal to its AMTI (before such adjustment item and the alternative tax net operating loss deduction) "Adjusted current earnings" would include certain tax-exempt interest, including interest on the Series 2015A Bonds.
Ownership ofthe Series 2015 A Bonds may result in collateral federal income tax consequences to certain taxpayers, including, without limitation, corporations subject to the branch profits tax, financial institutions, certain insurance companies, certain S corporations, individual recipients of Social Security or Railroad Retirement benefits and taxpayers who may be deemed to have incurred (or continued) indebtedness to purchase or carry tax-exempt obligations. Prospective purchasers ofthe Series 20 ISA Bonds should consult their tax advisors as to applicability of any such collateral consequences
The issue price (the "Issue Price") for each maturity ofthe Scries 20 ISA Bonds is the price at which a substantial amount of such maturity ofthe Scries 20 ISA Bonds is first sold to the public The Issue Price of a maturity ofthe Series 2015A Bonds may be different from the price set forth, or ihe price corresponding to the yield set forth, on the inside cover page hereof
If the Issue Price of a maturity ofthe Scries 20I5A Bonds is less than the principal amount payable at maturity, the difference between the Issue Price of each such maturity, if any, ofthe Sene.s 20 ISA Bonds (the "OIO Bonds") and the principal amount payable at maturity is original issue discount
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For an investor who purchases an OID Bond in the initial public offering at the Issue Price for such maturity and who holds such OID Bond to us stated maturity, subject to the condition that the City complies with the covenants discussed above, (a) the full amount of original issue discount with respect to such OID Bond constitutes interest which is excludable from gross income of the owner thereof for federal income tax purposes; (b) such owner will not realize taxable capital gam or market discount upon payment of such OID Bond at its staled maturity, (c) such original issue discount is not included as an item of tax preference in computing the alternative minimum tax for individuals and corporations under the Code, but is taken into account in computing an adjustment used in determining the alternative minimum tax for certain corporations under the Code, as described above, and (d) the accretion of original issue discount in each year may result in an alternative minimum tax liability for corporations or certain other collateral federal income tax consequences in each year even though a corresponding cash payment may not be received until a later year. Based upon the stated position of the Illinois Department of Revenue under Illinois income tax law, accreted original issue discount on such OID Bonds is subject to taxation as it accretes, even though there may not be a corresponding cash payment until a later year. Owners of OID Bonds should consult their own tax advisors with respect to the state and local tax consequences of original issue discount on such OID Bonds.
Owners of Series 20I5A Bonds who dispose of Series 20I5A Bonds prior to the stated maturity (whether by sale, redemption or otherwise), purchase Scries 2015A Bonds in the initial public offering, but at a price different from the Issue Price or purchase Series 20I5A Bonds subsequent to the initial public offering should consult their own tax advisors.
If a Scries 20I5A Bond is purchased at any time for a price that is less lhan the Series 2015A Bond's stated redemption price at maturity or, in the case of an OID Bond, its Issue Price plus accreted original issue discount (the "Revised Issue Price"), the purchaser will be treated as having purchased a Scries 2015A Bond with market discount subject to the market discount rules ofthe Code (unless a statutory de minimis rule applies). Accrued market discount is treated as taxable ordinary income and is recognized when a Series 20ISA Bond is disposed of (to the extent such accrued discount does not exceed gain realized) or, at the purchaser's election, as it accrues. Such treatment would apply to any purchaser who purchases an OID Bond for a price that is less than its Revised Issue Price. I he applicability of the market discount rules may adversely affect the liquidity or secondary market price of such Series 2015A Bond Purchasers should consull their own tax advisors regarding the potential implications of market discount with respect to the Series 2015A Bonds
An investor may purchase a Series 2015A Bond at a price in excess of its stated principal amount. Such excess is characterized for federal income tax purposes as "bond premium" and must be amortized by an investor on a constant yield basis over the remaining term ofthe Series 2015A Bond in a manner that takes into account potential call dates and call prices An investor cannot deduct amortized bond premium relating lo a tax-exempt bond The amortized bond premium is treated as a reduction in the tax-exempt interest received. As bond premium is amortized, it reduces the investor's basis in Ihe Series 20ISA Bond Investors who purchase a Series 2015A Bond at a premium should consull their own tax advisors regarding the amortization of bond premium and its effect on the Series 2015A Bond's basis for purposes of computing gain or loss in connection with the sale, exchange, redemption or early retirement ofthe Scries 20 ISA Bond.
there are or may be pending in the Congress of Ihe United States legislative proposals, including some that carry retroactive effective dates, that, if enacted, could alter or amend the federal tax mailers referred lo above or affect the market value ofthe Series 20 ISA Bonds It cannot be predicted whether or in what form any such proposal might be enacted or whether, if enacted, it would apply to bonds issued prior lo enactment Prospective purchasers of the Series 20ISA Bonds should consult then own tax advisors regarding any pending or proposed federal lax legislation Co-Bond Counsel expiess no opinion regarding any pending or proposed federal tax legislation
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The Internal Revenue Service (the ' Service") has an ongoing program of auditing tax-exempt obligations to determine whether, in the view ofthe Service, interest on such tax-exempt obligations is includible in the gross income of the owners thereof for federal income tax purposes. It cannot be predicted whether or not the Service will commence an audit ofthe Series 2015A Bonds. If an audit is commenced, under current procedures the Service may treat the City as a taxpayer ant) the Series 20I5A Bondholders may have no right to participate in such procedure The commencement of an audit could adversely affect the market value and liquidity of the Series 2015A Bonds until the audit is concluded, regardless ofthe ultimate outcome
Payments of interest on, and proceeds of the sale, redemption or maturity of, tax-exempt obligations, including the Series 2015A Bonds, are in certain cases required to be reported to the Service Additionally, backup withholding may apply to any such payments lo any Series 2015A Bond owner who fails to provide an accurate Form W-9 Request for Taxpayer Identification Number and Certification, or a substantially identical form, or to any Series 2015A Bond owner who is notified by the Service of a failure to report any interest or dividends required to be shown on federal income lax returns. I he reporting and backup withholding requirements do not affect the excludability of such interest from gross income for federal tax purposes.
The Taxable Series 2015B Bonds
Interest on the Taxable Scries 2015B Bonds is includible in gross income for federal income purposes. Ownership of the Taxable Series 2015B Bonds may result in other federal income tax consequences to certain taxpayers Taxable Series 2015B Bondholders should consult their tax advisors with respect to the inclusion of interest on the Taxable Series 2015B Bonds in gross income for federal income tax purposes and any collateral tax consequences
The City may deposit moneys or securities with a Defeasance Escrow Agent pursuant to the terms ofthe Bond Ordinance in such amount and manner as to cause the Taxable Series 2015B Bonds to be deemed to be no longer secured by the Bond Ordinance and the Indenture under which they are issued (a "defeasance"). See APPENDIX A—"SUMMARY OF THE INDENTURES—Defeasance " A defeasance of Ihe Taxable Scries 2015B Bonds may be treated as an exchange of Ihe Taxable Series 20I5B Bonds by the holders thereof and may therefore result in gain or loss to the holders. Bondholders should consult their own tax advisors about the consequences (if any) of such a defeasance.
The Taxable Series 20I5B Bonds maturing on January I, 2033 and January I, 2042 were sold to the public al a price below par. The amount ofthe discount was less than the amount that would be treated under federal income tax law as creating original issue discount Bondholders should consult their tax advisors concerning the accrual of income in each tax year.
State and Local Considerations
Interest on the Bonds is nol exempt from present State of Illinois income taxes. Ownership ofthe Bonds may result in other state and local tax consequences lo certain taxpayers Co-Bond Counsel express no opinion regarding any such collateral consequences arising with respect to the Bonds. Prospective purchasers ofthe Bonds should consult their tax advisors regarding the applicability of any such state and local laxes.
APPROV AL OF LEGAL MATTERS
Certain legal matters incident to the authorization, issuance and sale ofthe Bonds are subject lo the approving legal opinions of Co-Bond Counsel, who have been retained by, and act as, Bond Counsel to the City Except as noted below. Co-Bond Counsel have not been retained or consulted on disclosure
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matters and have not undertaken to review or verify the accuracy, completeness or sufficiency of this Official Statement or other offering material relating to the Bonds and assume no responsibility for the statements or information contained in or incorporated by reference m this Official Statement., except that Co-Bond Counsel have, at the request and for the benefit ofthe City, reviewed only those portions ofthe Official Statement involving the description ofthe Bonds, the security for the Bonds (excluding forecasts, projections, estimates or any other financial or economic information in connection therewith) and the description ofthe federal tax status of interest on the Bonds. This review was undertaken solely at the request ofthe City and did not include any obligation to establish or confirm factual matters set forth herein
Certain legal matters will be passed on for the City by (i) its Corporation Counsel, (11) in connection with the preparation of this Official Statement, Duane Morris LLP, Chicago, Illinois, and Shanahan & Shanahan LLP, Chicago, Illinois, Co-Disclosure Counsel to the City, and (in) in connection with certain pension matters described in this Official Statement, Chapman and Cutler LLP, Chicago, Illinois, Special Disclosure Counsel. Certain legal matters will be passed on for the Underwriters by Mayer Brown LLP, Chicago, Illinois, Underwriters' Counsel
SECONDARY MARKET DISCLOSURE
The City will enter into a Continuing Disclosure Undertaking (the "Undertaking") for the benefit ofthe beneficial owners ofthe Bonds to send certain information annually and lo provide notice of certain events to the Municipal Securities Rulemaking Board (the "MSRB"') pursuant to the requirements of Section (b)(5) of Rule 15c2-12 (the "Rule") adopted by the Commission under the Exchange Act. I he MSRB has designated its Electronic Municipal Market Access system, known as EMMA, as the system to be used for continuing disclosures to investors. The information to be provided on an annual basis, the events that will be noticed on an occurrence basis and a summary of other terms ofthe Undertaking, including termination, amendment and remedies, are set forth below
A failure by the City to comply with the Undertaking will not constitute a default under the Bonds, cither Indenture or the Bond Ordinance and beneficial owners of the Bonds are limited to the remedies described in the Undertaking. See "—Consequences of Failure of the City to Provide Information" below. A failure by the City to comply with the Undertaking must be reported in accordance with the Rule and must be considered by any broker, dealer or municipal securities dealer before recommending the purchase or sale ofthe Bonds in the secondary market Consequently, such a failure may adversely affect the transferability and liquidity ofthe Bonds and their market price
The following is a brief summary of cerlain provisions of the Undertaking of ihe City and does nol purport to be complete. The statements made under this caption are subject lo the detailed provisions ofthe Undertaking, a copy of which is available upon request from the City-Annual Financial Information Disclosure
flic City covenants that it will disseminate its Annual Financial Information and its Audited Financial Statements (as described below) to the MSRB fhe Cily is required to deliver such information so that ihe MSRB receives the information by (he dates specified in the Undertaking.
"Annual Financial Information"' means information generally consistent with that contained in (i) the financial table -General Fund" under the caption "FINANCIAL DISCUSSION AND ANALYSIS— General Fund—Selected Financial Information," (n) the financial tables included under the caption "FINANCIAL DISCUSSION AND ANALYSIS—Property 'faxes—LA V and Properly Taxes:' and "—Use of City Property Tax levy." (in) the financial tables included under the caption "GENERAL
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OBLIGATION DEBT' (except for the table "Short Term Borrowing 2010-2014"), and (iv) tables 1-10 included in APPENDIX E—"RETIREMENT FUNDS" (said tables collectively referred to as (he "Third-Party Sourced Retirement Fund Tables"). The information contained in the Third-Party Sourced Retirement Fund Tables is sourced from documents published by MEABF, PABF, FABF and LABF, and the City takes no responsibility for the accuracy and completeness of such information If the information contained in the Third-Parly Sourced Retirement Fund Tables is no longer publicly available or is not publicly available in the form, manner or time that the Annual Financial Information is required to be disseminated by the City, the City shall, as part of its Annual Financial Information for the year in which such a lack of availability arises, include a statement to that effect and to the effect that it will promptly file such information as it becomes available
"Audited Financial Statements" means the audited basic financial statements ofthe City prepared in accordance with generally accepted accounting principles applicable to governmental units as in effect from time to time.
Annual Financial Information exclusive of Audited Financial Statements will be provided to the MSRB not more than 210 days after the last day ofthe City's fiscal year, which currently is December 31. If Audited Financial Statements are not available when the Annual Financial Information is filed, unaudited financial statements will be included, and Audited Financial Statements will be filed within 30 days of availability to the City.
Reportable Events Disclosure
The City covenants that it will disseminate in a timely manner, not in excess often business days, to the MSRB the disclosure of the occurrence of a Reportable Event (defined below) Certain Reportable Events arc required to be disclosed only to the extent that such Reportable Event is material, as materiality is interpreted under the Exchange Act. The "Reportable Events," certain of which may not be applicable to the Bonds, arc:
principal and interest payment delinquencies;
non-payment related defaults, if material;
unscheduled draws on debt service reserves reflecting financial difficulties,
unscheduled draws on credit enhancements reflecting financial difficulties;
substitution of credit or liquidity providers, or their failure to perform,
adverse tax opinions, the issuance by (he Internal Revenue Service of proposed or final determinations of taxability, notices of proposed issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status ofthe Bonds, or other material events affecting the tax status of Ihe Bonds,
modifications to rights of security holders, if material,
bond calls, if material, and tender offers,
(i) defeasances,
(l) release, substitution or sale of property securing repayment ofthe securities, if material.
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(k) rating changes.
(I) bankruptcy, insolvency, receivership or similar event ofthe City (considered to have occurred in the following instances' the appointment of a receiver, fiscal agent or similar officer for the City in a proceeding under the U S Bankruptcy Code or in any other proceeding under stale or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business ofthe City, or if ihe jurisdiction ofthe City has been assumed by leaving the City Council and the City's officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all ofthe assets or business ofthe City);
(m)the consummation of a merger, consolidation, or acquisition involving the City or the sale of all or substantially all ofthe assets of the City, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and
(n) appointment of a successor or additional trustee or the change of name of a trustee, if material.
Consequences of Failure of Ihe City to Provide Information
The City shall give notice in a timely manner to the MSRB of any failure to provide disclosure of Annual Financial Information and Audited Financial Statements when the same are due under the Undertaking
In the event of a failure of the City to comply with any provision of the Undertaking, the Beneficial Owner of any Bond may seek mandamus or specific performance by court order to cause the City to comply with its obligations under the Undertaking The Undertaking provides that any court action must be initiated in the Circuit Court of Cook County, Illinois A default under the Undertaking shall not be deemed a default under the Bonds, the Bond Ordinance or the applicable Indenture, and the sole remedy under the Undertaking in the event of any failure of the City to comply with the Undertaking shall be an action to compel performance
Amendment; Waiver
Notwithstanding any other provision ofthe Undertaking, the City may amend the Undertaking, and any provision ofthe Undertaking may be waived, if.
(i) the amendment or the waiver is made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status ofthe City or type of business conducted, (n) the Undertaking, as amended, or the provision, as waived, would have complied with the requirements ofthe Rule at the time ofthe offering ofthe Bonds, after taking into account any amendments or interpretations ofthe Rule, as well as any change in circumstances; and (in) the amendment or waivei does not materially impair the interests ofthe Beneficial Owners ofthe Bonds, as determined by a parly unaffiliated with the City (such as the Trustee or Co-Bond Counsel), or by-approving vole ofthe Beneficial Owners ofthe Bonds pursuant to the terms ofthe Indentures at the time of the amendment, or
the amendment or waiver is otherwise permitted by the Rule
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EMMA
All documents submitted to the MSRB through EMMA pursuant to the Undertaking shall be in electronic format and accompanied by identifying information as prescribed by the MSRB, in accordance with the Rule. All documents submitted to the MSRB through EMMA will be word-searchable PDFs, configured to permit documents to be saved, viewed, printed and electronically retransmitted.
t ermination of Undertaking
Ihe Undertaking shall be terminated if the City shall no longer have any legal liability for any obligation on or relating to repayment ofthe Bonds under the Bond Ordinance or the Indentures.
Additional Information
Nothing in the Undertaking will be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in the Undertaking or any other means of communication, or including any other information in any Annual Financial Information or Audited Financial Statements or notice of occurrence of a Reportable Event, in addition to that which is required by the Undertaking If the City chooses to include any information in any Annual Financial Information or Audited Financial Statements or notice of occurrence of a Reportable Event in addition to that which is specifically required by the Undertaking, the City shall have no obligation under the Undertaking to update such information or include it in any future Annual Financial Information or Audited Financial Statements or notice of occurrence of a Reportable Event.
Corrective Action Related to Certain Bond Disclosure Requirements
The City is in compliance in all material respects with undertakings previously entered into by it pursuant to the Rule, except insofar as any ofthe following paragraphs describe material non-compliance
During the period from 1996 through 2007, the City issued multiple series of Collateralized Single Family Mortgage Revenue Bonds (the "Single Family Bonds"), 'fhe trustees for the respective scries of the Single Family Bonds arc responsible for continuing disclosure tilings as the City's dissemination agent under the applicable continuing disclosure undertakings A material event notice was not filed with respect to a tender offer occurring on June 29, 2011 with respect to the following series 2006C, 20061, 2007A, 2007G, 2007-2A, 2007-2C and 2007-2E
No annual report was filed by Ihe City in 2010 with respect to one subsenes of the City's General Obligation Direct Access Bonds. Annual reports were not filed by the City in 2010 with respect to one series ofthe City's Chicago OTIare International Airport General Airport Revenue Bonds and one series of its Chicago O'Hare International Airport Passenger Facility Charge Revenue Bonds. Annual reports were not filed by the City in 2011 and 2012 with respect to two series of such bonds.
With respect lo the City's Collateralized Single Family Mortgage Revenue Bonds, Scries 2006A (the "Series 2006A Bonds"), S&P lowered its rating on the Series 2006A Bonds from "AA-i" to "AA" and placed the Series 2006A Bonds on "Credit Watch with negative implications" effective December 16, 2011 "I he City did not cause the trustee as dissemination agent lo file a notice of a reportable event wilh EMMA at that time Subsequently, S&P upgraded the rating on the Series 2006A Bonds from "AA" to "AA-i-" effective March 12. 2012. On March 18, 2012, S&P removed the "Credit Watch with negative implications" characterization from the Series 2006A Bonds 'fhe City caused the trustee, as dissemination agent, for the Series 2006A Bonds to file a notice of a reportable event with EMMA on March 26, 2012 disclosing the downgrade and subsequent upgrade ofthe Series 2006A Bonds by S&P
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With respect to Ihe City's Chicago OTlare International Airport General Airport Third Lien Revenue Bonds, Scries 2011, American Airlines is an "obligated person" with respect lo such bonds On November 29, 2011, AMR Corporation (the parent company of American Airlines and American Eagle) and certain of its United States-based subsidiaries (including American Airlines and American Eagle) filed voluntary petitions for Chapter 11 reorganization in the United States Bankruptcy Court for the Southern District of New York T he City filed a notice with EMMA with respect lo this event on March 30, 2012 (not within the ten business-day deadline imposed by the Rule). On December 9, 2013, American Airlines merged with US Airways The City filed a notice with EMMA with respect to this event on August 25, 2014
With respect to the City's Outstanding Motor Fuel Tax Revenue Bonds, the City's pledge of Additional City Revenues to the payment of such bonds (in addition to the pledge of Motor Fuel Tax Revenues) became effective as of March 19, 2013. The City tiled a notice with EMMA describing the pledge of this additional source of revenue on May 16, 2013.
With respect to the City's Outstanding O'Hare International Airport Customer Facility Charge Senior Lien Revenue Bonds, Series 2013, Simply Wheelz, LLC d/b/a Advantage Rent A Car ("Advantage") is an "obligated person" with respect to such bonds Advantage filed a voluntary bankruptcy petition in the Southern District of Mississippi on November 5, 2013. T he City filed a notice with EMMA with respect to this event on December 5, 2013.
The Rating Agencies took certain rating actions with respect to the ratings of Ambac Assurance Corporation and Financial Security Assurance Inc (collectively, the "Bond Insurers"). The Bond Insurers provided municipal bond insurance policies relating to certain series of the City's Chicago Midway Airport revenue bonds Event notices with respect to such rating changes were not filed with EMMA. The City made such filings on May 22, 2014.
Ambac provided a municipal bond insurance policy relating to the Cily's Motor Fuel Tax Revenue Bonds, Series 2003A and Assured Guaranty Corp. provided municipal bond insurance policies relating to the City's Motor Fuel Tax Revenue Bonds, Series 2008. Event notices with respect to ihe rating changes taken by the Rating Agencies with respect to these insurers were not filed The City made filings with EMMA on June 3, 2014 and August 22, 2014 with respect to these rating changes.
The City failed to tile material event notices with respect to certain rating changes affecting the City's bonds subject to the Rule and for which the City is an "obligated person" under the Rule (collectively, the "Prior Bonds") or affecting bond insurance companies which insured any Prior Bonds (collectively, the "Bond Insurers") The City filed with EMMA on August 29, 2014 a notice with respect to all rating changes known to the City and affecting the Prior Bonds (including certain Senior Lien Bonds and Second Lien Bonds) occurring over the prior ten years. The City filed with EMMA on August 27, 2014 a notice with respect to all rating changes known to the City and affecting the Bond Insurers occurring during the prior seven years
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MISCELLANEOUS
The summaries or descriptions contained herein of provisions of the Indentures and the Undertaking and all references to other materials not purporting to be quoted in full, are qualified in their entirety by reference to the complete provisions of the documents and other materials summarized or described Copies of these documents may be obtained from the office ofthe Chief financial Officer
The Bonds arc authorized and are being issued pursuant lo the City Council's approval under Ihe powers ofthe City as a home rule unit under Article VII ofthe Illinois Constitution.
CITY OF CHICAGO
By: /s/ Carole L. Brown Carole L. Brown Chief Financial Officer
SO
APPENDIX A SUMMARY OF THE INDENTURES
[This Pagf. Intentionally Left Blank]
SUMMARY OF THE INDENTURES
The following is a swnmaiy of certain provisions ofthe Indentures to which reference is made for a complete statement ofthe provisions and contents thereof. The provisions ofthe Indentures summarized in this Appendix A are substantially similar m each ofthe Indentures. References to "the Bonds " /// this Appendix A shall refer to the Bonds of a Series issued pursuant to a particular Indenture. References to "the Trustee " in this Appendix A shall refer to the Trustee for the Bonds of a Series issued pursuant to a particular Indenture. Copies of the Indentures are available for review prior to the sale and dehveiy of the Bonds at the office of the City's Chief Financial Officer and thereafter at the office of the applicable Trustee.
Glossary of Terms
The following are definitions of certain terms used in the Indenture and this Official Statement. This glossaiy is provided for the convenience of the reader and does not purport to be comprehensive or definitive. All references herein to terms defined in the Indenture are qualified in their entirety by the definitions set forth in the Indenture.
"Authorized Denomination" means (a) with respect to Series 2015A Bonds, $5,000 and any integral multiple thereof, and (b) with respect to Taxable Series 20I5B Bonds, $1,000 and any integral multiple thereof
"Authorized Officer" means (a) the Mayor, the Chief Financial Officer, the City Comptroller or any other official of the City so designated by a Certificate signed by the Mayor or Chief Financial Officer and filed with the Trustee for so long as such designation shall be in effect, and (b) the City Clerk with respect to the certification of any ordinance or resolution ofthe City Council or any other document filed in his or her office
"Beneficial Owner" means the owner of a beneficial interest in the Bonds registered in the name of Cede & Co., as nominee of DTC (or a successor securities depository or nominee for either of them)
"Bond Counsel" means one or more firms of nationally recognized bond counsel designated by the Corporation Counsel ofthe Cily
"Bond Fund" means the fund of that name established and described in the Indenture.
"Bondholder," "holder," or "owner of the Bonds" means the Registered Owner or Beneficial Owner of any Bond, as the case may be.
"Bond Ordinance" means the ordinance duly adopted by the City Council ofthe City on June 17, 2015 authorizing the issuance ofthe Bonds
"Bond Register"' means the registration books of the City kcpl by the T rustee to evidence the registration and transfer of Bonds
"Bond Year" means a 12-month period commencing on January 2 of each calendar year and ending on lanuary I of the next succeeding calendar year
"Business Da\" means any day other than (a) a Saturday or Sunday, (u) a day on which banks located in the city where the Designated Corporate Trust Office ofthe Trustee is located are authorized or required by law to close, and (in) a day on which The New York Stock Exchange, Inc , is closed
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"Certificate" means an instrument of the Cily in writing signed by an Authorized Officer Any such instrument in writing and supporting opinions or representations, if any, may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed so as to form a single instrument Any such instrument may be based, insofar as it relates to legal, accounting or engineering matters, upon the opinion or representation of counsel, accountants, or engineers, respectively, unless the officer signing such instrument knows that the opinion or representation with respect to the matters upon which such instrument may be based, as aforesaid, is erroneous. The same Authorized Officer, or the same counsel or accountant or other persons, as the case may be, need not certify to all ofthe matters required to be certified under any provision ofthe Indenture or any Supplemental Indenture, but different officers, counsel, accountants or other persons may certify to different facts, respectively.
"Chief Financial Officer" means the Chief Financial Officer appointed by the Mayor, or the City Comptroller of the City at any time a vacancy exists in the office ofthe Chief Financial Officer.
"City" means the City of Chicago, a municipal corporation and home rule unit of local government, organized and existing under the Constitution and laws ofthe State.
"City Clerk" means the duly qualified and acting City Clerk of the City or any Deputy City Clerk or other person thai may lawfully take a specific action or perform a specific duty prescribed for the City Clerk pursuant to the Bond Ordinance.
"City Comptroller" means the City Comptroller ofthe City.
"Citv Council" means the City Council ofthe City.
"Code" means the United States Internal Revenue Code of 1986. References to the Code and to Sections of the Code shall include relevant final, temporary or proposed regulations thereunder as in effect from time to time and as applicable to obligations issued on the Date of Issuance.
"Date of Issuance" means the dale of issuance and delivery ofthe Bonds to the initial purchasers
thereof
"Debt Management Project" when used with respect to an Indenture means (i) the payment of costs ofthe Debt Management Purposes identified in and being paid with proceeds ofthe Bonds issued pursuant to such Indenture and (11) any other expenditure of proceeds of the Bonds issued pursuant lo such Indenture authorized after the date of execution and delivery of such Indenture by the City Council, which expenditure, in the case of proceeds ofthe Series 20 ISA Bonds, must be in accordance with the provisions ofthe 'fax Agreement.
"Debt Management Purposes" has the meaning assigned to such term in the Bond Ordinance and generally refers to the purpose for which the Bonds of each Series are authorized to be issued
'Defeasance Obligations" means (I) money, or (2) (A) direct obligations ofthe United Stales of America, (B) obligations of agencies ofthe United Slates of America, Ihe limely payment of principal of and interest on which are guaranteed by ihe United Slates of America, (C) obligations ofthe following government-sponsored agencies that are not backed by the full faith and credit ofthe U S. Government Federal Home Loan Mortgage Corp (FHLMC) debt obligations, Farm Credit System (formerly. Federal Land Banks, federal Intermediate Credit Banks, and Banks for Cooperatives) debt obligations. Federal Home Loan Banks (Fi ll. Banks) debt obligations, Fannie Mae debt obligations, Financing Corp (FICO) debt obligations. Resolution Funding Corp (RCFCORP) debt obligations, and U S Agency for
International Development (US AID) Guaranteed notes, (D) pre-refunded municipal obligations defined as follows, any bonds or other obligations of any state ofthe United States of America or of any agency, instrumentality or local governmental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice, or (E) instruments evidencing an ownership interest in obligations described in the preceding clauses (A), (B) and (C), or (3) a combination ofthe investments described in clauses (1) and (2) above
"Designated Corporate Trust Office" means the corporate trust office ofthe Trustee located at the address of the Trustee set forth for notices lo the Trustee in the Indenture, as such address may be changed from time to time by the Trustee.
"DTC" means The Depository Trust Company, New York, New York, or its nominee, and its successors and assigns, or any other depository performing similar functions
"Federal Obligation" means any direct obligation of, or any obligation the full and timely payment of principal of and interest on which is guaranteed by, the United States of America.
"Fitch" means Fitch Ratings Inc., a corporation organized and existing under the laws ofthe State of Delaware, its successors and assigns, and, if such corporation shall be dissolved or liquidated, or shall no longer perform the functions of a securities rating agency, "Fitch" shall be deemed to refer to any other nationally recognized securities rating agency designated by the City by notice to the Trustee
"Indenture" means the Trust Indenture dated as of July 1, 2015, between the City and the Trustee
"Interest Payment Date" means each January I and July 1, commencing January I, 2016
"Kroll" means Kroll Bond Rating Agency, its successors and assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, "Kroll" shall be deemed to refer to any other nationally recognized securities rating agency designated by the City by notice to the T rustee
"Maturity Date" means, for the Bonds of each specified maturity, Ihe applicable maturity date set forth on the inside front cover
"Mavor" means the Mayor of the City
"Municipal Code" means the Municipal Code of Chicago, as from time to time amended
"Opinion of Bond Counsel" means a written opinion of Bond Counsel in form and substance acceptable to the City.
"Outstanding." means, when used with reference to any Bonds, all of such obligations issued under the Indenture that are unpaid, provided that such term does not include
Bonds canceled at or prior to such dale or delivered to or acquired by the Trustee or Paying Agent at or prior to such date for cancellation;
matured or redeemed Bonds which have not been presented for payment in accordance with the provisions of the Indenture and for the payment of which the City has deposited funds with the T rustee or the Paying Agent,
Bonds for which Ihe City has provided for payment by depositing in an irrevocable trust or escrow, cash or Defeasance Obligations, in each case, the maturing principal of and interest on which will be sufficient to pay at maturity, or if called for redemption on the applicable redemption date, the principal of, redemption premium, if any, and interest on such Bonds,
Bonds in lieu of or in exchange or substitution for which other Bonds shall have been authenticated and delivered pursuant to the Indenture; and
Bonds owned by the City and tendered to the Trustee lor cancellation. "Paving Agent" means the Trustee and any successor thereto.
"Permitted Investments" means any ofthe following obligations or securities permitted under the laws of the State and the Municipal Code.
interest-bearing general obligations ofthe United States of America, the State or the
City,
United States treasury bills and other non-interest bearing general obligations ofthe United States of America when offered for sale in the open market at a price below the face value of same, so as to afford the Cily a return on such investment in lieu of interest;
short-term discount obligations of the United Stales Government or United Stales Government agencies;
certificates of deposit of national banks or banks located within Ihe City which are either (i) fully collateralized at least 110 percent by marketable United States Government securities marked to market al least monthly or (ii) secured by a corporate surety bond issued by an insurance company licensed lo do business in the State and having a claims-paying rating in Ihe top rating category as rated by a nationally recognized statistical rating organization and maintaining such rating during the term of such investment;
banker's acceptances of banks and commercial paper of banks whose senior obligations are rated in the top two short-term rating categories by at least two national rating agencies and maintaining such rating during the term of such investment,
(0 tax-exempt securities exempt from federal arbitrage provisions applicable to investments of proceeds of the Cily's tax-exempt debt obligations;
domestic money market mutual funds rcgulalcd by and in good standing with the Securities and Exchange Commission, including any such fund for which the Trustee or any of its affiliates provides any service including any service for which a fee may be paid; and
any other suitable investment instrument permitted by State laws and the Municipal Code governing municipal investments generally, subject to the reasonable exercise of prudence in making investments of public funds.
"Principal and Interest Account" means the Account of that name established within the Bond
Fund
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"Principal and Interest Account Requirement" means an amount, equal to the total principal installment and interest due on such Bonds as of each January 1 and July 1 (including any mandatory redemption ofthe Bonds), which amount shall be deposited in the Principal and Interest Account not later than the Business Day prior to such January I and July I.
"Qualified Collateral" means.
Federal Obligations;
direct and general obligations of any stale of the United States of America or any political subdivision ofthe Slate which are rated not less than "AA" or "Aa2" or their equivalents by any Rating Agency, and
public housing bonds issued by public housing authorities and fully secured as to the payment of both principal and interest by a pledge of annual contributions under an annual contributions contract or contracts with the United States of America, or project notes issued by public housing authorities, or project notes issued by local public agencies, in each case fully secured as to the payment of both principal and interest by a requisition or payment agreement with the United States of America.
"Rating Agency" means any of Fitch, S&P and Kroll, or another rating agency that has a credit rating assigned to the Bonds at the request of the City.
"Record Dale" means each June 15 and December 15 (whether or not a Business Day)
"Redemption Price" means (i) in the case of an optional redemption of Taxable Series 20I5B Bonds due on or before January I, 2033, the Make-Whole Redemption Price, and (ii) in the case of an optional redemption ofthe Series 2015A Bonds or the Taxable Scries 2015B Bonds due January 1, 2042, or a mandatory redemption of the Bonds, the principal amount thereof plus accrued interest on such Bonds to be redeemed to the date fixed for redemption.
"Registered Owner" or "Owner" means the person or persons in whose name or names a Bond shall be registered in the Bond Register.
"Securities Depository" means DTC and any other securities depository registered as a clearing agency with the Securities and Exchange Commission pursuant to Section I7A of the Securities Exchange Act of 1934, as amended, and appointed as the securities depository for the Bonds.
"S&P" means Standard & Poor's Financial Services LLC, a division of McGraw Hill Financial, Inc , its successors and assigns, and, if S&P shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, "S&P" shall be deemed to refer to any other nationally recognized securities rating agency designated by the City by notice to the Trustee.
"Slate" means the State of Illinois
"Supplemental Indentuie" means any indenture modifying, altering, amending, supplementing or confirming the Indenture duly entered into in accordance with the terms thereof
"Tax Agreement" means the Tax Exemption Certificate and Agreement of the City, dated the date of issuance ofthe Scries 20I5A Bonds
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' Trust Estate" means the property conveyed to the Trustee pursuant to the Granting Clauses of the Indenture.
"Trustee" means Zions First National Bank, a national banking association with trust powers, and its successors and any entity resulting from or surviving any consolidation or merger to which it or its successors may be a party, and any successor Trustee at the time serving as successor trustee under the Indenture.
Source of Payment of Bonds
Pursuant to the Bond Ordinance, the Bonds constitute direct and general obligations of the Cily for the payment of which the Cily pledges its full faith and credit. See "SECURITY FOR THE BONDS."
Funds and Accounts
Bond Fund
Pursuant to each Indenture, the City has established with the Trustee a trust fund designated "City
of Chicago General Obligation Bonds, Series 2015 Bond Fund" (the "Bond Fund"). At each such time
as required under the Indenture, the Cily shall deposit into the Bond Fund, from funds of the City legally available therefor, an amount sufficient to satisfy the Principal and Interest Account Requirement applicable to the Bonds issued under such Indenture. Money on deposit in the Bond Fund shall be applied by the Trustee to pay the principal of (whether due at maturity or by mandatory redemption) and interest on such Bonds as ihe same become due. Pending Ihe use of moneys held in ihe Bond Fund, ihe Trustee shall invest such moneys in Permitted Investments upon the direction of an Authorized Officer or any person designated by an Authorized Officer. Income from such investments shall be credited to such Bond Fund Each Indenture also provides that an account within the Bond Fund be established with the
Trustee, designated as the "Series 2015 Principal and Interest Account" (Ihe "Principal and Interest
Account").
Not later than the Business Day prior to each Interest Payment Date, commencing January I, 2016 (each such dale referred to herein as the "Deposit Date") there shall be on deposit in the Bond Fund (which deposit may include amounts from the Capitalized Interest Account described below) an amount equal to the Principal and Interest Account Requirement applicable to Ihe Bonds issued under such Indenture (such amount with respect to any Deposit Date being referred to herein as the "Deposit Requirement").
In addition lo the Deposit Requirement, there shall be deposited into each Bond Fund any other moneys received by the Trustee under and pursuant to the Indenture, when accompanied by directions from the person depositing such moneys that such moneys are to be paid into such Bond Fund.
Upon calculation by the Trustee of each Deposit Requirement, the Trustee shall notify the City of the Deposit Requirement and the Deposit Dale lo which it relates, and shall provide the City with such supporting documentation and calculations as the City may reasonably request
Capitalized Interest Account
Puisuant to each Indenture, the City has established with the Trustee a trust account as part ofthe respcclive Bond Fund for each Series designated "City of Chicago General Obligation Bonds, Scries 20I5_ Capitalized Interest Account" (the "Capitalized Interest Account") lo hold certain proceeds of sale of the Bonds ofthe Series issued pursuant to such Indenture Moneys on deposit in the Capitalized
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Interest Account shall be withdrawn by the T rustee on the Business Day prior to each ol" the Interest Payment Dates occurring on and before January I, 2018 and deposited into the Bond Fund established under such Indenture for application to the payment ofthe interest due on the Bonds issued under such Indenture on those Interest Payment Dates Pending the use of moneys held in the Capitalized Interest Account, the T rustee shall invest such moneys in Permitted Investments upon the direction of an Authorized Officer or any person designated by an Authorized Officer. Income from such investments shall be transferred to the Project Account established under such Indenture. Any amount remaining in the Capitalized Interest Account on January 2, 2018, shall be withdrawn therefrom and deposited into the Bond Fund established under such Indenture and applied to the payment ofthe next interest to become due on the Bonds of such Series.
Project Account
Pursuant lo each Indenture, the City has established with the Trustee a trust account designated "City of Chicago General Obligation Bonds, Series 2015_ Project Account" (the "Project Account") to hold certain proceeds of sale of the Bonds of the Series issued pursuant to such Indenture. Moneys deposited in the Project Account established under such Indenture shall be used (i) to pay costs of the Debt Management Project identified in such Indenture, and/or (ii) to pay costs of issuance ofthe Bonds issued pursuant to such Indenture Moneys on deposit in the Project Account shall be disbursed by the Trustee upon receipt of a written request therefor executed by an Authorized Officer, specifying the purpose for which such disbursement is being made. Pending the use of moneys held in the Project Account, the Trustee shall invest such moneys in Permitted Investments upon the direction of an Authorized Officer or any person designated by an Authorized Officer. Income from such investments shall be retained in such Project Account Completion of the Debt Management Project identified in such Indenture shall be evidenced by a written notification to the Trustee executed by an Authorized Officer directing the Trustee to transfer any remaining balance in such Project Account to the Bond Fund established under such Indenture and applied to the payment of the next interest to become due on the Bonds of such Series.
Supplemental Indentures
A Supplemental Indenture may be authorized at any time by ordinance ofthe City Council and shall be fully effective in accordance with its terms and not subject to consent by the Owners ofthe Bonds for the following purposes, (a) to add to the covenants and agreements ofthe City in the Indenture other covenants and agreements to be observed by the City which arc not contrary to or inconsistent with the Indenture as theretofore in effect, (b) to add to the limitations and restrictions in the Indenture other limitations and restrictions lo be observed by the City which are nol contrary to or inconsistent with the Indenture as theretofore in effect, (c) to surrender any right, power or privilege reserved to or conferred upon the City by the terms ofthe Indenture, but only if the surrender of such right, power or privilege is not contrary to or inconsistent with the covenants and agreements ofthe City contained in the Indenture.
to confirm, as further assurance, the pledge under the Indenture, and the subjection ol", additional properties, taxes or other collateral to any hen, claim or pledge created or to be created by, the Indenture.
lo cure any ambiguity, supply any omission, or cure or correct any defect or inconsistent provision in the Indenture, (f) lo insert such provisions clarifying matters or questions arising under ihe Indenture as are necessary or desirable and are not contrary to or inconsistent with the Indenture as (heretofore in effect, or (g) to provide additional duties ofthe I ruslec under the Indenture
The Indenture shall not be modified or amended in any respect except as provided therein Nothing in the Indenture shall affect or limit the right or obligation of the City to adopt, make, do. execute, acknowledge or deliver any ordinance, resolution, act or other instrument pursuant to the
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provisions ofthe Indenture or the right or obligation ofthe City to execute and deliver to the Trustee any instrument which is required to be delivered to the Trustee pursuant to the Indenture.
Every Supplemental Indenture delivered to the Trustee for execution shall be accompanied by an opinion of counsel stating that such Supplemental Indenture has been duly and lawfully authorized by the City Council and executed by the City in accordance with the provisions ofthe Indenture, is authorized or permitted by the Indenture, and will, when executed and delivered by Ihe Trustee, be valid and binding upon the City and enforceable in accordance with its terms.
The Trustee is authorized to enter into, execute and deliver a Supplemental Indenture and to make all further agreements and stipulations which may be therein contained, and the Trustee in taking such action shall be fully protected in relying on an opinion of counsel that such Supplemental Indenture is authorized or permitted by the provisions ofthe Indenture.
No Supplemental Indenture shall change or modify any of the rights or obligations ofthe Trustee without its written assent thereto.
No Supplemental Indenture supplementing the Indenture authorizing the Scries 2015A Bonds shall take effect unless and until there has been delivered to the Trustee an Opinion of Bond Counsel to the effect that such Supplemental Indenture docs not adversely affect the exclusion from gross income for federal income tax purposes to which interest on the Series 20I5A Bonds would otherwise be entitled.
Supplemental Indentures Requiring Bondholder Consent
At any time or from time to time, a Supplemental Indenture may be authorized by an ordinance adopted by the City Council, subject to consent by the owners of Bonds in accordance with and subject to the provisions ofthe Indenture, which Supplemental Indenture, upon the filing with the Trustee of a copy of such ordinance certified by the City Clerk, upon compliance with the provisions ofthe Indenture, and upon execution and delivery of such Supplemental Indenture by the City and the Trustee, shall become fully effective in accordance with its terms.
Any modification or amendment of the Indenture or ofthe rights and obligations ofthe City and of the owners of Bonds, in particular, which requires the consent ofthe Bondholders, may be made by a Supplemental Indenture, with the written consent given as provided in the Indenture- (a) ofthe Owners of a majority in principal amount ofthe Bonds Outstanding at the time such consent is given; or (b) in case less than all ofthe then outstanding Bonds are affected by the modification or amendment, ofthe Owners of a majority in principal amount of the then Outstanding Bonds so affected. No such modification or amendment shall permit a change in the terms of redemption or maturity of the principal of any outstanding Bonds or of any installment of interest thereon or a reduction in the principal amount or the applicable Redemption Price thereof or in the rate of interest thereon, without the consent ofthe Owner of such Bonds, or shall reduce the percentages or otherwise affect the classes of Bonds the consent ofthe Owners of which is required to effect any such modification or amendment, or shall change or modify any ofthe rights or obligations ofthe Trustee without its written assent thereto. A Bond shall be deemed to be affected by a modification or amendment ofthe Indenture if the same adversely affects or diminishes the rights ofthe Owners of such Bond
Default and Remedies
Each ofthe following events is an "Event of Default" under ihe Indenture
payment ofthe principal or Redemption Price, if any, of any Bonds shall not be made when and as the same shall become due, whether at maturity or upon call for redemption or otherwise:
payment of any installment of interest on any Bonds shall not be made when and as the same shall become due; or
the City shall fail or refuse lo comply with the provisions ofthe Indenture, or shall default in the performance or observance of any ofthe covenants, agreements or conditions on its part contained in the Indenture or in the Bonds, which materially affects the rights ofthe owners ofthe Bonds and such failure, refusal or default shall continue for a period of 45 days alter written notice thereof by the Trustee or the owners of not less than 25 percent in principal amount of the Outstanding Bonds; provided, however, that in the case of any such default which can be cured by due diligence but which cannot be cured within the 45-day period, the time to cure shall be extended for such period as may be necessary to remedy the default with all diligence.
Upon the happening and continuance of any Event of Default specified in paragraph (a) or (b) above, the Trustee shall proceed, or upon the happening and continuance of any Event of Default (beyond the time periods specified therein) specified in paragraph (c) above, the Trustee may proceed, and upon the written request of the owners of not less than 25 percent in principal amount of the Outstanding Bonds, shall proceed, in its own name, to protect and enforce its rights and the rights ofthe owners ofthe Bonds by such of the following remedies as the Trustee, being advised by counsel, shall deem most effectual to protect and enforce such rights
(i) by mandamus or other suit, action or proceeding at law or in equity, to enforce all rights ofthe owners ofthe Bonds including the right to require the City to receive and collect taxes adequate to cany out the covenants and agreements as to such taxes and to require the City to carry out any other covenant or agreement with the owners of the Bonds and to perform its duties under the Indenture,
(u) by bringing suit upon the Bonds:
(in) by action or suit in equity, require the City to account as if it were the trustee of an express trust for the owners ofthe Bonds, and/or
(iv)by action or suit in equity, enjoin any acts or things which may be unlawful or in violation ofthe rights ofthe owners ofthe Bonds
In the enforcement of any rights and remedies under the Indenture, the Trustee shall be entitled to sue for, enforce payment of and receive any and all amounts then or during any default becoming, and at any time remaining, due from the City but only out of moneys pledged as security for the Bonds for principal. Redemption Price, interest or otherwise, under any provision ofthe Indenture or ofthe Bonds, and unpaid, with interest on overdue payments at the rate or rates of interest specified in such Bonds, together with any and all costs and expenses of collection and of all proceedings hereunder and under such Bonds without prejudice to any other right or remedy ofthe Trustee or ofthe owners ofthe Bonds, and to recover and enforce a judgment or decree against the City for any portion of such amounts remaining unpaid, with interest, costs and expenses, and to collect from any moneys available under the Indenture for such purpose, in any manner provided by law. the moneys adjudged or decreed to be payable
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Under no circumstance may the Trustee declare the principal of or interest on the Bonds to be due and payable prior to the Maturity Date following the occurrence of an Event of Default under the Indenture.
Resignation or Removal ofthe Trustee; Successors
The Trustee may at any lime resign and be discharged of its duties and obligations created by the Indenture by giving not fewer than 60 days' written notice to the City and to the owners of Bonds at their addresses shown on the registration books kept by the Trustee within 20 days after the giving of such written notice. Such resignation shall take effect upon the appointment and acceptance of appointment of a successor by the City or the Owners of Bonds as provided in the Indenture
The Trustee may be removed at any lime by ihe Owners of a majority in principal amount ofthe Bonds then Outstanding, excluding any Bonds held by or for the account ofthe City, by an instrument or concurrent instruments in writing signed and duly acknowledged by such Owners of Bonds or by their attorneys duly authorized in writing and delivered lo the City. Copies of each such instrument shall be delivered by the City to the Trustee and any successor The City may remove the Trustee at any time, except during the existence of an Event of Default, tor such cause (or upon 30 days' notice for any reason) as shall be determined in the sole discretion of the City by filing with the Trustee an instrument signed by an Authorized Officer and by mailing notice Ihereof lo the Owners of Bonds at their addresses shown on the registration books kept by the Trustee. Any removal ofthe Trustee shall take effect upon the appointment and acceptance of appointment of a successor Trustee.
In case at any time the Trustee shall resign or shall be removed or shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or if a receiver, liquidator or conservator ofthe Trustee or of its property shall be appointed, or if any public officer shall take charge or control ofthe Trustee or of its property or affairs, a successor may be appointed by the Owners of a majority in principal amount of the Bonds then Outstanding, excluding any Bonds held by or for the account of the Cily, by an instrument or concurrent instruments in writing signed by such Owners or their attorneys duly authorized in wnling and delivered lo such successor Trustee, notification thereof being given lo the City and the predecessor Trustee. Pending such appointment, the City shall forthwith appoint a Trustee to fill such vacancy until a successor Trustee (if any) shall be appointed by the Owners of Bonds as authorized in the Indenture. The City shall mail notice to Owners of Bonds of any such appointment within 20 days after such appointment. Any successor Trustee appointed by the City shall, immediately and without further act, be superseded by a Trustee appointed by the Owners of Bonds. If in a proper case no appointment of a successor Trustee shall be made within 45 days after the Trustee shall have given to the Cily written notice of resignation or after the occurrence of any other event requiring or authorizing such appointment, the Trustee, any Owner of Bonds may apply to any court of competent jurisdiction to appoint a successor Said court may thereupon, after such notice, if any, as said court may deem proper and prescribe, appoint such successor Trustee Any Trustee appointed shall be a bank, trust company or national banking association, in any such case having corporate trust powers, doing business and having a corporate trust office in the City
Any successor T rustee appointed under the Indenture shall execute, acknowledge and deliver to its predecessor Trustee, and also to the City, a written instrument of acceptance respecting such appointment, and thereupon such successor 'Trustee, wtlhout any further act, deed or conveyance, shall become fully vested with all moneys, estates, properties, rights, powers, duties and obligations of such predecessor Trustee, with like effect as if originally named as Trustee, but the Trustee ceasing to act shall nevertheless, on the request ofthe City, or ofthe successor Trustee, execute, acknowledge and deliver such instruments of conveyance and further assurance and do such other things as may reasonably be required for more fully and certainly vesting and confirming in such successor T rustee all the right, title
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and interest ofthe predecessor Trustee in and to any property held by it under the Indenture, and shall pay over, assign and deliver to the successor Trustee any money or other property subject to the trusts and conditions set forth in the Indenture Should any deed, conveyance or instrument in writing from the City be required by such successor Trustee for more fully and certainly vesting in and confirming to such successor Trustee any such estates, rights, powers and duties, any and all such deeds, conveyances and instruments in writing shall, on request, and so far as may be authorized by law, be executed, acknowledged and delivered by the City.
Defeasance
Each Indenture provides that if the City will pay to the Registered Owners of the Bonds issued under such Indenture, or provide for the payment of, the principal, premium, if any, and interest to become due on such Bonds, then the Indenture and the Bond Ordinance will be fully discharged and satisfied with respect to such Bonds. Upon the satisfaction and discharge of the Indenture, the T rustee will, upon the request ofthe City, execute and deliver to the City all such instruments as may be desirable to evidence such discharge and satisfaction, and all fiduciaries will pay over or deliver to the City all funds, accounts and other moneys or securities held by them pursuant to the Indenture which are not required for the payment or redemption ofthe Bonds If payment or provision for payment is made, to or for the Registered Owners of all or a portion of the Bonds, of the principal of and interest due and to become due on any Bond at the times and in the manner stipulated therein, and there is paid or caused to be paid to the Trustee, all sums of money due and to become due according to the provisions of the Indenture, then these presents and the estate and rights thereby granted under the Indenture and the Bond Ordinance shall cease, terminate and be void as to those Bonds or portions thereof except for purposes of registration, transfer and exchange of Bonds and any such payment from such moneys or obligations. Any Bond will be deemed to be paid when payment of the principal of any such Bond, plus interest thereon to the due date thereof (whether such due date be by reason of maturity or upon redemption as provided in the Indenture or otherwise), either (a) will have been made or caused to have been made in accordance with the terms thereof, or (b) will have been provided for by irrevocably depositing with the Trustee, in trust and exclusively for such payment, (1) moneys sufficient to make such payment or (2) Defeasance Obligations, or (3) a combination ofthe investments described in clauses (1) and (2) above, such amounts so deposited being available or maturing as to principal and interest in such amounts and al such times, without consideration of any reinvestment thereof, as will insure the availability of sufficient moneys to make such payment (all as confirmed by a nationally recognized firm of independent public accountants) If the City will pay and discharge a portion ofthe Bonds as aforesaid, such portion shall cease to be entitled lo any lien, benefit or security under the Indenture and the Bond Ordinance. The liability ofthe City with respect to such Bonds will continue, but the Registered Owners thereof shall thereafter be entitled to payment (lo the exclusion of all other Bondholders) only out ofthe Defeasance Obligations deposited with the T rustee under the Indenture.
No deposit pursuant to the paragraph above shall be made or accepted under the Indenture authorizing the Series 2015A Bonds and no use made of any such deposit unless the Trustee shall have received an opinion of nationally recognized municipal bond counsel to the effect that such deposit and use would not cause any of such Scries 20I5A Bonds to be treated as "arbitrage bonds'1 within the meaning of Seclion 148 ofthe Code or any successor provision thereto
A defeasance deposit of escrow securities may be subject to a subsequent sale of such escrow securities and reinvestment of all or a portion of the proceeds of thai sale in escrow securities which, together with money to remain so held in trust, shall be sufficient to provide for payment of principal, redemption premium, if any. and interest on any ofthe defeased Bonds Amounts held by the Trustee in excess ol the amounts needed so to provide for payment of the defeased Bonds may be subject to withdrawal by the City
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APPENDIX B ECONOMIC AND DEMOGRAPHIC INFORMATION
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ECONOMIC AND DEMOGRAPHIC INFORMATION
Set forth below is certain economic and demographic information regarding the City. Sources of information are set forth in footnotes at the end of this Appendix. With respect to non-City sources, the City considers these sources to be reliable but has made no independent verification of the information provided and does not warrant its accuracy.
Economy
The Chicago metropolitan area has a population of 9.5 million people, with over 4.5 million employees ' 2 Chicago's large and diverse economy contributed to a gross regional product of more than $590 billion in 2013.3
Chicago's transportation and distribution network offers access to air, rail, and water, with two ports capable of handling ocean-going ships and barges, and an airport system that moves 1 5 million tons of freight, mail, and goods annually.4
The Chicago metropolitan area's largest industry sectors by employment include trade, transportation and utilities, professional and business services, education and health services, government, leisure and hospitality and manufacturing.5
Population
Chicago is home to over 2 7 million people that live in more than one million households.6 The City's population increased nearly 1.0 percent since the 2010 Census.7
The population ofthe United States, the State of Illinois, Cook County and the City for the census years from 1980 to 2010 and the estimate for 20)4 is set forth below.
Population'' 1980—2014
Year United States Slate of Illinois Cook County Chicago
1980 226,545,805 11,427,409 5,253,655 3,005,072
1990 248,709,873 11,430,602 5,105,067 2,783,726
2000 281,421,906 12,419,293 5,376,741 2,896,016
2010 308,745,538 12,830,632 5,194,675 2,695,598
2014 Estimate 318,857,056 12,880,580 5,246,456 2,722,389
34.2 percent of Chicago's residents (age 25 or older) have bachelor's degrees, which is higher than the national average of 28.8 percent."
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Per Capita Income and Wages
The per capita personal income (estimated annual earnings) for the United Slates, the State of Illinois, Cook County and the Chicago MSA is set forth below for the years 2005 through 2014
Per Capita Income10 2005—2014
Year United States State of Illinois Cook County Chicago MSA
$ 35,888 $ 37,697 $40,648 $40,470
38.127 40,184 43,701 43,276
39,804 42,260 46,436 45,459
40,873 43,327 47,046 46,138
39,379 41,545 44,824 43,847
40,144 42,033 45,213 44,186
42,332 44,169 47,966 46,279
44,200 46,009 48,948 48,447
44,765 46,980 49,661 49,071
46,129 48,120 Unavailable Unavailable
Chicago's 2013 median household income is $47,270, compared to $56,797 in Illinois and $53,046 in the U.S., and Chicago ranks 36th among other major metropolitan areas on the cost of living index."-12
Employment
Total employment for the State of Illinois, the Chicago MSA, Cook County and the City for the years 2005 through 2014 is set forth below.
Employment (in thousands)13 2005-2014
Year Chicago Cook County Chicago MSA State of Illinois
1,199 2,393 4,461 5,862
1,228 2,453 4,519 5.933
1,249 2,491 4,557 5,980
1,238 2,461 4,528 5,949
1,172 2,327 4,291 5,657
1,117 2,301 4,246 5,613
1,120 2,316 4,305 5,677
1,141 2,359 4,375 5,751
1,144 2,365 4,443 5,805
1,185 2,450 4.502 5,873
T he percentage of total (nonfarm) employment by sector for the Chicago MSA, Stale of Illinois and the United States for April 2015 is shown in the following table.
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Percentage of Total Non-Farm Employment by Major Industry Sector
April 2015IJ 15
Chicago
Sector MSA
Trade, Transportation and Utilities 19 9%
Government 11 8%
Education and Health Services 15 9%
Professional and Business Services . 18 8%
Leisure and Hospitality 9 5%
Manufacturing. 7 7%
Financial Activities 6.8%
Construction 3 2%
Other Services 4 4%
Information. . . .. 2 0%
Mining and Logging 0.0%
Total 100 0%
Illinois
19 9%
2%
3% 15 8%
9 4% 9 7% 6 2% 3.5% 4.3% 1.7% 0 2%
100 0%
United States
19 0% 15 5% 15 5% 13 9% 10 6% 8 7% 5 7% 4 5% 4.0% 2 0% 0 6% 100 0%
The City of Chicago's average annual unemployment rate decreased from 11.2 percent in 2010 to 7.7 percent in 2014, while statewide, Illinois' unemployment rate dropped from 10 4 percent in 2010 lo 7.1 percent in 2014 16 In April 2015, the Chicago MSA's preliminary unemployment rate before seasonal adjustment was 5 8 percent.17
The annual unemployment rates (percent of population, not seasonally adjusted) for the United Stales, the State of Illinois, Cook County, the Chicago MSA and the City is set forth below for the years 2005 through ycar-to-date for 2015.
Annual Unemployment Rates"1 2005—2015
Year
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015'
Chicago
7.1% 54
8 7.0
I I.I 1 1.2 10 8 10 0 10 0 77|1010|Cook County
6 4% 4.9|1010|4 10 5 10 9 104
9.6 9 6 74 6 2
Chicago MSA|109|9% 4 6|109 10|1 10 2 10 6
99 9 I 9.0|10 10910|State of Illinois
5.7%
5 5.0 6.3
10.2 104
9 7
9 0
9.1
7 1|1010|United States
5 1%
4.6
4.6
8 9 3 96 8.9 8.1 74
2 5 4
April 2015 Jala
Employers
The companies employing Ihe greatest number of workers in the Chicago MSA as ofthe end of 2014 are set forth below.
Largest Employers in Chicago MSA1'' " 2014
Percentage of
Advocate Health Care Bank, N A.
University of Chicago
J.P. Morgan Chase
Northwestern Memorial Healthcare
United Continental Holdings Inc.
Walgreens Co.
AT&T
Presence Health
University of Illinois at Chicago Abbott Laboratories
Number of Total
Employer Employees Employment
18,556 1 47%
16,025 1.27
15,015 1.19
14,550 1.15
14,000 1.11
13,797 109
13,000 I 03
11,279 0 89
10,100 0.80 10,000 0.79
Top T ax Payers
The top property tax payers in the City in 2013 based on 2013 EAV arc shown in the following
table.
Rank
I
2 3 4 5 6 7 8 9 10
Top Ten Property Tax Payers 20132"
($ in thousands)
Property
Willis Tower AON Center
Blue Cross Blue Shield Tower One Prudential Plaza Water Tower Place Chase 'Power AT&T" Corp Center Three First National Plaza Citadel Center 300 N LaSalle
Total
% of Total EAV
0.59%.
0 40
0.32
031
0.31
0 31
0.29
0 29
0 28
0.26
3.36%
As shown in the table, the lop ten taxpayers account for less than 4 percent ofthe City's total lax
Transportation
According to statistics compiled by Anports Council International in 2013. O'llarc ranked fifth worldwide and second m the United Slates in terms of total passengers while Midway ranked 261'1 in the United States 21 According to ihe Chicago Department of Aviation, OTIarc and Midway had 70 1 and
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21 2 million in total passenger volume in 2014, respectively. OTIare supports substantial international service with international passengers constituting approximately 15 percent of total enplaned passengers in 2014"
The Chicago T ransit Authority operates the second largest public transportation system in the nation, with: 1,865 buses operating over 128 routes and 1.354 route miles, making 19.000 trips per day and serving 11,104 bus stops; 1,356 rail cars operating over eight routes and 224 miles of track, making 2,250 trips each day and serving 146 stations; and 1.7 million rides on an average weekday and over 529 million rides a year (bus and train combined)23
Schools
The Chicago Public School system is the third largest school district in the nation, serving approximately 396,000 students 24 CPS is comprised of 420 elementary schools, 96 high schools, 6 combination schools (schools that serve both elementary and high school grade levels), 9 contract high schools, and 131 charter school campuses 25 The City Colleges of Chicago operate seven colleges and serve approximately 114,000 students.26
Government
The number of full-time employees ofthe City for the years 2006 through 2014 is included in the following table.
City Full-Time Employees
2006—2014
Budgeted Full-Time Equivalent Positions
2006 2007 2008 2009 2010 2011 2012 2013 2014
40,297 40,207 39,921 37,419 36.889 36.448 33,708 33.563 34,045
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Housing Market
The monthly home sales and the median home sale prices for Chicago for the years 2009 through April, 2015 are shown below.
Chicago Monthly Home Sales28 2009—April 2015
January
February
March
April
May
June
July
August
September
October
November
December
2009
917 866 1,212 1407 1,557 1,981 1,975 1,927 1,918 2,012 1,859 1,767
2010
1,202 1,225 1,814 1,984 2,057 2,526 1,588 1,486 1,403 1,216 1,144 1,444
2011
1,034 1,056 1,450 1,466 1,703 1,841 1,655 1,787 1,498 1,312 1,429 1,576
2012
1,123 1,250 1,664 1,816 2,125 2,332 2,164 2,293 1,906 2,076 1,798 1,849
2013
1,485 1,378 1,894 2,331 2,762 2,623 2,838 2,797 2,352 2,231 1,800 2,080
2014
1,383 1,361 1,819 2,210 2,390 2,761 2,664 2,414 2,187 2,082 1,632 1.992
2015
1,295 1,448 2,118 2,386
Chicago Median Home Sale Prices" 2009—April 2015
January
February
March
April
May
June
July
August
September
October
November
December
2009
$205,000 218,625 219,000 218,000 225,000 242,050 245.000 229,900 225,000 215,000 215,000 210.000
2010
$195,000 176,500 209,000 225,000 230,000 234,250 196,500 200,000 180,000 183,000 182,500 166.250
2011
$150,000 150.000 163,200 169,000 190,000 207,000 210.000 192,500 190,000 162.000 157,000 155.000
2012
$148,000 140,000 172,000 182,000 200,000 217,000 200,000 200,000 IS8,400 175,000 180,000 185,000
2013
$159,000 158,000 187,500 222,000 234,000 254,900 250,000 245,000 231,000 218,500 200,000 210,000
2014
$200,750
175,000
237,000
250,000
270,000
275,000
270.000 270,000
250,000
237,500
230,000
229,250
2015
$222,000 212,000 235,000 275,000
U S Census, "Annual Estimates ofthe Resident Population April 1. 2010 to .Inly 2014," hltp //factfinder census gov/fuces/nuv/isf/paucs/indcx xhtml
U S Bureau of Labor Statistics, ' Employees on Nonfatal Payiolls by Slate and Metropolitan Area," hltp //www.bls.gov/news rclcasc/mctro 103 htm
U S Bureau of Economic Analysis. "Table I Current-Dollar Gross Domestic Product (GDP) by Metropolitan Area," htlp //www ben gov/ncwsrclcascs/rcgion.il/Rdn inctro/2014/pdf/gdp mctroQ914.pdf
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4 Chicago Department of Aviation, "Monthly Operations, 1'assengers, Cargo Summary' By Class, December 2014,' www flvchicago com
I U S. Bureau of Labor Statistics, " Chicago Area Economic Summary, June 3, 2015." httpV/www bls.gov/regions/midwcst/summarv/blssummaiv Chicago pdf
U S Census Bureau, "State and County QuickFacts—Chicago (cily), IIIinois,'" hllpV/quickfacts census gov/qI'd/states (accessed June 12, 2015) 7 U S Census Bureau, "'State and County QuickFacts—Chicago (city), Illinois." http //quickfacts census gov/cifd/states (accessed June 12, 2015)
II U.S. Census Bureau, "State and County QuickFacts—USA," http //quickfacts census gov/qfd/states: "Slate and
County QuickFacts—Cook County, Illinois.'" hltp //quickfacts census gov/qfd/stules. "Slate and County
QuickFacts—Chicago (city), Illinois." hltp //uuickfacis census gov/qfd/slutes (accessed June 12, 2015)
9US. Census Bureau, "State and County QuickFacts—Chicago (city), Illinois,"
http //quickfacts census gov/q fd/states (accessed June 12, 2015) 10 U S. Bureau of Economic Analysis, "Interactive Data." http //www.bca eov/iTablc/indcx cfm (accessed June 12,
2015).
"US. Census Bureau, "State and County QuickFacts—Chicago (city), Illinois," http //quickfacls census. gov/q I'd/stales (accessed June 12, 2015).
12 U.S. Census Bureau, "Table 728 Cost of Living Index-Selected Urban Areas Annual Average 2010"
http //www census gov/compendia/staiah/cuts/priccs/coiisumer price indexes cost of living index html
(accessed June 12,2015).
13 U.S. Bureau of Labor Statistics, "State and Metro Area Employment, Mows, & Earnings,"
http //www hls.gov/sae/data htm (accessed June 12, 2015)
14 U S Bureau of Labor Statistics, http //www bis gov/regions/midwest/il Chicago md htm (accessed June 12,
2015).
U S Bureau of Labor Statistics, "State and Metro Area Employment, Hours, & Earnings," bis gov/sae/data htm (accessed June 12,2015) "' U S Bureau of Labor Statistics, "State and Metro Area Employment, Hours, & Earnings," http //www bls.gov/sac/data htm (accessed June 12, 2015).
17 U.S. Bureau of Labor Statistics, "State and Metro Area Employment, Hours, & Earnings,"
http //www bis gov/sac/data htm (accessed June 12, 2015).
18 U S Bureau of Labor Statistics, "Stale and Metro Area Employment, Hours, & Earnings,"
http //www bis gov/sac/diila.htm (accessed June 12, 2015)
" Cram's Chicago Business, Cram Communications. Inc The data represents the largest employers in the six-county area (Cook County, Will Counly, Kane County, Lake County, DuPage County, and Mcllcnry County)
20 Chicago Comprehensive Annual Financial Report for the year ended December 31, 2013,
hltp //www cilvofchicago org/citv/cn/depts/fin/supp info/compichensivc annualfinancialstatcmcnls/2013-finjncial-statements.html
21 Airports Council International "2013 North American (ACT-NA) Top 50 Airports,"'
http //www.aci-na org/content/airport-traflic-reports
22 Chicago Department of Aviation Airport Budget Statistics, "Air Traffic Data." http /Avww flvchicngocQm
23 Chicago Transit Authority, "CTA Facts at a Glance, Spring 2014,"
http //www transitchicago com/about/facts aspx (accessed June 12, 2015).
24 Chicago Public Schools, "Stats and Facts," http //ens edu/Ahout CPS/At-a-glunce/Pages/Siats and facts aspx
(accessed June 12, 2015)
33 Chicago Public Schools. "Stats and Facts." hltp //cps cdu/Ahoul CPS/At-n-glancc/Ptigcs/Statsand facts asp.x (accessed June 12,2015)
2r' Cily Colleges of Chicago, "Fiscal Year 2013 Statistical Digest," hllp //www ccc cdu/menu/pages/l'ucts-statistics aspx
27 Chicago Comprehensive Annual Financial Report for the year ended December 31, 2013,
hltp //www cilvofchicago org/cily/en/depts/lin/stipp info/comprchcnsivc annualfinancialslaicmcnls/2013-
llnancial-slalemenls hlml :!" Illinois Association of Realtors, "Illinois Market Slats Archives.""
http //www ilhnoisrealtor ora/marketslats/archives (accessed June 12.2015) 2'' Illinois Association of Realtors, "Illinois Market Stais Archives,"
http //www illinoisrcalloi org/marketslals/archivcs (accessed .kmc 12. 2015)
B-7
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APPENDIX C
CITY OF CHICAGO
I3AS1C FINANCIAL ST AT EMENTS FOR THE YEAR ENDED DECEMBER 31, 2014
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Deloitte
City of Chicago
Basic Financial Statements for the Year Ended December 31, 2014
Rahni Emanuel, Mayor
Carole L. Brown, Chief Financial Officer Daniel Widawsky, City Comptroller
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CITY OF CHICAGO, ILLINOIS YEAR ENDED DECEMBER 31, 2014 TABLE OF CONTENTS
INDEPENDENT AUDITORS' REPORT 1-2
MANAGEMENT'S DISCUSSION AND ANALYSIS 3-15
BASIC FINANCIAL STATEMENTS:
Government-wide Financial Statements:
Exhibit 1 Statement of Net Position 17
Exhibit 2 Statement of Activities 18-19
Fund Financial Statements:
Exhibit 3 Balance Sheet - Governmental Funds 20-21
Exhibit 4 Statement of Revenues, Expenditures and Changes in Fund Balances -
Governmental Funds 22-25
Exhibit 5 Reconciliation of the Statement of Revenues, Expenditures and Changes
in Fund Balances of Governmental Funds to the
Statement of Activities 26
Exhibit 6 Statement of Revenues and Expenditures - Budget and Actual -
General Fund (Budgetary Basis) 27
Exhibit 7 Statement of Net Position - Proprietary Funds 28-29
Exhibit 8 Statement of Revenues, Expenses and Changes in Net Position -
Proprietary Funds 30
Exhibit 9 Statement of Cash Flows - Proprietary Funds 31-32
Exhibit 10 Statement of Fiduciary Net Position - Fiduciary Funds 33
Exhibit 11 Statement of Changes in Plan Net Position, Fiduciary Funds -
Pension Trust Funds 34
NOTES TO BASIC FINANCIAL STATEMENTS 35-83
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)
SCHEDULE OF OTHER POSTEMPLOYMENT BENEFITS FUNDING PROGRESS 84
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Deloitte
INDEPENDENT AUDITORS' REPORT
To the Honorable Rahm Emanuel, Mayor And Members ofthe City Council City of Chicago, Illinois
Report on the Financial Statements
We have audited the accompanying financial statements ofthe governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information ofthe City of Chicago, Illinois (the "City"), as of and for the year ended December 31, 2014, and the related notes to the financial statements, which collectively comprise the City's basic financial statements as listed in the table of contents.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implemeniaiion, and maintenance of internal control relevant lo Ihe preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements ofthe City's Pension Plans (ihe "Plans") which, in aggregate, represent substantially all the assets and revenues of the fiduciary funds, included in the aggregate remaining fund information. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for the Plans, is based solely on the reports ofthe other auditors. We conducted our audit in accordance wilh auditing standards generally accepted in the United Slates of America. Those standards require that we plan and perform the audil to obtain reasonable assurance about whether the financial statements arc free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment ofthe risks of material misstatement ofthe financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation ofthe financial statements in order to design audit procedures that are appropriate in Ihe circumstances, but not for the purpose of expressing an opinion on the effectiveness ofthe entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness ofaccounting policies used and ihe reasonableness of significant accounting estimates made by management, as well as evaluating ihe overall presentation ofthe financial statements.
nctni-:. foiKh T(j>in,.ii,u L>.'Miii.ri
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.
Opinions
In our opinion, based on our audit and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position ofthe governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Chicago, Illinois, as of December 3 1, 2014, and the respective changes in financial position and, where applicable, cash flows Ihereof and the respective budgetary comparison for the General Fund for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Other Matters
Required Supplementary Information
Chicago, Illinois June 30, 2015
Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis and Schedule of Other Postemployment Benefits Funding Progress, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part ofthe basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We and other auditors have applied certain limited procedures to the required supplementary infonnation in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
CITY OF CHICAGO, ILLINOIS MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2014
Management's Discussion and Analysis
As management of the City of Chicago, Illinois (City) we offer readers of the City's Comprehensive Annual Financial Report (CAFR) this narrative overview and analysis of the financial activities of the City for the fiscal year ended December 31, 2014. We encourage the readers to consider the information presented here in conjunction with information contained within this report.
2014 Financial Highlights
Liabilities and Deferred Inflows of the City, in the government-wide financial statements, exceeded its assets and deferred outflows at the close of the most recent fiscal year by $6,536.3 million (net deficit). The net deficit is composed of $2,742.5 million in net investment in capital assets and $2,471.0 million in net position restricted for specific purposes offset by an unrestricted deficit of $11,749.8 million. The net deficit increased in 2014 by $1,165.2 million primarily as of result of increased pension costs.
The City's total assets increased by $1,347.4 million. The increase primarily relates to a $897.8 million increase in capital assets as a result of the City's capital improvement program, and an increase in cash and cash equivalents and investments of $548.0 million, primarily as a result of an increase in charges for services, improved collection of receivables, and proceeds from financing to fund capital projects.
Revenues and Other Financing Sources, in the fund financial statements, available for general governmental operations during 2014 were $6,769.4 million, an increase of $806.9 million (13.5 percent) from 2013, primarily due to the issuance of General Obligation and Motor Fuel tax bonds.
The General Fund ended 2014 with a total Fund Balance of $141.3 million, of which $51.6 million was Unassigned. Total Fund Balance decreased from 2013 primarily because Revenues and Other Financing Sources were less than Expenditures and Other Financing Uses by $25.5 million.
The City's general obligation bonds and notes outstanding increased by $605.3 million during the current fiscal year. The proceeds from the issuance of General Obligation were used to finance the City's capital plan and certain operating expenses.
The General Fund expenditures on a budgetary basis were $28.9 million less than budgeted as a result of favorable variances in general government expenditures, offset by unfavorable variances in public safety primarily as a result of higher than expected personnel related expenses.
Overview ofthe Basic Financial Statements
This discussion and analysis is intended to serve as an introduction to the City's basic financial statements, which include the following components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the basic financial statements. This report also contains required supplementary information and other supplementary information in addition to the basic financial statements. These components are described below:
Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of the City's finances, using accounting methods similar to those used by private-sector companies. The statements provide both short-term and long-term information about the City's financial position, which assists in assessing the City's economic condition at the end of the fiscal year. These financial statements are prepared using the flow of economic resources measurement focus and the accrual basis of accounting. This basically means such statements follow methods that are similar to those used by most businesses. They take into account all revenues and expenses connected with the fiscal year even if cash involved has not been received or paid.
The government-wide financial statements include two statements:
The statement of net position presents information on all of the City's assets, deferred outflows, liabilities, and deferred inflows with the difference reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City is improving or deteriorating, respectively. To assess the overall health of the City, the reader should consider additional non-financial factors such as changes in the City's property tax base and the condition of the City's roads.
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CITY OF CHICAGO, ILLINOIS MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2014
The statement of activities presents information showing how the government's net position changed during each fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of the related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future periods (for example, uncollected taxes, and earned but unused vacation). This statement also presents a comparison between direct expenses and program revenues for each function of the City.
Both of the government-wide financial statements distinguish functions of the City that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City include general government, public safety, streets and sanitation, transportation, health, and cultural and recreation. The business-type activities of the City include water, sewer, tollway and airport services.
The government-wide financial statements present information about the City as a primary government, which includes the Chicago Public Library. The government-wide financial statements can be found immediately following this management's discussion and analysis.
Fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds.
Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of a fiscal year. Such information may be useful in evaluating a government's near-term financing requirements.
Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government's near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate the comparison between governmental funds and governmental activities.
The City maintains 19 individual governmental funds. Information for the six funds that qualify as major is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances. The six major governmental funds are as follows: the General Fund, the Federal, State and Local Grants Fund, the Special Taxing Areas Fund, Service Concession and Reserve Fund, the Bond, Note Redemption and Interest Fund, and the Community Development and Improvement Projects Fund. Data from the other governmental funds are combined into a single, aggregated presentation.
The City adopts an annual appropriation budget for its general and certain special revenue funds on a non-GAAP budgetary basis. A budgetary comparison statement has been provided for the General Fund, the only major fund with an appropriation budget, to demonstrate compliance with this budget. The basic governmental fund financial statements can be found immediately following the government-wide statements.
Proprietary funds. These funds are used to show activities that operate more like those of commercial enterprises. Because these funds charge user fees for services provided to outside customers including local governments, they are known as enterprise funds. Proprietary funds, like government-wide statements, use the accrual basis of accounting and provide both long- and short-term financial information. There is no reconciliation needed between the government-wide financial statements for business-type activities and the proprietary fund financial statements. The City uses five enterprise funds to account for its water, sewer, Skyway, and two airports operations.
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CITY OF CHICAGO, ILLINOIS MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2014
Proprietary funds provide the same type of information as the government-wide financial statements, but provide more detail. The proprietary fund financial statements provide separate information for the Water Fund, Sewer Fund, Chicago Skyway Fund, Chicago-O'Hare International Airport Fund and the Chicago Midway International Airport Fund. All the proprietary funds are considered to be major funds of the City. The basic proprietary fund financial statements can be found immediately following the governmental fund financial statements.
Fiduciary funds. Fiduciary funds are used primarily to account for resources held for the benefit of parties outside the primary government. The City is the trustee, or fiduciary, for its employees' pension plans. It is also responsible for other assets that, because of a trust arrangement can be used only for the trust beneficiaries. The City also uses fiduciary funds to account for transactions for assets held by the City as agent for various entities. The City is responsible for ensuring that the assets reported in these funds are used for their intended purposes. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City's own programs. All of the City's fiduciary activities are reported in a separate statement of fiduciary net position and a statement of changes in fiduciary net position. The accounting used for fiduciary funds is much like that used for proprietary funds. The fiduciary fund basic financial statements can be found immediately following the proprietary fund financial statements.
Notes fo the basic financial statements. The notes provide additional information that is essential for a full understanding of data provided in the government-wide and fund financial statements. The notes to the basic financial statements can be found immediately following the fiduciary fund basic financial statements.
Financial Analysis of the City as a whole
Net Position. As noted earlier, net position may serve over time as a useful indicator of a government's financial position. In the case of the City, liabilities and deferred inflows exceeded assets by $6,536.3 million at December 31, 2014. Of this amount, $2,742.5 million represents the City's investment in capital assets (land, buildings, roads, bridges, etc.) less any related debt used to acquire those assets that is still outstanding. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City's investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities and deferred inflows.
An additional portion of the City's net position, $2,471.0 million, represents resources that are subject to external restrictions on how they may be used.
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CITY OF CHICAGO, ILLINOIS MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2014
City of Chicago, Illinois Summary Statement of Net Position
(in millions of dollars)
Governmental Business-type
Activities Activities
2014 2013 2014 2013
Current and olher assets $ 5,254.5 $ 5,311.5 $ 4.734.1 $ 4,227.5
Capital assets 8,281.2 7,993.6 13,822.5 13,212.3
Total Assets 13,535.7 13,305.1 18,556.6 17.439.8
Deferred outflows 281.5 266.1 320.9 274.1
Total 13,817.2 13.571.2 18,877.5 17,713.9
Long-term liabilities outstanding 19,516.8 18,069.6 13,602.6 13,094.8
Other liabilities 1,767.4 1,326.6 1,122.7 904.3
Total Liabilities 21,284.2 19,396.2 14,725.3 13,999.1
Deferred Inflows 1,576.3 1,597.3 1,645.2 1,663.6
Nel Position:
Nel investment in capital assets 28.7 (242.8) 2,713.8 2,446.2
Restricted 1,492.0 1.940.9 979.0 883.8
Unrestricted (10,564.0) (9,120.4) (1,185.8) (1,278.8)
Total net (deficit) position $ (9,043.3) $ (7,422.3) $ 2,507.0 $ 2,051.2
2013
Total
9,539.0 21,205.9 30.744.9 540.2
31,285.1
31,164.4 2,230.9
33,395.3 3,260.9
2,203.4 2,824.7 (10,399.2)
2014
9,988.6 22,103.7
32,092.3 602.4
32,694.7
33,119.4 2,890.1
36,009.5 3,221.5
2,742.5 2,471.0 (11,749.8)
$ (6,536.3) $ (5,371.1)
Governmental Activities. Net position ofthe City's governmental activities decreased $1,621.0 million to a deficit of $9,043.3 million, primarily as a result of increased pension costs. A significant portion of net position is either restricted as to the purpose they can be used for or they are classified as net investment in capital assets (buildings, roads, bridges, etc.). Consequently, unrestricted net position showed a $10,564.0 million deficit at the end of this year. This deficit does not mean that the City does not have the resources available to pay its bills next year. Rather, it is the result of having long-term commitments that are greater than currently available resources. Specifically, the City did not include in past annual budgets the full amounts needed to finance future liabilities arising from personnel, property, pollution and casualty claims ($900.6 million) and Municipal employees, Laborers', Policemen's and Firemen's net pension obligation and other post-employment benefits ($8,884.3 million). The City will include these amounts in future years' budgets as they come due. In addition, the remaining deferred inflow of $1,576.3 million from concession service agreements will be amortized into income over the life of such agreements.
Revenues for all governmental activities in 2014 were $5,729.1 million, an increase of $172.8 million from 2013. Over half of the City's revenues derived from taxes which increased by $98.8 million (3.2 percent). Total tax revenue includes an increase in property taxes received of $20.1 million (2.2 percent).
Expenses for governmental activities in 2014 were $7,350.1 million, an increase of $269.2 million (3.8 percent) over 2013. The amount (hat taxpayers paid for these governmental activities through City taxes was $3,191.6 million. Some of the cost was paid by those who directly benefited from the programs ($819.2 million), or by other governments and organizations that subsidized certain programs with grants and contributions ($720.6 million).
The City paid $997.7 million for the "public benefit" portion with other revenues such as state aid, interest and miscellaneous income.
Although total net position of business-types activities was $2,507.0 million, these resources cannot be used to make up for the deficit in net position in governmental activities. The City generally can only use this net position to finance the continuing operations of the water, sewer. Skyway, and airports activities.
|1010|CITY OF CHICAGO, ILLINOIS MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2014
City of Chicago, Illinois Changes in Net Position Years Ended December 31, (in millions of dollars)
Governmental Business-type
Activities Activities
2014 2013 2014 2013
Revenues
Program Revenues
Licenses, Permits, Fines and
Charges for Services $ 819.2 $ 773.4 S 2,244.1 S 2,021.3
Operating Grants and Contributions 470.7 634.4
Capital Grants and Contributions 249.9 184.4 95.6 213.0
General Revenues:
Property Taxes 926.8 906.7
Other Taxes 2,264.8 2,186.1
Grants and Contnbulions not
Restricted to Specific Programs 740.9 754.7
Other 256.8 116.6 85.3 34.1
Total Revenues 5,729.1 5,556.3 2,425.0 2,268.4
Expenses.
General Government 2,857.7 2.667.2
Public Safety 2.913.5 3,044.8
Streets and Sanitation 275.8 242.5
Transportation 475.8 400.5
Health 125.1 119.7
Cultural and Recreational 121.5 128.3
Interest on Long-term Debt 580.7 477.9
Water - - 455.4 442.5
Sewer - - 225.6 216.6
Midway International Airport - - 248.2 241.1
Chicago-O'Hare International Airport - - 1,029 7 920.8
Chicago Skyway - - 10 3 10.6
Total Expenses 7,350.1 7,080.9 1,969.2 1,831.6
Cnange in Net Position (1,621 0) (1,524.6) 4558 436.8
Nel (Deficit) Position, Beginning of Year (7.422.3) (5.897 7) 2.051.2 1.614.4
Nel (Deficit) Position, End of Year $ (9,043.3) $(7,422 3) J 2,507.0 $ 2,051.2
2014
3,063.3 470.7 345.5
926.8 2,264.8
740.9 342.1
8,154.1
2013
2,794.7 634.4 397.4
906.7 2,186.1
754.7 150.7
2,857.7 2,913.5 275.8 475.8 125.1 121.5 580.7 455.4 225.6 248 2 1,029.7 10.3
9,319.3 (1,165.2)
(5,371.1)
7,824.7
2,667.2 3,044.8 242.5 400.5 119.7 128.3 477.9 442.5 216.6 241.1 920.8 10.6
8,912.5 (1,087.8)
(4,283.3)
S (6,536.3) $ (5,371.1)
|1010|CITY OF CHICAGO, ILLINOIS MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2014
Expenses and Program Revenues - Governmental Activities
(in millions of dollars)
General Government Public Safety Streets and Sanitation Transportation
Health ^ Cultural and Recreational p Interest on Long-term Debt
200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 2,200 2,400 2,600 2,800 3,000 3,200
|99|i . .1 I I I i|99|: .— .--.i :|999| i|910|
? Expenses BProgram Revenues
Revenues by Source - Governmental Activities
Capital Grants and Operating Grants and Contributions Contributions 4% 8%
Other 5%
Grants and Contributions not restricted to specific programs 13%
Property Tax 16%
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CITY OF CHICAGO, ILLINOIS MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2014
Business-type Activities. Total Revenues of the City's business-type activities increased by $156.6 million in 2014 mostly from an increase in the charges for services and rental income, offset by a decrease in capital grant funding.
The Water Fund's operating revenues increased by $80.9 million (13.2%) from 2013 due to a 15% increase in water rates, offset by the conversion of 20,256 accounts from nonmetered to metered. Operating expenses before depreciation and amortization for the year ended 2014 increased by $23.5 million (8.6%) from the year ended 2013 mainly due to increases in transmission and distribution expenses of $14.2 million and central services of $10.5 million; offset by a decrease in purification costs of $2.3 million.
The Sewer Fund's operating revenues increased in 2014 by $42.5 million (15.2%) primarily due to an increase in sewer rates. Operating expenses before depreciation and amortization for 2014 increased $9.9 million (9.1%) from the year ended 2013 due to an increase in repairs, general fund reimbursements, maintenance and administrative and general.
Chicago Midway International Airport's operating revenues for 2014 decreased by $4.9 million (2.8%) from 2013 primarily due to lower landing fees, and terminal area use charges. Concessions were by $1.7 million higher than last year due to an increase in auto parking. Total operating expenses before depreciation and amortization were $8.5 million (7.0%) higher than last year, due to increases in repairs and maintenance, professional and engineering fees, and salaries and wages of $4.6 million, $4.1 million, and $3.8 million, respectively. These increases are offset by a decrease of $4.0 million in other operating expenses.
Chicago O'Hare International Airport's operating revenues for 2014 increased by $126.8 million (17.7%) compared to 2013 primarily due to increased landing fees and terminal area use charges. Operating expenses before depreciation, amortization and capital asset impairment costs increased by $68.9 million (16.2%) compared to 2013 primarily due to increases in repairs and maintenance, salaries and wages, other operating expenses and professional and engineering fees of $25.4 million, $20.8 million, and $15.7 million, and $7.0 million, respectively.
The Chicago Skyway was leased for 99 years to a private company. The agreement granted the company the right to operate the Skyway and to collect toll revenue during the term of the agreement. The City received an upfront payment of $1.83 billion of which $446.3 million was used to advance refund all of the outstanding Skyway bonds. The upfront payment is being amortized into nonoperating revenue over the period of the lease ($18.5 million annually).
|10 10|CITY OF CHICAGO, ILLINOIS MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2014
Expenses and Program Revenues - Business-type Activities (in millions of dollars)
100 200 300 400 500 600 700 800 900 1.000 1.100 1,200
Water
Sewer
Chicago Midway International Airport
Chicago-O'Hare International Airport
? Expenses BProgram Revenues
Revenues by Source - Business-type Activities
10
CITY OF CHICAGO, ILLINOIS MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2014
Financial Analysis of the City's Funds
As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements.
Governmental funds. The focus of the City's governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City's financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government's net resources available for spending at the end of the fiscal year.
At December 31, 2014, the City's governmental funds reported combined ending fund balances of $823.3 million, a decrease of $403.3 million in comparison with the prior year. Of this total amount $696.1 million was committed to specific expenditures, $65.2 million was assigned to anticipated uses, a deficit of $1,791.9 million was unassigned, $1,829.4 million was restricted in use by legislation, and $24.5 million was nonspendable.
The General Fund is the chief operating fund of the City. At the end of the current fiscal year, the unassigned fund balance of the General Fund was $51.6 million with a total fund balance of $141.3 million. As a measure of the General Fund's liquidity, it may be helpful to compare both unassigned fund balance and total fund balance to total fund expenditures. Total General Fund balance represents 4.4 percent of total General Fund expenditures. The fund balance of the City's General Fund decreased by approximately $25.8 million during the current fiscal year mainly due to an increase in personnel expenditures in public safety. The General Fund also provided $5.0 million to the Service Concession and Reserve Fund as appropriated for in the 2014 Budget.
The Federal, State and Local Grants Fund has a total deficit fund balance of $225.0 million. The deficit is $61.4 million lower than 2013 primarily due to more timely reimbursement of expenditures.
The Special Taxing Areas Fund has a total fund balance of $1,327.0 million, which is all restricted to specific expenditures.
The Service Concession and Reserve Fund accounts for deferred inflows from nonbusiness type long-term concession and lease transactions and has $620.9 million committed to specific expenditures. The unassigned deficit of $1,576.3 million results from the deferred inflows from long-term asset leases.
The Bond, Note Redemption and Interest Fund has a total fund balance of $26.9 million. This is $223.9 million lower than 2013 due to reclassification of long-term debt to short term debt during 2014. For more information, please refer to Note 9 to the basic financial statements.
The Community Development and Improvement Projects Fund has a total fund balance of $347.7 million. This is $15.9 million lower than 2013 due to increased capital improvement efforts.
Changes in fund balance. The fund balance for the City's governmental funds decreased by $403.3 million in 2014. This includes a decrease in inventory of $0.3 million.
Proprietary funds. The City's proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail.
Unrestricted net position of the Water, Sewer, Chicago Skyway, Chicago-O'Hare International Airport, and Chicago Midway International Airport Funds at the end of the year amounted to a deficit of $1,185.8 million. The unrestricted net position deficit decreased by $93.0 million due to an increase in the unrestricted assets in the Water Fund and Sewer Fund. Other factors concerning the finances of these five funds have already been addressed in the discussion of the City's business-type activities.
11
CITY OF CHICAGO, ILLINOIS MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2014
General Fund Budgetary Highlights
The City's 2014 Original General Fund Budget was $3,290.2 million. This budget reflects an increase of $131.2 million (4.2 percent) over the 2013 Budget. On November 26, 2013 the City's 2014 General Fund Budget was approved by the City Council. The General Fund revenues on a budgetary basis were $28.9 million less than the final budget as a result of lower collection of fines, state income tax, internal service, and licenses and permits revenue offset by higher than expected taxes. Expenditures were $28.9 million less than budgeted as a result of favorable variances in general government expenditures, offset by unfavorable variances in public safety primarily as a result of higher than expected personnel related expenses. Additional information on the City's budget can be found in Note 3 under Stewardship, Compliance and Accountability within this report.
Capital Asset and Debt Administration
Capital Assets. The City's capital assets for its governmental and business-type activities as of December 31, 2014 amount to $22,103.7 million (net of accumulated depreciation). These capital assets include land, buildings and system improvements, machinery and equipment, roads, highways and bridges, and property, plant and equipment.
Major capital asset events during the current fiscal year included the following:
The City continues its commitment to sustainable design in new construction projects utilizing the Leadership in Energy & Environmental Design (LEED) strategy. Completed construction in 2014 totaled $28.5 million including; Albany Park Branch Library totaling $11.9 million and Harold Washington Library totaling $7.7 million.
During 2014, $14.5 million of Architectural Plans and Landscape Drawings (Manuscripts) were donated to the City of Chicago. This was recorded as a donated capital asset addition in Works of Art and Historical Collections.
During 2014, the City completed $271.4 million in infrastructure projects including $141.0 million in street construction and resurfacing projects, $96.7 million in bridge and viaduct reconstruction projects, and $33.7 million in street lighting and transit projects. At year end, Infrastructure projects still in process had expenses totaling nearly $511.2 million.
At the end of 2014, the Water Fund had $3,482.2 million invested in utility plant, net of accumulated depreciation. During 2014, the Water Fund expended $364.8 million on capital activities. This included $16.4 million for structures and improvements, $62.0 million for distribution plant, $4.0 million for equipment, and $282.4 million for construction in progress.
During 2014, net completed projects totaling $137.6 million were transferred from construction in progress to applicable capital accounts. The major completed projects relate to installation and replacements of water mains ($109.4 million), and Jardine Water Purification plant's east building filter roof replacement and structural repair ($26.3 million).
At the end of 2014, the Sewer Fund had $2,025.2 million invested in utility plant, net of accumulated depreciation. During 2014, the Sewer Fund had capital additions being depreciated of $210.4 million, and completed projects totaling $16.3 million were transferred from construction in progress to applicable facilities and structures capital accounts. The 2014 Sewer Main Replacement Program completed 21.1 miles of sewer mains and 59.0 miles of relining of existing sewer mains at a cost of $210.4 million.
At the end of 2014, Chicago-Midway International Airport totaled $1,172 3 million, invested in net capital assets. During 2014, the Airport had additions of $48.4 million related to capital activities. This included $1.0 million for land acquisition and the balance of $47,4 million for construction projects relating to terminal improvements, runway rehabilitation and parking improvements.
At the end of 2014, Chicago-O'Hare International Airport totaled $6.9 billion, invested in net capital assets. During 2014, the Airport had additions of $346.7 million related to capital activities. This included $1.0 million for land acquisition and the balance of $345.6 million for terminal improvements, road and sidewalk
12
CITY OF CHICAGO, ILLINOIS MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2014
enhancements, runway and taxiway improvements. During 2014, completed projects totaling $438.8 million were transferred from construction in progress to applicable buildings and other facilities capital accounts. These major completed projects were related to runway and taxiway improvements, road and sidewalk enhancements and terminal improvements.
City of Chicago, Illinois Capital Assets (net of depreciation) (in millions of dollars)
Governmental Business-type
Activities Activities Total
2014 2013 2014 2013 2014 2013
Land $ 1,392.8 $ 1,392.6 $ 1,018.7 $ 1,016.6 $ 2,411.5 $ 2,409.2
Works of Art and
Historical Collections 45.2 30.8 - - 45.2 30.8
Construction in Progress 545.5 260.2 1,256.3 1,207.8 1,801.8 1,468.0
Buildings and Other Improvements 1,630.2 1,668.0 11,227.0 10,651.6 12,857.2 12,319.6
Machinery and Equipment 235.3 225.8 320.5 336.3 555.8 562.1
Infrastructure 4,432.2 4,416.2 - - 4,432.2 4,416.2
Total $ 8,281.2 $ 7,993.6 $ 13,822.5 $ 13,212.3 $ 22,103.7 $21,205.9
Information on the City's capital assets can be found in Note 7 Capital Assets in this report.
Debt. At the end of the current fiscal year, the City had $7,860.4 million in General Obligation Bonds and $475.1 million in General Obligation Certificates and Other Obligations outstanding. Other outstanding long-term debt is as follows: $189.7 million in Motor Fuel Tax Revenue Bonds; $554.1 million of Sales Tax Revenue Bonds; $74.4 million in Tax Increment Financing Bonds; and $13,071.6 million in Enterprise Fund Bonds and long-term obligations. For more detail, refer to Note 10 Long-term Obligations in the Basic Financial Statements.
City of Chicago, Illinois General Obligation and Revenue Bonds (in millions of dollars)
Governmental Business-type
Activities Activities Total
2014 2013 2014 2013 2014 2013
General Obligation $ 8,335.5 $ 7,730.2 $ - $ - $ 8,335.5 $ 7,730.2
Tax Increment 74.4 88.4 - - 74.4 88.4
Revenue Bonds 743.8 753.2 13,071.6 12,526.5 13.815.4 13,279.7
Total $ 9,153.7 $ 8,571.8 $ 13,071.6 $ 12,526.5 $ 22,225.3 $ 21,098.3
13
CITY OF CHICAGO, ILLINOIS MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2014
During 2014, the City issued the following: General Obligation Bonds:
General Obligation Bonds, Project and Refunding Series 2014A and Taxable Project and Refunding Series 2014B ($883.4 million).
Motor Fuel Tax Revenue Refunding Bonds Series 2013 ($105.9 million - issue of 2014).
Tax Increment Allocation Revenue Refunding Bonds (Pilsen Redevelopment Project) Series 2014A and 2014B Series Taxable ($33.4 million).
Enterprise Fund Revenue Bonds and Notes:
Chicago-O'Hare International Airport General Commercial Paper Notes ($51.0 million)
Chicago Midway International Airport Second Lien Revenue and Revenue Refunding Bonds, Series 2014A (AMT), Series 2014B (Non-AMT), and Series 2014C (AMT) ($896.5 million).
Second Lien Water Revenue Bonds, Series 2014 ($367.9 million).
Second Lien Wastewater Transmission Revenue Bonds, Series 2014 ($292.4 million).
At December 31, 2014 the City had credit ratings with each of the three major rating agencies as follows:
Standard & Poors
General Obligation: City
Revenue Bonds:
O'Hare Airport: Senior Lien General Airport Revenue Bonds Senior Lien Passenger Facility Charge (PFC) Customer Facility Charge (CFC)
Midway Airport: First Lien Second Lien
Water: First Lien Second Lien
Wastewater: First Lien Second Lien
Sales Tax
Motor Fuel Tax
Baal
A2 A2 Baal
A2 A3
A2 A3
A2 A3
Baal
Baal
A+
A-
A-BBB
A A-
AA AA-
AA AA-
AAA
AA+
A-
A-
A
NR
A A-
AA+ AA
NR AA
A-
BBB+
NR
NR NR NR
NR NR
NR AA
NR AA-
NR
NR
See Subsequent Events in the footnotes for ratings changes in 2015.
14
CITY OF CHICAGO, ILLINOIS MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2014
Economic Factors and Next Year's Budgets and Rates
Local, national, and global economies play a major role in the City's finances and economic growth. In 2014, local and national economies experienced moderate growth and recovery from the economic downturn. Although rising home prices and shrinking inventory slowed the housing market in 2014 and home sales were down 7 percent compared to 2013, median home prices were up 14 percent over 2013. In 2014, nationwide, retail sales grew 4 percent over 2013, with consumer confidence showing consistent improvement. The average national unemployment rate decreased from 7.3 percent in 2013 to 6.2 percent in 2014, and Chicago's unemployment rate was down consistently throughout 2014. Tourism, business, and convention travel to Chicago remained strong in 2014, with amusement tax collections up about 17 percent and hotel tax revenues up about 12 percent from 2013. Additionally, in July 2014, Chicago had over one million occupied hotel rooms; this was the first time this benchmark has ever been reached in a single month.
The City's 2015 General Fund budget, totaling $3,534 million, was approved by a 46 to 4 vote of City Council on November 19, 2014. The 2015 budget balanced a preliminary budget shortfall of $297 million by reforming and cutting spending, and improving revenue growth. The 2015 budget balances the City's finances without raising property, sales or gas taxes. At the same time, it makes significant investments in youth, infrastructure, and businesses, as well as in City services, and it continues to build the City's reserves in order to enhance long-term financial stability. The 2015 budget also commits an additional $5 million to the City's long-term reserves, following provisions of $20 million in 2012, $15 million in 2013 and $5 million in 2014.
Requests for Information
This financial report is designed to provide a general overview of the City's finances for all of those with an interest in the government's finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the City of Chicago Department of Finance
15
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Exhibit 1
CITY OF CHICAGO, ILLINOIS STATEMENT OF NET POSITION December 31, 2014
(Amounts are in Thousands of Dollars)
Governmental Activities
ASSETS AND DEFERRED OUTFLOWS
Cash and Cash Equivalents $
Investments
Cash and Investments with Escrow Agent
Receivables (Net of Allowances):
Property Tax
Accounts
Internal Balances
Inventories
Restricted Assets:
Cash and Cash Equivalents
Investments
Other Assets
Capital Assets:
Land, Art, and Construction in Progress
Other Capital Assets, Net of Accumulated Depreciation
Total Capital Assets
Total Assets
Deferred Outflows
281,487
Total Assets and Deferred Outflows S 13,817,197
Primary Government
Business-type Activities
105,422 271,858
340,836 50,892 21,808
1,121,163 2,730,771 91,354
2,274,965 11.547,521 13.822.486 18,556.590 320,939 18,877,529
Total
643,087 1,835,373 411,085
1,150,682 1,318,709
46,306
1,149,852 3,324,414 109,132
4,258,559 17,845,101 22.103.660 32,092,300 602,426 32,694,726
LIABILITIES AND DEFERRED INFLOWS
Voucher Warrants Payable $
Short-term Debt
Accrued Interest
Accrued and Other Liabilities
Unearned Revenue
Derivative Instrument Liability
Long-term Liabilities:
Due Within One Year
Due in More Than One Year
Total Liabilities
Deferred Inflows
Total Liabilities and Deferred Inflows
579,901 297,981 225,459 401,318 113,862 148,923
314,682 19,202,103 21,284,229 1,576,293
22,860,522
340,810 $
273,287 164,317 144,227 200,095
307,813 13,294,786
14,725.335
1,645,152
16,370.487
920,711 297,981 498.746 565,635 258,089 349,018
622,495 32,496,889
36,009,564 3,221,445
39,231.009
NET POSITION
Net Investment in Capital Assets Restricted for:
Capital Projects
Debt Service
Special Taxing Areas
Passenger Facility Charges
Contractual Use Agreement
Airport Development Fund
Customer Facility Charges
Other Purposes
Unrestricted (Deficit)
Total Net Position
28,744
2.713,825
193,782 35,298
142,765 158.165 300.101 113,661 35,200 (1,185.755)
2,742,569
164,937 1.327.058
193,782 200,235 1.327.058 142.765 158.165 300.101 113,661 35,200 (11,749,819)
(10,564,064)
$ (9.043.3251 $ 2.507.042 $ (6.536,283)
See notes to basic financial statements.
Exhibit 2
CITY OF CHICAGO, ILLINOIS STATEMENT OF ACTIVITIES Year Ended December 31, 2014 (Amounts are in Thousands of Dollars)
Licenses, Permits, Fines and
Functions/Programs Expenses Charges for Services
Primary Government Governmental Activities:
General Government $ 2,857,789 $ 505,275
Public Safety 2,913,469 208,206
Streets and Sanitation 275,814 44,552
Transportation 475,751 44,278
Health 125,068 2,281
Cultural and Recreational 121,548 14,643
Interest on Long-term Debt 580,701 -
Total Governmental Activities 7,350,140 819,235
Business-type Activities:
Water 455,433 692,634
Sewer 225,600 322,228
Chicago Midway International Airport 248,231 216,662
Chicago-O'Hare International Airport 1,029,559 1,012,529
Chicago Skyway 10,314 -
Total Business-type Activities 1,969,137 2,244,053
Total Primary Government $ 9,319,277 J> 3,063,288
See notes to basic financial statements.
18
Program Revenues Net (Expense) Revenue and Changes in Net Assets
Primary Government
Operating Capital
Grants and Grants and Governmental Business-type
Contributions Contributions Activities Activities Total
$ 294,052 $ - $ (2,058,462) $ - $ (2,058,462)
57,633 - (2,647,630) - (2,647,630)
(231,262) - (231,262)
249,860 (181,613) - (181,613)
104,447 - (18,340) - (18,340)
14,527 - (92,378) - (92,378)
-_ -_ (580,701) -_ (580,701)
470,659 249,860 (5,810,386) -_ (5,810,386)
1,766 - 238,967 238,967
96,628 96,628
4,826 - (26,743) (26,743)
89,032 - 72,002 72,002
-_ (10,314) (10,314)
-_ 95,624 -_ 370,540 370,540
$ 470,659 $ 345,484 (5,810,386) 370,540 (5,439,846)
General Revenues Taxes.
Property Tax 926,839 - 926,839
Utility Tax 570,469 - 570,469
Sales Tax 324,273 - 324,273
Transportation Tax 406,624 - 406,624
Transaction Tax 379,256 - 379,256
Special Area Tax 260,256 - 260,256
Recreation Tax 193,680 - 193,680
Other Taxes 130,266 - 130.266
Grants and Contributions not Restricted to
Specific Programs 740,911 - 740,911
Unrestricted Investment Earnings 62,400 35,849 98,249
Miscellaneous 194,415 49,430 243,845
Total General Revenues 4,189,389 85,279 4,274,668
Change in Net Assets (1,620,997) 455,819 (1,165,178)
Net Position - Beginning (7,422,328) 2,051,223 (5,371,105)
Net Position - Ending $ (9,043,325) $ 2,507,042 $ (6,536,283)
19
Exhibit 3
CITY OF CHICAGO, ILLINOIS BALANCE SHEET GOVERNMENTAL FUNDS December 31, 2014
(Amounts are in Thousands of Dollars)
General
ASSETS
Cash and Cash Equivalents $ 1.102
Investments 102,400
Cash and Investments with Escrow Agent
Receivables (Net of Allowances):
Property Tax
Accounts 209,386
Due From Other Funds 109,514
Due From Other Governments 241,878
Inventories 24,498
Restricted Cash and Cash Equivalents 389
Restricted Investments
Other Assets -
Total Assets $ 689,167
LIABILITIES, DEFERRED INFLOWS AND FUND BALANCE Liabilities:
Voucher Warrants Payable $ 185,783
Bonds, Notes and Other Obligations Payable - Current
Accrued Interest
Due To Other Funds 276,805
Accrued and Other Liabilities 69,811
Line of Credit and Commercial Paper
Claims Payable 13,326
Unearned Revenue 2,164
Total Liabilities 547,889~
Deferred Inflows -
Fund Balance:
Nonspendable 24,498
Restricted
Committed
Assigned 65,223
Unassigned 51,557
Total Fund Balance 141,278
Total Liabilities, Deferred Inflows and Fund Balance $ 689,167
Special Taxing Areas
403,019 588,005
Federal, State and Local Grants
288,302 4,429 423,933
$ 22,980 71,036
3,778 10,059 452,721
3,220
4,075
$ 567,869
$ 1,707,689
11,682 2,920
$ 157,929 $ 117,027
69,825 533,774
296,159 9,861
259,140
131,629
15,230
249,002
1,327,058
(240,275) -
(225,045) 1,327,058 567,869 $ 1,707,689
See notes to basic financial statements.
Service Community
Concession Bond, Note Development Other Total
and Redemption and Improvement Governmental Governmental
Reserve and Interest Projects Funds Funds
$ 99 $ 17,119 $ 77,793 $ 15,553 S 537,665
172,490 439,137 190,447 1,563,515
338,533 - 72,552 411,085
491,473 - 370,907 1,150,682
2,435 2,971 2,626 16,608 242,233
5,000 - 97,053 79,210 724,769
2,578 - 38,463 735,640
24,498
24,868 - 211 - 28,689
593,643 - - - 593,643
- - - - 4,075
$ 626,045 $ 1,025,164 $ 616,820 $ 783,740 $ 6,016,494
$ 14 $ $ 38,999 $ 64,877 $ 564,629
82,331 - 4,400 86,731
223,995 - 1,464 225,459
5,140 85,700 56,996 94,698 827,180
95,373 67,648 245,613
198,086 77,800 21,423 297,309
13,326
-_ 41,873 - - 113,862
5,154 631,985 269,168 254,510 2,374,109
1,576,293 420,051 - 314,563 2,819,049
24,498
347,652 139,491 1,829,431
620,891 - - 75,176 696,067
65,223
(1,576,293) (26,872) - -_ (1,791,883)
(955,402) (26,872) 347,652 214,667 823,336
$ 626,045 $ 1,025,164 $ 616,820 $ 783,740 $ 6,016,494
Amounts reported for governmental activities in the statement of net position are different because Capital assets used in governmental activities are not financial resources
and therefore are not reported in the funds 8,281,174
Other long-term assets are not available to pay for current-period
expenditures and therefore are recorded as deferred inflows in the funds 1,242,756
Certain liabilities, including bonds payable, are not due and payable in the current
period and therefore are not reported in the funds (19,390,591)
Net position of governmental activities $ (9,043,325)
21
Exhibit 4
CITY OF CHICAGO, ILLINOIS
STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS Year Ended December 31, 2014 (Amounts are in Thousands of Dollars)
Federal,
State and Special
Local Taxing
General Grants Areas
Revenues.
Property Tax $ - $ - $
Utility Tax 473,496
Sales Tax (Local) 285,773
Transportation Tax 185,076
State Income Tax 278,031
State Sales Tax 334,526
Transaction Tax 316,201
Special Area Tax - - 331,380
Recreation Tax 193,680
Other Taxes 109,004
Federal/State Grants 2,335 809,840
Internal Service 305,716
Licenses and Permits 119,940
Fines 338,329
Investment Income 1,573 - 4,822
Charges for Services 141,850 - 5
Miscellaneous 90,620 2,149
Total Revenues 3,176,150 809,840 338,356
Expenditures: Current:
General Government
Health
Public Safety
Streets and Sanitation
Transportation
Cultural and Recreational
Employee Pensions
Other
Capital Outlay
Debt Service-
Principal Retirement
Interest and Other Fiscal Charges
Total Expenditures
Revenues (Under) Over Expenditures
929,918 25,902 2,020,072
195,390 47,309
2,298
7,830 2,539
3,231,258
(55,108)
360,892 102,350 40,122
237,961 12,272
2,197 9,863
765,657
44,183
446,652 15
419 139,933 15
587,034 (248,678)
Continued on following pages.
Service Concession and Reserve
39.607 21,033
60,640
Bond, Note Redemption and Interest
481,698 22,332 38,500 12,552
17
2,203 17,963 15.303
590,568
Community Development
and Improvement Projects
5,579 27,538
33,117
Nonmajor Governmental Funds
$ 448,143 74,641
208,996 126,019
63,055
21,245
30,046
15,188 106 31,073 23,296
1,041,808
Total
Governmental
Funds
929,841
570,469
324,273
406,624
404,050
334,526
379,256
331,380
193,680
130,266
812,175
335,762
122,143
353,517
69,650
172,928
179,939
6,050,479
14 - - 306,081 2.043,557
502 128,769
6,785 2,066,979
73,584 269,393
93,298 518,501
81,238 93,525
483,493 483,493
- 915 5,410
317,499 67,854 395,216
518,078 - 73,487 599,395
533,897 - 31,720 568,156
14 1,051,975 317,499 1,218,957 7,172,394
60,626 (461,407) (284,382) (177,149) (1,121.915)
23
Exhibit 4 - Concluded
CITY OF CHICAGO, ILLINOIS
STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS Year Ended December 31, 2014 (Amounts are in Thousands of Dollars)
Federal, State and Local
General Grants
Special Taxing Areas
Other Financing Sources (Uses):
Issuance of Debt $ - $ 17,168 $
Premium ...
Payment to Refunded Bond Escrow Agent
Transfers In 39,700 - 97,513
Transfers Out (10,081) (44,463)
Total Other Financing Sources (Uses) 29,619 17,168 53,050
Net Changes in Fund Balance (25,489) 61,351 (195,628)
Fund Balance, Beginning of Year 167,057 (286,396) 1,522,686
Change in Inventory (290) - -
Fund Balance, End of Year $ 141,278 $ (225,045) $ 1,327,058
See notes to basic financial statements.
24
Service Concession Agreements and Reserve
Bond, Note Redemption and Interest
Community Development
and Improvement Projects
Nonmajor Governmental Funds
Total Governmental Funds
$ 328,471 $ 535,240 $ 123,468 $ 1,004,347
9,995 5,208 2,262 17,465
(302,862) - - (302,862)
5,000 366,198 7,004 137,171 652,586
(13,900) (164,268) (279,009) (140,865) (652,586)
(8,900) 237,534 268,443 122,036 718,950
51,726 (223,873) (15,939) (55,113) (402,965)
(1,007,128) 197,001 363,591 269,780 1,226,591
; : -_ (290)
(955,402) $ (26,872) $ 347,652 $ 214,667 $ 823,336
25
Exhibit 5
CITY OF CHICAGO, ILLINOIS
RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES Year Ended December 31, 2014 (Amounts are in Thousands of Dollars)
Amounts reported for governmental activities in the statement of activities are different from amounts reported for governmental funds in the statement of revenues, expenditures and changes in fund balances because:
Net change in fund balances - total governmental funds $ (402,965)
Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which capital outlays exceeded depreciation in the current
period 303,167
Revenues in the statement of activities that do not provide current financial
resources are not reported as revenues in the funds (155,112)
Bond proceeds provide current financial resources to governmental funds, but issuing debt increases long-term liabilities in the statement of net
assets. This is the amount by which proceeds exceeded repayments (115,625)
Certain expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as
expenditures in governmental funds (1,250,462)
Change in the net position of governmental activities $ (1,620,997)
See notes to basic financial statements.
26
Exhibit 6
CITY OF CHICAGO, ILLINOIS
STATEMENT OF REVENUES AND EXPENDITURES - BUDGET AND ACTUAL GENERAL FUND (BUDGETARY BASIS) Year Ended December 31, 2014 (Amounts are in Thousands of Dollars)
Original Budget
Revenues:
Utility Tax $ 450,274
Sales Tax 274,505
Transportation Tax 183,732
Transaction Tax 284,627
Recreation Tax 182,565
Business Tax 102,470
State Income Tax 293,700
State Sales Tax 322,272
State Auto Rental 4,100
Federal/State Grants 1,500
Internal Service 318,212
Licenses and Permits 131,668
Fines 414,680
Investment Income 4,725
Charges for Services 124,476
Municipal Utilities 6,656
Leases, Rentals and Sales 22,118
Miscellaneous 55,920
Budgeted Prior Years' Surplus
and Reappropriations 53,417
Transfers In/Out 58,608
Total Revenues 3,290,225
Expenditures: Current:
General Government 1,051,842
Health 28,127
Public Safety 1,960,557
Streets and Sanitation 196,446
Transportation 50,873
Debt Service:
Principal Retirement 1,830
Interest and Other Fiscal Charges 550
Total Expenditures 3,290,225
Revenues Over (Under) Expenditures ... $ -
Final Budget
450,274 274,505 183,732 284,627 182,565 102,470 293,700 322,272
4,100
1,500 318.212 131,668 414,680
4,725 124,476
6,656 22,118 55,920
53,417 58,608
3,290,225
1,051,842 28,127
1,960,557 196,446 50,873
1,830 550
3,290,225
Actual Amounts
473,496 285,773 185,076 316,201 193,680 104,829 278,031 334,526
4,175
2,335 305,716 119,940 338,329
1,573 134,593
7,257 24,127 66,493
45,472 39,700
3,261,322
958,216 26,229 2,037,661
189,909 46,927
1,830 550
3.261,322
Variance
23,222 11,268 1,344 31,574 11,115 2,359 (15,669) 12,254 75 835 (12,496) (11,728) (76,351) (3,152) 10,117 601 2,009 10,573
(7,945) (18,908)
(28,903)
93,626 1,898
(77,104) 6,537 3,946
28,903
See notes to basic financial statements.
Exhibit 7
CITY OF CHICAGO, ILLINOIS STATEMENT OF NET POSITION PROPRIETARY FUNDS December 31, 2014
(Amounts are in Thousands of Dollars)
Business-type Activities - Enterprise Funds
Major Funds
Chicago- Chicago-
Midway O'Hare
International International Chicago
Airport Airport Skyway
ASSETS AND DEFERRED OUTFLOWS CURRENT ASSETS:
Cash and Cash Equivalents $ 23,551
Investments 101.359
Accounts Receivable (Net of
Allowances) 159,613
Interest Receivable 163
Due from Other Funds 91,224
Inventories 21,192
Cash and Cash Equivalents - Restricted 12,596
Investments - Restricted 132,451
Interest Receivable - Restricted 599
Other Assets - Restricted
TOTAL CURRENT ASSETS 542,748
NONCURRENT ASSETS
Cash and Cash Equivalents - Restricted
Investments - Restricted 386,090
Interest Receivable - Restricted
Other Assets - Restricted
Due from Other Governments - Restricted
Other Assets 4,898
Property, Plant, and Equipment:
Land 5,083
Structures, Equipment and
Improvements 3,986,305
Accumulated Depreciation (966,834)
Construction Work in Progress 457,645
Total Property, Plant and Equipment 3,482,199
TOTAL NONCURRENT ASSETS: 3,873,187
TOTAL ASSETS 4,415,935
DEFERRED OUTFLOWS 129,229
TOTAL ASSETS and DEFERRED OUTFLOWS $ 4,545,164
676 481
5,632 $ 94,002
76,760 212 33,751
6,358 34,042
11,518
527
72,514
S 69,205 $ 41,974
91,339
29,416 616
21,247 103,473 541
$ 105,422 271,858
494,735
357,811
1,159
2,860 707,952
464,329 1,503,728 3,684 31,729 1,229 33,987
124,959
55,742 310,902 262 3,045
901
114,780
1,556,519 (519,551) 20,585 1,172,333
339,232 375 154,918 21,808 601,092 235,924 1,140 2,860 1,734,629
289,041
9,964
3,970
560
885,669
8,208,757 (2,973,903) 752,331 6,872,854
12,609
490,818 (233,547)
269,880 279,844
2,676,042 1,668,144 9,619,492 281,003
520,071 2,489,761 3,946 34,774 1,229 53,720
2,494,910 (495,953) 25,703
2,025,220 2,318,231
1,018,701
16,737,309 (5,189,788) 1,256,264
1,543,185 8,911,540
13,822,486
16,925,987
50,172
89,905
51,633
18,660,616
320,939
S 2,765,947 S 1,719.777 S 9,669,664 $ 281,003 S 18,981,555
See notes to basic financial statements.
Business-type Activities - Enterprise Funds
Major Funds
Water
LIABILITIES CURRENT LIABILITIES:
Voucher Warrants Payable $ 26,168
Due to Other Funds 20,130
Accrued and Other Liabilities 92,312
Unearned Revenue 22,411
Current Liabilities Payable From
Restricted Assets 144,321
TOTAL CURRENT LIABILITIES 305,342
NONCURRENT LIABILITIES: Revenue Bonds and
Commercial Paper Payable 2,456,933
Derivative Instrument Liability 98,106
Other 1,577
TOTAL NONCURRENT LIABILITIES 2,556,616
TOTAL LIABILITIES 2,861,958
DEFERRED INFLOWS
NET POSITION: Net Investement
in Capital Assets 1,393,968
Restricted Net Position:
Debt Service
Capital Projects 599
Passenger Facility Charges
Contractual Use Agreement
Air Development Fund
Customer Facility Charge
Other
Unrestricted Net Position 288,639
TOTAL NET POSITION $ 1,683,206
Chicago-O'Hare
Chicago Skyway
Chicago-Midway
Sewer
Total
110,388 104,026 132,933 144.227
836,290
4,242 $ 71,228 31,047 18,076
124,720
18,732 9,134 2,165 558
72,514
International International Airport Airport
140 15
61,106 $ 3,519 7,409 103,182
249,313
669,951
155
103,103
494,735
1,327.864
7,536,900
1,710,019 71,861
1,590,934 30,128 2,310
2,729 7,539,629 8,209,580
1,781,880 1,623,372
2,031,193 1,726,475
13.294,786 200,095 6,616 13,501,497
1,645,152
155 14,829,361
520,627
(115,080)
12,109 10,160 4,658 28,282
23,651 7,666 21,856
644,430
23,189 71,690 138,107 129,883 300,101 90,010 27,534 35,140
1,645,152
269,880
2,713,825
111,333
35,298 193,782 142,765 158.165 300,101 113,661
102,794
35,200 (1,185,755)
(1,634,184)
$ 734,754 $ (6,698) $ 1,460,084 $ (1,364,304) $ 2,507,042
See notes to basic financial statements.
Exhibit 8
CITY OF CHICAGO, ILLINOIS
STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION
PROPRIETARY FUNDS
Year Ended December 31, 2014
(Amounts are in Thousands of Dollars)
Business-type Activities - Enterprise Funds
Major Funds
Chicago- Chicago-
Midway O'Hare
International International Chicago
Water Sewer Airport Airport Skyway Total
Operating Revenues:
Charges for Services - Net S 670,559 $ 321,100 $ 83,455 $ 552,431 $ - $ 1,627,545
Rent - - 86,804 292,093 - 378,897
Other 22,075 1428 - - - 23,203
Total Operating Revenues 692,634 322,228 170,259 844,524 -_ 2,029,645
Operating Expenses:
Personnel Services 120,607 14,394 47,836 182,984 - 365,821
Contractual Services 55,664 3,336 23,255 88,143 - 170,398
Repairs and Maintenance 1,886 64.809 44,160 110,928 - 221,783
Commodities and Materials 22,089 .. 22,089
Depreciation and Amortization 57,949 36,701 46,163 218,211 10,314 369,338
General Fund Reimbursements 77,371 36,740 - - - 114,111
Other 21,105 - 14,345 112,952 - 148,402
Total Operating Expenses 356,671 155,980 175,759 713,218 10,314 1,411,942
Operating Income (Loss) 335,963 166,248 (5,500) 131,306 (10,314) 617,703
Nonoperaling Revenues (Expenses):
Investment Income (Loss) (515) 2,984 3,540 29,838 2 35,849
Interest Expense (98,762) (69,620) (64,111) (300,295) - (532,788)
Passenger Facility Charges - - 39,889 131,721 - 171,610
Customer Facility Charges - - 6,514 36,284 - 42,798
Noise Mitigation Costs - - (3,103) (15,892) - (18,995)
Cost of Issuance - - (5,258) (154) - (5,412)
Other (2,223) 829 1,522 30,845 18,457 49,430
Total Nonoperating Revenues
(Expenses) (101,500) (65,807) (21,007) (87,653) 18,459 (257,508)
Capital Grants 1,766 - 4,826 89,032 - 95,624
Net Income (Loss) 236,229 100,441 (21,681) 132,685 8,145 455,819
Nel Position (Deficit)-Beginning of Year . 1,446,977 634,313 14,983 1,327,399 (1,372,449) 2,051.223
Net Position (Deficit)-End of Year $ 1,683,206 S 734,754 $ (6,698) $ 1,460,084 $ (1,364,304) $ 2,507,042
See notes to basic financial statements
30
Exhibit 9
CITY OF CHICAGO, ILLINOIS STATEMENT OF CASH FLOWS PROPRIETARY FUNDS Year Ended December 31, 2014 (Amounts are in Thousands of Dollars)
Business-type Activities - Enterprise Funds
Major Funds
Cash Flows from Operating Activities-
Received from Customers
Payments to Vendors
Payments to Employees
Transactions with Other City Funds
Cash Flows Provided By
Operating Activities
Cash Flows from Capital and Related Financing Activities: Proceeds from Issuance of Bonds/
Commercial Paper
Acquisition and Construction of
Capital Assets
Capital Grant Receipts
Bond Issuance Costs
Payment to Refund Bonds
Principal Paid on Debt
Interest Paid
Passenger and Customer Facility Charges
Concessionaire Funds
Cash Flows (Used in) Provided By Capital
and Related Financing Activities
Cash Flows from Non Capital Financing Activities
Noise Mitigation Program
Proceeds from Settlement Agreement
Cash Flows Used in Non Capital
Financing Activities
Cash Flows from Investing Activities
Sale (Purchases) of Investments, Net ..
Investment Income (Loss)
Cash Flows Provided By (Used in)
Investing Activities
Net Inciease (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents, Beginning ol Year Cash and Cash Equivalents, End ol Year
Water
670,519 (80,663) (120,607) (143,903)
325,346
462,500
(334,191)
(3,146)
(43,633) (109,432)
(27,902)
(306,037)
8,209 _
(297,828) _
(384)
36,531 _
36.147 S
Sewer
310,970 (35.780) (43,617) (40,218)
191,355
338,026 (167.115)
(37,929) (69,860)
63,122
(213,388) 4,657
(208,731)
45.746 44,706
90,452
Chicago-Midway International Airport
5 164,849 (83,377) (39,295) (6,440)
35,737
972,038
(41,443) 4,894 (5,258) (797,008) (82,378) (59,237) 46,539
38,147
(2,609) 1,029
(1,580)
(111,577) 2,953
(108,624)
(36.320)
170,934 134.614
Chicago-O'Hare International Airport
i 842,353 (272,612) (167,248) (61,543)
340,950
43,380
(289,835) 88,942 (154)
(168,895) (368,370) 169,837
(525,095)
(15,892) 1,999
(13,893)
162,528 17,991
180,519
(17,519) 982,215
964,696 $
Total
$ 1,988,691 (472,432) (370,767) (252,104)
893,388
1,815.944
14
14
(832.584) 93,836 (8,558) (797,008) (332,835) (606,899) 216,376 14
(451,714)
(18,501) 3,028
(15,473)
(468,580) 33,812
(434,768)
(90) (8.557)
766 1,235,152 676 S 1,226,585
See notes lo basic financial slalemenls
Exhibit 9 - Concluded
CITY OF CHICAGO, ILLINOIS
STATEMENT OF CASH FLOWS
PROPRIETARY FUNDS
Year Ended December 31, 2014
(Amounts are in Thousands of Dollars)
Business-type Activities - Enterprise Funds
Major Funds
Chicago- Chicago-
Midway O'Hare
International International Chicago
Airport Airport Skyway
Reconciliation of Operating Income to Cash Flows from Operating Activities'
Operating Income (Loss) $ 335,963 $ 166,248 $ (5,500) $ 131,306 $ (10,314) $ 617,703
369,340 38,765
(81,554) (73,208)
1,728
19,120
1,494
Adjustments to Reconcile.
Depreciation and Amortization 57,949 36,701 46,164 218,212 10,314
Provision for Uncollectible Accounts 22.537 16,557 (329)
Change in Assets and Liabilities.
(Increase) Decrease in Receivables (45,813) (29,162) 3,739 (10,318)
(Increase) Decrease in Due From Other Funds (71,789) (2,489) 3.612 (2,542)
Increase (Decrease) in Voucher Warrants
Payable and Due to Other Funds 10,775 (1,541) (3,463) (4,043)
Increase (Decrease) in Unearned Revenue
and Other Liabilities 15,077 4.3B9 (8,492) 8,146
(Increase) Decrease in Inventories and
Other Assets 647 652 (3 189 :
Cash Flows from
Operating Activities $ 325,346 $ 191,355 $ 35,737 $ 340,950 $ - $ 893,388
Supplemental Disclosure of Noncash Items: Capital asset additions in 2014 have outstanding accounts payable
and accrued and other liabilities S 64,553 $ 54,611 $ 18,615 S 89,773 $ $ 227,552
See notes to basic financial statements.
32
Exhibit 10
CITY OF CHICAGO, ILLINOIS STATEMENT OF FIDUCIARY NET POSITION FIDUCIARY FUNDS December 31, 2014
(Amounts are in Thousands of Dollars)
Pension Trust Agency
ASSETS
Cash and Cash Equivalents $ 234,273 $ 53,202
Investments - 109,447
Investments, at Fair Value Bonds and U.S. Government
Obligations 2,426,669
Stocks 5,139,698
Mortgages and Real Estate 668,384
Other 1,862,939
Cash and Investments with
Escrow Agent - 6,437
Property Tax Receivable - 91,619
Accounts Receivable, Net 623,874 114,155
Due From City 51,519
Property, Plant, Equipment and other 570
Invested Securities Lending Collateral 906,189 -
Total Assets $ 11,914,115 $ 374,860
LIABILITIES
Voucher Warrants Payable $ 341,537 $ 37,534
Accrued and Other Liabilities - 259,623
Securities Lending Collateral 906,189 -
Total Liabilities 1,247,726 S 297,157
Deferred Inflows _$ 787 $ 77,703
Total Liabilities and Deferred Inflows $ 1,248,513 $ 374,860
NET POSITION
Restricted for Pension Benefits 10,665,602
Total Net Position $ 10,665,602
See notes to basic financial statements.
33
Exhibit 11
CITY OF CHICAGO, ILLINOIS
STATEMENT OF CHANGES IN PLAN NET POSITION FIDUCIARY FUNDS - PENSION TRUST FUNDS
Year Ended December 31, 2014 (Amounts are in Thousands of Dollars)
Total
ADDITIONS Contributions:
Employees $ 290,063
City 470,199
Total Contributions 760,262
Investment Income: Net Appreciation in
Fair Value of Investments 365,194
Interest, Dividends and Other 232,118
Investment Expense (50,906)
Net Investment Income 546,406
Securities Lending Transactions:
Securities Lending Income 2,711
Securities Lending Expense 1,075
Net Securities Lending Transactions 3,786
Total Additions 1,310,454
DEDUCTIONS
Benefits and Refunds of Deductions 1,888,392
Administrative and General 17,713
Total Deductions 1,906,105
Net Increase in Net Position (595,651)
Net Position:
Beginning of Year 11,261,253
End of Year $ 10,665,602
See notes to basic financial statements.
34
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
1) Summary of Significant Accounting Policies
The City of Chicago (City), incorporated in 1837, is a "home rule" unit under State of Illinois (State) law. The City has a mayor-council form of government. The Mayor is the Chief Executive Officer of the City and is elected by general election. The City Council is the legislative body and consists of 50 members, each representing one of the City's 50 wards. The members of the City Council are elected through popular vote by ward for four-year terms.
The accounting policies of the City are based upon accounting principles generally accepted in the United States of America as prescribed by the Governmental Accounting Standards Board (GASB). Effective January 1, 2014, the City adopted the following GASB Statements:
GASB Statement No. 67, Financial Reporting for Pension Plans, an amendment of GASB No. 25 ("GASB 67"), was established to provide improved financial reporting by state and local government pension plans. The Pension Plans (as defined below in subsection a) adopted GASB No. 67 during the year ended December 31, 2014.
GASB Statement No. 69, Government Combinations and Disposals of Government Operations ("GASB 69"), establishes accounting and financial reporting standards related to government combinations and disposals of government operations. The City adopted GASB 69 for the year ended December 31, 2014. GASB 69 requires disclosures to be made about government combinations and disposals of government operations to enable financial statement users to evaluate the nature and financial effects of those transactions. There was no impact on the City's Financial Statements as a result of the implementation of GASB 69.
GASB Statement No. 70, Accounting and Financial Reporting for Nonexchange Financial Guarantees ("GASB 70"), establishes accounting and financial reporting standards for financial guarantees that are nonexchange transactions (nonexchange financial guarantees) extended or received by a state or local government. The City adopted GASB 70 during the year ended December 31, 2014. GASB 70 requires a government that has issued an obligation guaranteed in a nonexchange transaction to report the obligation until legally released as an obligor. This Statement also requires a government that is required to repay a guarantor for making a payment on a guaranteed obligation or legally assuming the guaranteed obligation to continue to recognize a liability until legally released as an obligor. When a government is released as an obligor, the government should recognize revenue as a result of being relieved of the obligation. This Statement also provides additional guidance for intra-entily nonexchange financial guarantees involving blended component units and requires disclosures to be made about government combinations and disposals of government operations to enable financial statement users to evaluate the nature and financial effects of those transactions. There was no impact on the City's Financial Statements as a result of the implementation of GASB 70.
Other accounting standards that the City is currently reviewing for applicability and potential impact on the financial statements include:
GASB Statement No. 68, Accounting and Financial Reporting for Pensions ("GASB 68"), establishes new financial reporting requirements for most governments that provide their employees with pension benefits through these types of plans. GASB 68 will be effective for the City beginning with its year ending December 31, 2015. GASB 68 replaces the requirements of GASB Statement No. 27, Accounting for Pensions by State and Local Governmental Employers and GASB Statement No. 50, Pension Disclosures, as they relate to governments that provide pensions through pension plans administered as trusts or similar arrangements that meet certain criteria. GAS8 68 requires governments providing defined benefit pensions to recognize their long-term obligation for pension benefits as a liability for the first time, and to more comprehensively and comparably measure the annual costs of pension benefits. The Statement also enhances accountability and transparency through revised and new note disclosures and required supplementary information (RSI). As of December 31, 2014, the City reported a net pension obligation of $8.6 billion on the statement of nel position and disclosed within Note 11 a combined unfunded actuarial accrued liability for all of the pension plans of $19.7 billion in accordance with GASB Statement No. 27. During 2014, the Pension Plans (as defined below
35
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
in subsection a) implemented GASB Statement No. 67, Financial Reporting for Pension Plans - an amendment of GASB Statement No. 25. and disclosed a combined net pension liability of S20.1 billion. The City has not yet determined the impact, if any, GASB 68 will have on the enterprise fund financial statements.
GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date -an amendment of GASB Statement No. 68 ("GASB 71"), relates to amounts associated with contributions, if any. made by a state or local government employer or nonemployer contributing entity to a defined benefit pension plan after the measurement date of the government's beginning net pension liability. GASB 71 will be effective for the City beginning with its year ending December 31, 2015. This Statement amends paragraph 137 of Statement 68 to require that, at transition, a government recognize a beginning deferred outflow of resources for its pension contributions, if any, made subsequent to the measurement date of the beginning net pension liability and requires that beginning balances for other deferred outflows of resources and deferred inflows of resources related to pensions be reported at transition only if it is practical to determine all such amounts.
GASB Statement No. 72 Fair Value Measurement and Application ("GASB 72"), addresses accounting and financial reporting issues related to fair value measurements. GASB 72 will be effective for the City beginning with its year ending December 31, 2016. This Statement provides guidance for determining a fair value measurement for financial reporting purposes and the related disclosures. This Statement requires a government to use valuation techniques that are appropriate under the circumstances and for which sufficient data are available to measure fair value. This Statement establishes a hierarchy of inputs to valuation techniques used to measure fair value. This Statement also requires disclosures to be made about fair value measurements, the level of fair value hierarchy, and valuation techniques.
Reporting Entity - The City includes the Chicago Public Library. The financial statements for the City have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP), applicable to governmental units, as required by the Municipal Code of Chicago (Code).
The City's financial statements include the following legal entities as fiduciary trust funds:
The Municipal Employees' Annuity and Benefit Fund of Chicago is governed by a five-member board: three members are elected by plan participants and two are members ex-officio.
The Laborers' and Retirement Board Employees' Annuity and Benefit Fund of Chicago is governed by an eight-member board' two members are elected by plan participants, two are members ex-officio, two members are appointed by the City Department of Human Resources, one member is elected by retired plan participants and one member is elected by the local labor union.
The Policemen's Annuity and Benefit Fund of Chicago is governed by an eight-member board: four members are elected by plan participants and four are appointed by the Mayor.
The Firemen's Annuity and Benefit Fund of Chicago is governed by an eight-member board: four members are elected by plan participants and four are members ex-officio.
Financial statements for each of these four pension plans (collectively,"Pension Plans") may be obtained at the respective fund's office.
Related Organizations - City officials are responsible for appointing a voting majority of the members of the boards of other organizations, but the City's accountability for these organizations does not extend beyond making appointments and no financial accountability or fiscal dependency exists between the City and these organizations. Therefore, the Chicago Park District, Chicago Public Building Commission, Chicago Public Schools, Community College District No. 508, Chicago Housing Authority and the Chicago Transit Authority are deemed to be related organizations.
Government-wide and fund financial statements - The government-wide financial statements (i.e., the statement of net position and the statement of activities) report information on all of the nonfiduciary activities
36
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
of the government. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on user fees and charges for services.
The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identified with a specific function or segment. Program revenues include: 1) charges to customers or applicants who purchase, use or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate fund financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the fiduciary funds are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements.
c) Measurement focus, basis of accounting, and financial statement presentation - The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting as are the proprietary fund and fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met.
Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the City considers revenues to be available if they are collected within 90 days of the end of the current fiscal period with the exception of property tax revenue, which is recorded as deferred inflows unless taxes are received within 60 days subsequent to year-end. Licenses and permits, charges for services and miscellaneous revenues are not considered to be susceptible to accrual and are recorded as revenues when received in cash. All other revenue items are considered to be measurable and available only when cash is received by the City. Expenditures generally are recorded when a liability is incurred, as under accrual basis of accounting, except for interest and principal on long-term debt, the long-term portion of compensated absences, claims and judgments and pension obligations.
The City reports the following major governmental funds:
The General Fund is the City's primary operating fund. It accounts'for and reports all financial resources not accounted for and reported in another fund.
Federal, State and Local Grants Fund accounts for the expenditures for programs, which include general government, health, public safety, transportation, aviation, cultural and recreational, and capital outlays. The majority of revenues are provided by several agencies of the Federal government, departments of the Illinois State government and City resources.
Special Taxing Areas Fund accounts for expenditures for special area operations and maintenance and for redevelopment project costs as provided by tax levies on special areas.
Service Concession and Reserve Fund accounts for monies committed for mid and long term uses. The Mid-term portion is subject to appropriation for neighborhood human infrastructure programs, health, and other initiatives, whereas the Long-term portion is committed for future budgetary and credit rating stabilization. These reserves were created as a result of the Skyway Lease and Parking Meter System transactions. The deferred inflows result from long-term concession and lease transactions whose proceeds are recognized as revenue over the term of the agreements.
37
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
Bond, Note Redemption and Interest Fund accounts for the expenditures for principal and interest as provided by property tax, utility tax, sales tax, transportation tax, and investment income.
Community Development and Improvement Projects Funds account for proceeds of debt used to acquire property, finance construction, and finance authorized expenditures and supporting services for various activities.
Within the governmental fund types, fund balances are reported in one of the following classifications:
Nonspendable - includes amounts that cannot be spent because they are either: a) not in a spendable form; or b) legally or contractually required to be maintained intact.
Restricted - includes amounts that are restricted to specific purposes, that is, when constraints placed on the use of resources are either: a) externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments; or b) imposed by law through constitutional provisions or enabling legislation.
Committed - includes amounts constrained to specific purposes by a government itself, using its highest level of decision-making authority (i.e, City Council); to be reported as committed, amounts cannot be used for any other purpose unless the government takes the same highest-level action to remove or change the constraint. The City's highest level of decision-making authority is held by the City Council. The City Council passes Ordinances to commit their fund balances.
Assigned - includes amounts that are constrained by the City's intent to be used for specific purposes, but that are neither restricted nor committed. Intent is expressed by: a) the City Council itself; or b) a body or official to which the City Council has delegated the authority to assign amounts to be used for specific purposes. The Budget Director or Comptroller have authority to assign amounts related to certain legal obligations outside of the appropriation process within the General Fund. Within the other governmental fund types (special revenue, debt service, and capital projects) resources are assigned in accordance with the established fund purpose and approved appropriation. Residual fund balances in these fund types that are not restricted or committed are reported as assigned.
Unassigned - includes the residual fund balance that has not been restricted, committed, or assigned within the General Fund and deficit fund balances of other governmental funds.
The City reports the following major proprietary funds as business-type activities:
Water Fund accounts for the operations of the Chicago Water System (Water). The Water system purifies and provides Lake Michigan water for the City and 125 suburbs. The Water Fund operates two water treatment facilities and 12 pumping stations with a combined pumping capacity of 3,661 million gallons per day.
Sewer Fund accounts for the operations of the Wastewater Transmission System (Sewer). The Sewer system transports wastewater to the Metropolitan Water Reclamation District of Greater Chicago for processing and disposal. This service is provided for the residents and businesses of the City and certain suburban customers.
Chicago Midway International Airport Fund records operations of Chicago Midway International Airport (Midway) that provides regional travelers with access to airlines that generally specialize in low-cost, point-to-point, origin and destination passenger services. Midway Airport is conveniently located 10 miles from downtown Chicago.
Chicago-O'Hare International Airport Fund records operations of Chicago-O'Hare International Airport (O'Hare), the primary commercial airport for the City. The airlines servicing the airport operate out of four terminal buildings. Three domestic terminal buildings, having a total of 169 gates, serve domestic flights
38
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
and certain international departures. The International Terminal, having a total of 20 gates and five remote aircraft parking positions, serves the remaining international departures and all international arrivals requiring customs clearance.
Chicago Skyway Fund records operations of the Chicago Skyway (Skyway) which provides vehicle passage across the Calumet River, between the State of Indiana and the State of Illinois (State) through the operation of a tollway which consists of a 7.8-mile span connecting the Dan Ryan Expressway to the Indiana Toll Road. Facilities include a single toll plaza consisting of a central office, maintenance garage and toll collection area. In January 2005, the City entered into a long-term Concession and Lease Agreement of the Skyway, granting a private company the ability to operate and to collect toll revenue during the 99-year term of the agreement. The City received a one-time upfront payment of $1.83 billion.
Additionally, the City reports the following fiduciary funds:
Pension Trust Funds report expenditures for employee pensions as provided by employee and employer contributions and investment earnings.
Agency Funds account for transactions for assets held by the City as agent for certain activities or for various entities. Payroll deductions and special deposits are the primary transactions accounted for in these funds.
As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are payment-in-lieu of taxes and other charges between the City's water, sewer, airports and skyway funds. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned.
Amounts reported as program revenues include: 1) charges to customers or applicants for goods and services, or privileges provided, or fines, 2) operating grants and contributions, and 3) capital grants and contributions, including special assessments. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes.
Certain indirect costs have been included as part of the program expenses reported for the various functional activities.
In the fund financial statements, proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the water and sewer funds are charges to customers for sales and services. The airport funds' principal operating revenues are derived from landing fees and terminal use charges as well as rents and concessions. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses.
When both restricted and unrestricted resources are available for use, it is the City's policy to use restricted resources first, then unrestricted resources, as they are needed.
The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates.
39
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
d) Assets, liabilities, deferred inflows, deferred outflows, and net position or equity
Cash, Cash Equivalents and Investments generally are held with the City Treasurer as required by the Code. Interest earned on pooled investments is allocated to participating funds based upon their average combined cash and investment balances. Due to contractual agreements or legal restrictions, the cash and investments of certain funds are segregated and earn and receive interest directly. The City uses separate escrow accounts in which certain tax revenues are deposited and held for payment of debt. The Code permits deposits only to City Council-approved depositories, which must be regularly organized state or national banks and federal and state savings and loan associations, located within the City, whose deposits are federally insured.
Investments authorized by the Code include interest-bearing general obligations of the City, State and U.S. Government; U.S. Treasury bills and other noninterest-bearing general obligations of the U.S. Government purchased in the open market below face value; domestic money market funds regulated and in good standing with the Securities and Exchange Commission and tax anticipation warrants issued by the City. The City is prohibited by ordinance from investing in derivatives, as defined, without City Council approval. The City values its investments at fair value or amortized cost. U.S. Government securities purchased at a price other than par with a maturity of less than one year are reported at amortized cost.
The City's four retirement plans are authorized to invest in bonds, notes, and other obligations of the U.S. Government; corporate debentures and obligations; insured mortgage notes and loans; common and preferred stocks; stock options; real estate; and other investment vehicles as set forth in the Illinois Compiled Statutes. These investments are reported at fair value.
Repurchase agreements can be purchased only from banks and certain other institutions authorized to do business in the State. The City Treasurer requires that securities that are pledged to secure these agreements have a fair value equal to the cost of the repurchase agreements plus accrued interest.
Investments generally may not have a maturity date in excess of ten years from the date of purchase. Certain other investments are held in accordance with the specific provisions of applicable ordinances.
Cash equivalents include certificates of deposit and other investments with maturities of three months or less when purchased.
Deficit cash balances result in interfund borrowings from the aggregate of funds other than escrowed funds. Interest income and expense are generally not recognized on these interfund borrowings.
State statutes and the City's Pension Plans' policies permit lending Pension Plan securities to broker-dealers and other entities with a simultaneous agreement to return the collateral for the same securities in the future. Securities lent at year-end for cash collateral are presented as not categorized in the schedule of custodial credit risk; securities lent for securities collateral are classified according to the category for the collateral.
Receivables and Payables activity between funds are representative of services rendered, outstanding at the end of the fiscal year, and are referred to as either "due to/from other funds" (i.e., the current portion of interfund loans) or "advances to/from other funds" (i.e., the noncurrent portion of interfund loans). Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide financial statements as "internal balances."
All trade and property tax receivables are shown net of an allowance for uncollectibles. The allowance is based on historical trends. The estimated value of services provided but unbilled at year-end has been included in receivables.
40
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
Inventory includes government-wide inventories, which are slated at cost determined principally, using the average cost method. For proprietary funds, the costs of inventories are recorded as expenses when used (consumption method). Governmental fund inventories are accounted for using the purchases method and represent nonspendable resources because they do not represent expendable available financial resources.
Assets Held for Resale includes land and buildings of $4.1 million, recorded at lower of cost or market in the Federal, State and Local Grant Funds. These assets are purchased through the use of federal grants and City resources and are intended to be resold.
Restricted Assets include certain proceeds of the City's enterprise fund revenue bonds, as well as certain resources set aside for their repayment. These assets are classified as restricted or committed in the basic financial statements because they are maintained in separate bank accounts and their use is limited by applicable bond covenants or specific City Council action.
The Water and Sewer funds maintain Rate Stabilization Accounts where any net revenues remaining after providing sufficient funds for all required deposits in the bond accounts may be transferred upon the direction of the City to be used for any lawful purpose of the specific fund.
The O'Hare and Midway funds maintain Passenger Facility Charge accounts as restricted as they are subject to Federal Aviation Administration regulation and approval, to finance specific eligible capital and debt related activities.
Capital Assets, which include property, plant, equipment, and infrastructure assets (e.g. roads, bridges, sidewalks, and similar items), are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Capital assets are defined by the City as assets, or a network of assets, with an initial cost of more than $5,000 (not rounded) and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation.
The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets' lives are not capitalized.
Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets of business-type activities is included as part of the capitalization value of the assets constructed. The total interest expense (Governmental and Business Activities) incurred by the City during the current fiscal year was $1,184.7 million, of which $83.8 million was capitalized as part of the capital assets under construction projects in proprietary funds.
Property, plant, and equipment of the City are depreciated using the straight-line method, in the year subsequent to acquisition or when placed into service, over the following estimated useful lives:
Utility plant
Utility structures and improvements
Buildings and improvements
Airport runways, aprons, tunnels, taxiways, and paved roads
Bridge infrastructure
Lighting infrastructure
Street infrastructure
Transit infrastructure
Equipment (vehicle, office, and computer)
25- 100 years 50- 100 years 15 - 40 years 5 - 30 years 10- 40 years
25 years 10- 25 years 40 years 5 - 20 years
41
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
The City has a collection of artwork and historical treasures presented for public exhibition and education that are being preserved for future generations. The proceeds from sales of any pieces of Ihe collection are used to purchase other acquisitions. A portion of this collection is not capitalized or depreciated as part of capital assets.
Deferred Outflows represent the fair value of derivative instruments that are deemed to be effective hedges and unamortized loss on bond refundings.
Employee Benefits are granted for vacation and sick leave, workers' compensation and health care. Unused vacation leave is accrued and may be partially carried over for one year. Sick leave is accumulated at the rate of one day for each month worked, up to a maximum of 200 days. Severance of employment terminates all rights to receive compensation for any unused sick leave. Sick leave pay is not accrued. Employee benefit claims outstanding, including claims incurred but not reported, are estimated and recorded in the government-wide and proprietary fund financial statements. A liability for these amounts is reported in governmental funds only if they have matured, for example, as a result of employee resignations and retirements.
Employees are eligible to defer a portion of their salaries until future years under the City's deferred compensation plan created in accordance with Internal Revenue Code Section 457. The deferred compensation is not available to employees until termination, retirement, death or unforeseeable emergency. Third-party administrators who maintain the investment portfolio administer the Plan. The plan's assets have been placed in trust accounts with the plan administrators for the exclusive benefit of participants and their beneficiaries and are not considered assets of the City.
The City is subject to the State of Illinois Unemployment Compensation Act and has elected the reimbursing employer option for providing unemployment insurance benefits for eligible former employees. Under this option, the City reimburses the State for claims paid by the State. Expenditures for workers' compensation are recorded when paid in the governmental funds. A liability for these amounts is recorded in the government-wide and proprietary fund financial statements.
Judgments and claims are included in the government-wide financial statements and proprietary fund types. Uninsured claim expenditures and liabilities are reported when it is probable that a loss has occurred and the amount of that loss can be reasonably estimated. These losses include an estimate of claims that have been incurred but not reported. In the fund financial statements, expenditures for judgments and claims are recorded on the basis of settlements reached or judgments entered within the current fiscal year. Amounts that related to deferred compensatory time and reserves for questioned costs are treated the same way.
Long-term obligations are included in the government-wide financial statements and proprietary fund types in the fund financial statements. Long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type statement of net position. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the related debt, except in the case of refunding debt transactions where the amortization period is over the term of the refunding or refunded debt, whichever is shorter.
The City enters into interest rate swap agreements to modify interest rates and/or cash flows on outstanding debt. For existing swaps, the net interest expenditures resulting from these arrangements are recorded as interest expense. The fair value of derivative instruments that are deemed to be effective is accounted for as deferred outflows. Derivative instruments that are deemed not effective are adjusted to fair value with the change in fair value recorded to investment earnings. Under certain bond ordinances adopted by the City Council, interest rate swaps and swaptions are authorized to be entered into by designated City officials in connection with certain bonds issued by the City For swaps related to O'Hare Bonds, airline approval is also required before entering into a swap agreement.
42
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
In the fund financial statements, governmental funds recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received and discounts given on debt issued are reported as other financing sources or uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as expenditures.
Certain debt obligations are to be paid from sales tax, motor fuel or special area taxes. Pension
The City's contributions to the four Pension Plans primarily serving City employees are set by State law. In recent years, the total contributions have been lower than the actuarially required amounts for the Plans, which has served to increase the Plans' unfunded actuarial accrued liabilities. Recurring cash inflows from all sources to the Plans (including City contributions, employee contributions, and investment earnings) have been lower than the cash outlays of the Plans in some recent years. As a result, the Plans have liquidated investments and used assets of the Plans to satisfy their respective current payment obligations in those years. The use of assets by the Plans for these purposes reduces the amount of assets on hand to pay benefits or earn investment returns in the future.
Current State law for the Policemen's and Firemen's Plans, known as Public Act 96-1495 (P.A. 96-1495), requires the City to significantly increase contributions to those Plans beginning in 2016. In each year, the City must contribute the amount needed for each Plan to achieve a 90% Funded Ratio by the end of 2040. Under the enacted State legislation for the Municipal Employees' and Laborers' Plans, known as Public Act 98-641 (P.A. 98-641), the City is required to significantly increase contributions to those two Plans beginning in 2016. During the period 2016 through 2020, the City's contributions to the Municipal Employees' and Laborers' Plans increase by statutorily determined amounts which are not based on actuarial calculations. Beginning in 2021, P.A. 98-641 requires the City to contribute in each year to the Municipal Employees' and Laborers' Plans the amount needed for each Plan to achieve a 90% Funded Ratio by the end of 2055. P.A. 98-641 also makes certain modifications to the automatic annual increases paid to retirees and requires increases in employee contributions toward the cost of their retirement benefits. P.A. 98-641 is currently subject to challenge in a lawsuit alleging its unconstitutionality.
Senate Bill 777 ("SB 777"), an amendment to P.A. 96-1495, passed both houses of the Illinois General Assembly as of May 31, 2015. SB 777 institutes a Phase-in Period until 2020 and a Revised Amortization Period to 2055. A Revised Amortization Period would reduce the annual funding obligation required to reach a 90% Funded Ratio, but extend the number of years over which such payments would need to be made. Enactment of a Phase-in Period would reduce the City's required payment in the initial years to allow for a more gradual phase-in of the requirements of P.A. 96-1495. Although SB 777 has passed both chambers of the Illinois General Assembly, a motion to reconsider the vote on SB 777 has been filed in the Illinois Senate, and accordingly, SB 777 has not been sent to the Governor for consideration. The City makes no representation as to whether SB 777 will be enacted.
Liquidity
The City's general obligation bonds, sales tax revenue bonds and motor fuel tax revenue bonds were downgraded by Moody's, Standard & Poor's and Fitch Ratings in May 2015. Moody's cited in its rating action the Illinois Supreme Court's decision on May 8, 2015, which found the State Pension Reform Act unconstitutional, as limiting the City's options for addressing its unfunded pension liabilities. Moody's downgraded the City's general obligation, sales tax revenue and motor fuel tax revenue credits to Ba1. Moody's indicated that further downgrades could follow upon the occurrence of any of the following: (a) a determination by a court of law that P.A. 98-641 is unconstitutional; (b) continued growth in the debt and/or unfunded pension liabilities of the City and overlapping governments; and (c) narrowing of the City's fund balances and liquidity. At the same time, Moody's downgraded the City's Water senior hen revenue bonds from A2 to Baal, the Water second hen revenue bonds from A3 to Baa2 and the City's Wastewater senior lien bonds from A3 to Baa2 and the Wastewater second lien revenue bonds from Baal to Baa3, each with a negative outlook.
43
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
In May 2015, Standard and Poor's downgraded the rating of the City's general obligation bonds to A-from A+, Water senior lien and Wastewater senior lien revenue bonds to A from AA, and Water second lien revenue bonds and Wastewater second lien revenue bonds to A- from AA-.
In May 2015, Fitch Ratings downgraded the rating of the City's general obligation bonds and sales tax revenue bonds to BBB+ from A-.
The rating actions by Standard & Poor's and Fitch, in part, cited the Moody's rating action and the resulting uncertainty regarding the City's liquidity position.
Due to the Moody's downgrade of the City's general obligation credit to Ba1 (below investment grade) from Baa2, an event of default was triggered under credit agreements the City had entered into with certain banks to provide letters of credit supporting the City's general obligation debt (including the general obligation variable rate demand bonds) and to provide letters of credit or revolving lines of credit for the City's general obligation commercial paper notes and line of credit facilities, which consisted of general obligation revolving lines of credit from four banks and two series of general obligation commercial paper notes (one series backed by a letter of credit from Wells Fargo Bank and the other series backed by a letter of credit from Bank of Montreal). Upon the event of default, the banks providing letters of credit for the general obligation debt as well as the banks supporting the commercial paper/line of credit program had the right to demand immediate repayment of amounts owed under their credit agreements. The Moody's downgrade also resulted in a termination event under the City's existing interest rate swaps on its general obligation variable rate bonds; pursuant to those swap agreements, the swap counterparties had the right to set an early termination date for the swaps and demand a termination payment from the City.
Shortly after the Moody's downgrades and resulting event of default/termination event, the City terminated the letter of credit from Wells Fargo Bank; there were no commercial paper notes outstanding secured by that letter of credit. With respect to the other banks supporting the commercial paper/line of credit program, the banks providing letters of credit for the City's general obligation debt, and the counterparties on the interest rate swaps for its general obligation variable rate bonds, the City entered into forbearance agreements pursuant to which the affected banks agreed to temporarily forbear from exercising their respective rights resulting from the event of default/termination event. In May and June 2015, the City converted ($674 million) and/or redeemed ($132 million) all of its general obligation variable rate bonds and converted sales tax variable rate revenue bonds ($112 million) to long-term fixed rate bonds and terminated the associated letters of credit and interest rate swaps (termination payment of $221 million) for those bonds. For the agreements with the banks supporting the commercial paper/line of credit program, the forbearance agreements ($849 million) extend to September 30, 2015, but can terminate earlier if: (i) there are any other events of default by the City under the related credit agreements, (ii) there are further downgrades of the rating on the City's general obligation bonds, or (iii) the forbearance period in one of the other forbearance agreements terminates prior to its scheduled end date. The City plans to issue long-term general obligation fixed rate bonds in mid-2015 to repay most of the outstanding amounts under the commercial paper/line of credit program.
With respect to the City's Series 2000 and Series 2004 Water Second Lien Revenue Bonds, the downgrades triggered defaults under certain credit and/or liquidity facilities, and for the Series 2008C Wastewater Second Lien Revenue Bonds, certain continuing covenant agreements with those bondholders. The Moody's downgrades also triggered termination events under interest rate swap agreements relating to these bonds. In response to the triggering of these defaults and termination events, the City entered into forbearance agreements with the holders of its Series 2008C Wastewater Second Lien Revenue Bonds ($332 million) to June 30, 2016; and amended and/or transferred the interest rate swap agreements for its Water Second Lien Revenue Bonds (estimated termination value of $125 million) and its Wastewater Second Lien Revenue Bonds (estimated termination value of $75 million) to remove such termination event from the swap agreements prior to any demand being made for a termination payment by the counterparties; and obtained a waiver of the event of default from the provider of a letter of credit relating to the Series 2000 Water Second Lien Revenue Bonds. With respect
44
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31. 2014
to the forbearance agreements with the holders of the Series 2008C Wastewater Second Lien Revenue Bonds, the forbearance period under each of those forbearance agreements extends to June 30, 2016, but can terminate earlier if: (i) there are any other events of default by the City under the related continuing covenant agreements, (ii) there are further downgrades of the rating on the Wastewater Second Lien Bonds, or (iii) the forbearance period in one of the other forbearance agreements for the Wastewater Second Lien Bonds terminates prior to its scheduled end date. With respect to the Series 2008C Water and Wastewater swap agreements, a ratings downgrade below Baa3 on the Second Lien Revenue Bonds for each of the respective credits would trigger a termination event with respect to the related swap agreement. With respect to the Water credit and/or liquidity facilities, a ratings downgrade below Baa3 on the Water Second Lien Revenue Bonds would trigger an event of default.
The City believes its expected revenues along with current assets are sufficient to fund its operations on a continuing basis, through 2015 and beyond, notwithstanding the City's plans to issue additional bonds in 2015.
Deferred inflows represent amounts to be recognized as revenue on a straight line basis over the life of the related long-term lease and concession agreements. In the fund financials, grants that meet all of the eligibility criteria except for time availability and property taxes levied for a future period are also included in deferred inflows.
Fund equity in the government-wide statements is classified as net position and displayed in three components:
Net investement in capital assets - Consists of capital assets including restricted capital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds, mortgages, notes or any other borrowings that are attributable to the acquisition, construction, or improvement of those assets.
Restricted net position - Consists of net position with constraints placed on the use either by external groups such as creditors, grantors, contributors, or laws or regulations of other governments, or are legally restricted through constitutional provisions or enabling legislation.
Restricted net position for business activities are provided in Exhibit 7, Statement of Net Position, Proprietary Funds.
Unrestricted - All other net positions that do not meet the definition of "restricted" or "net investement in capital assets."
2) Reconciliation of Government-wide and Fund Financial Statements
a) Explanation of certain differences between the governmental funds balance sheet and the government-wide statement of net position.
i) The governmental funds balance sheet includes a reconciliation between fund balance - total governmental funds and nel position - governmental activities as reported in the government-wide statement of net position. One element of that reconciliation explains that "Other long-term assets are not available to pay for current-period expenditures and therefore are deferred in the funds." The details of this $1,242.8 million are as follows (dollars in thousands):
45
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
Deferred inflows - property tax $ 983,616
Deferred inflows - grants 259,140
Net adjustment to increase fund balance - total governmental funds - to arrive at net position -
governmental activities $ 1,242,756
ii) Another element of that reconciliation explains that "Certain liabilities and deferred outflows, including bonds payable, are not due and payable in the current period and therefore are not reported in the funds." The details of this $19,390.5 million are as follows (dollars in thousands):
Long-term liabilities:
Total bonds, notes and certificates payable $ 9,606,475
Pension and other postemployment benefits 8,884,304
Lease obligation 116,858
Pollution remediation 8,532
Claims and judgments 900,616
Total Long-term liabilities 19,516,785
Accounts payable - infrastructure retainage 15,272
Bonds, notes and other obligations payable current (86,059)
Other assets - issuance costs (bond insurance) (16,033)
Deferred outflows-unamortized loss on refunding (158,102)
Accrued interest 2,330
Derivative instrument liability 25,538
Accrued and other liabilities - compensated absences 90,860
Net adjustment to reduce fund balance - total governmental funds - to arrive at net position -
governmental activities $ 19,390,591
b) Explanation of cerlain differences between the governmental funds' statement of revenues, expenditures, and changes in fund balances and the government-wide statement of activities.
i) The governmental funds statement of revenues, expenditures, and changes in fund balances includes a reconciliation between net changes in fund balances - total governmental funds and changes in net position - governmental activities as reported in the government-wide statement of activities. One element of that reconciliation explains that "Governmental funds report capital outlays as expenditures. However, in the statements of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense." The details of this $303.2 million are as follows (dollars in thousands):
Capitalized asset expenditures $ 656,672
Donated assets 14,476
Depreciation expense (367,845)
Loss - disposal of equipment (136)
Net adjustment to increase net changes in fund balances - total governmental funds - to arrive at
changes in net position - governmental activities $ 303,167
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CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
ii) Another element of that reconciliation states that "Bond proceeds provide current financial resources to governmental funds, but issuing debt increases long-term liabilities in the statement of net position." The details of this decrease of $115.6 million are as follows (dollars in thousands):
Proceeds of debt $ (1,004,347)
Premium (17,465)
Payment of refunded bond escrow agent 302,862
Principal retirement 599,395
Interest expense 3,643
Cost of Issuance 287
Net adjustment to reduce net changes in fund balances - total governmental funds - to arrive at
changes in net position - governmental activities $ (115,625)
iii) Another element of that reconciliation states that "Certain expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds." The details of this decrease of $1,250.4 million are as follows (dollars in thousands):
Claims and judgments $ (20,849)
Pension and other post employment benefit liabilities (1,209,339)
Pollution remediation 66
Vacation (1,532)
Lease obligations (18,518)
Inventory (290)
Net adjustment to reduce net changes in fund balances - total governmental funds - to arrive at
changes in net position - governmental activities $ (1,250,462)
3) Stewardship, Compliance and Accountability
a) Annual Appropriation Budgets are established for the General Fund and the Vehicle Tax, Pension, Chicago Public Library and certain Miscellaneous, Special Events, Tourism and Festivals nonmajor Special Revenue Funds, on a non-GAAP budgetary basis:
Prior to November 15, the Mayor submits to the City Council a proposed budget of expenditures and the means of financing them for the next year.
The budget document is available for public inspection for at least ten days prior to passage of the annual appropriation ordinance by the City Council, which is also required to hold at least one public hearing.
Prior to January 1, the budget is legally enacted through passage of the appropriation ordinance.
Subsequent to the enactment of the appropriation ordinance, the City Council has the authority to make necessary adjustments to the budget, which results in a change in total or individual appropriations. The legal level of budgetary control is designated in the budget by object grouped by purpose except for the Motor Fuel Tax Fund, which is subsequently re-appropriated by project. A separate Motor Fuel Tax Fund Report demonstrates compliance with annual and project-length budgets required by the State. The
47
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
separately issued Supplement to the Comprehensive Annual Financial Report provides budgetary information for all other budgeted funds. Copies of this report are available upon request, v) All annual appropriations unused and unencumbered lapse at year-end. Encumbered appropriations are carried forward to the following year. Project-length financial plans are adopted for Capital Project Funds. Appropriations for Debt Service Funds are established by bond ordinance.
b) Reconciliation of GAAP Basis to Budgetary Basis - The City's budgetary basis of accounting used for budget vs. actual reporting differs from GAAP. For budgetary purposes, encumbrances are recorded as expenditures but are included in "Unassigned" fund balance for GAAP purposes. For budgetary purposes, proceeds of long-term debt and transfers in are classified as revenues. For budgetary purposes prior years' resources used to cover current year budgetary expenditures are recorded as revenues. For GAAP purposes, proceeds of long-term debt and transfers out are treated as other financing sources. Provision for doubtful account expenditures are not budgeted. A reconciliation of the different basis of revenue and expenditure recognition for the year ended December 31, 2014 is as follows (dollars in thousands):
General
Fund
Revenues, GAAP Basis $ 3,176,150
Add:
Transfers In 39,700
Prior Year's Surplus Utilized 45,472
Revenues, Budgetary Basis $ 3,261,322
Expenditures, GAAP Basis $ 3,231,258
Add:
Transfers Out 10,081
Encumbered in 2014 29,223
Deduct:
Payments on Prior Years' Encumbrances (6,943)
Provision for Doubtful Accounts and Other (2,297)
Expenditures, Budgetary Basis $ 3,261,322
c) Individual Fund Deficits include the Chicago Skyway Fund, an Enterprise Fund, which has a fund deficit of $1,364.3 million which management anticipates will be funded through recognition of deferred inflows. Midway International Airport Fund has a fund deficit of $6.7 million which will be funded through future revenues. Federal State and Local Grants, a governmental fund, has a deficit of $225.0 million and will be funded by the recognition of deferred grant inflows and unearned revenue. The Service Concession and Reserve Fund, a Special Revenue Fund, has a deficit fund balance of $955.4 million which will be funded through the recognition of deferred inflows. Also, the Bond, Note Redemption and Interest Fund has a deficit of $26.9 which will be funded through the issuance of General Obligation Bonds.
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CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
4) Restricted and Unrestricted Cash, Cash Equivalents and Investments
a) Investments As of December 31. 2014, the City had the following Investments (dollars in thousands):
Investment Type Investment Maturities (in Years)
More Than
Less Than 1 1-5 6-10 10 Total
City Funds
U.S. Agencies* $ 892,426 S 3.025,098 $ 172.590 $ 112,073 S 4.202,187
Commercial Paper 556.993 - - - 556.993
Corporate Bonds 73,420 182,564 120,707 73,998 450,689
Corporate Equities 910 - - - 910
Municipal Bonds 72,144 300,170 69,591 11,209 453,114
Certificates of Deposit and
Other Short-term 1.593,657 - - - 1,593,657
Total City Funds $ 3,189,550 $ 3,507,832 $ 362,888 $ 197.280 $ 7,257,550
•U.S. Agencies include investments in government-sponsored enterprises such as Federal National Mortgage Association, Federal Home Loan Banks, and Federal Home Loan Mortgage Corporation
Pension Trust Funds
U.S. and Foreign
Governmen! Agencies $ 293,168 $ 369.223 S 155,772 $ 467,811 $ 1,285,974
Corporate Bonds 861,112 465,027 394,251 321,362 2,041,752
Corporate Equities 5,629,900 - - - 5,629,900
Pooled Funds G6.143 22,339 - - 88,482
Real Estate 634,015 - - - 634,015
Secunties Received from
Secunties Lending 906,189 - - - 906,189
Venture Capital 435,340 - - - 435.340
Certificates of Deposit and
Other Short-lerm 178.686 - - - 178.686
Derivatives 787 - - - 787
Other 36.539 - - - 36,539
Total Pension Trust Funds S 9,041.879 $ 856,589 S 550.023 $ 789,173 $ 11,237,664
Total $ 12,231.429 S 4,364.421 $ 912.911 $ 986,453 $ 18.495,214
Interest Rate Risk - As a means of limiting its exposure to fair value losses arising from rising interest rates, the City's investment policy limits all securities so purchased, except tax anticipation warrants, municipal bonds, notes, commercial paper or other instruments representing a debt obligation of the City, and shall show on their face that they are fully payable as to principal and interest, where applicable, if any, within ten years from the date of purchase.
Credit Risk - The Code limits investments in commercial paper to banks whose senior obligations are rated in the top two rating categories by at least two national rating agencies and who are required to maintain such rating during the term of such investment. The Code also limits investments to domestic money market mutual funds regulated by, and in good standing with, the Securities and Exchange Commission. Certificates of Deposit are also limited by the Code to national banks which provide collateral of at least 105 percent by marketable U.S. government securities marked to market at least monthly; or secured by a corporate surety bond issued by an insurance company licensed to do business
49
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
in Illinois and having a claims-paying rating in the top rating category, as rated by a nationally recognized statistical rating organization maintaining such rating during the term of such investment. The following schedule summarizes the City's and Pension Trust Funds exposure to credit risk (in thousands):
Quality Rating City
Aaa/AAA $ 176,616
Aa/AA 4,150,011
A/A 252,722
Baa/BBB
Ba/BB
B/B
Caa/CCC
Ca
C/CC
DID
P1/A1 888,599
Not Rated* 1,789,602
Total Funds $ 7,257,550
Quality Rating
Aaa/AAA
Aa/AA
A/A
Baa/BBB
Ba/BB
B/B
Caa/CCC
Ca
C/CC
D/D
Not Rated
Other
Pension Trust Funds
$ 116,827
136,607
252,464
352,443
162,158
150,649
36,095
828
350
528
357,957
932,256
$ 2,499,162
* Not rated is primarily composed of money market mutual funds.
Custodial Credit Risk - Cash and Certificates of Deposit: This is the risk that in the event of a bank failure, the City's deposits may not be returned. The City's Investment Policy states that in order to protect the City's deposits, depository institutions are to maintain collateral pledges on City deposits during the term of the deposit of at least 102 percent of marketable U.S. government, or approved securities or surety bonds, issued by top-rated insurers. Collateral is required as security whenever deposits exceed the insured limits of the FDIC. The bank balance of cash and certificates of deposit with the Cily's various municipal depositories was $318.2 million. 97.7 percent of the bank balance was either insured or collateralized with securities held by City agents in the City's name. $7.4 million was uncollateralized at December 31, 2014, and thus was subject to custodial credit risk.
Custodial Credit Risk - Investments: For an investment, this is the risk that, in the event of the failure of the counterparty, the City will not be able to recover the value of its investments or collateral securities that are in possession of an outside party. The City has no custodial credit risk exposure because investment securities are insured, registered and held by the City.
50
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
v) Foreign Currency Risk - In the case of the Pension Trust Funds, is the risk that changes in exchange rates will adversely affect the fair value of an investment or a deposit. The risk of loss is managed by limiting its exposure to fair value loss by requiring their international securities managers to maintain diversified portfolios. The following schedule summarizes the Pension Trust Funds' exposure to foreign currency risk (in
thousands):
Foreign Currency Risk
Australian dollar $ 62,870
Brazilian real 43,414
British pound 303,227
Canadian dollar 79,768
Chilean peso 2,666
Chinese yuan (1,493)
Columbian peso 1,941
Czech Republic koruna 2,661
Danish krone 21,222
Egyptian pound 434
European euro 394,560
Hong Kong dollar 185,487
Hungarian forint 832
Indian rupee 47,536
Indonesian rupiah 19,691
Japanese yen 317,654
Malaysian ringgit 7,704
Mexican peso 29,391
New Israeli shekel 9,136
New Romanian leu 377
New Taiwan dollar 30,860
New Zealand dollar 1,835
Nigeria Naira (34)
Norwegian krone 19,080
Pakistan rupee 302
Peruvian Nuevo Sol |910|Philippines peso 3,252
Polish zloty 3,122
Qatari riyal 610
Russian ruble 337
Singapore dollar 18,145
South African rand 40,395
South Korean won 58,148
Swedish krona 57,088
Swiss franc 101,272
Taiwan dollar 5,175
Thailand baht 14,232
Turkish lira 19,608
United Arab Emirates dirham... 4,333
Urguayan peso Uruguayo 466
Total Pension Trust Funds $ 1,907,307~
51
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
vi) The following schedule summarizes the cash and investments reported in the basic financial statements (dollars in thousands):
Per Note 4:
Investments - City $ 7,257,550
Investments - Pension Trust Funds 11,237,664
$ 18,495,214
Per Financial Statements:
Restricted Investments $ 3,324,414
Unrestricted Investments 1,835,373
Investments with Fiduciary Funds 10,207,137
Investments with Escrow Agent 417,522
Invested Securities Lending Collateral 906,189
Investments Included as Cash and Cash
Equivalents on the Statement of Net Position 1,804,579
$ 18,495,214
5) Property Tax
The City's property tax becomes lien on real property on January 1 of the year it is levied. The Cook County Assessor (Assessor) is responsible for the assessment of all taxable real property within Cook County (County), except for certain railroad property assessed directly by the State. The County Board has established a triennial cycle of reassessment in which one-third of the County will be reassessed each year on a repeating schedule established by the Assessor.
Property in the County is separated into fifteen classifications for assessment purposes. After the Assessor establishes the fair market value of a parcel of land, that value is multiplied by one of the classification percentages to arrive at the assessed valuation (Assessed Valuation) for that parcel. These percentages range from 10.0 percent for certain residential, commercial, and industrial property to 25.0 percent for other commercial and industrial property.
The Illinois Department of Revenue has the statutory responsibility of ensuring uniformity of real property assessments throughout the State. Each year, the Department of Revenue furnishes the county clerks with an adjustment factor to equalize the level of assessment among counties. This factor (Equalization Factor) is then applied to the Assessed Valuation to compute the valuation of property to which a tax rate will be applied (Equalized Assessed Valuation). The County Clerk adds the Equalized Assessed Valuation of all real property in the County to the valuation of property assessed directly by the State and subtracts total amounts of EAV in Tax Increment Financing Districts to arrive at the base amount (Tax Base) used in calculating the annual tax rates.
The County Clerk computes the annual tax rate by dividing the levy by the Tax Base and then computes the rate for each parcel of real property by aggregating the tax rates of all governmental units having jurisdiction over that particular parcel. The County Treasurer then issues the tax bills. Property taxes are deposited with the County Treasurer, who remits to the City its respective share of the collections. Taxes levied in one year become due and payable in two installments during the following year on March 1 and August 1 or 30 days from mailing of tax bills if later than July 1. The first installment is 55.0 percent of the prior year's tax bill. The second installment tax bill equals the total tax liability for the year minus the first installment tax bill amount.
The City Council has adopted an ordinance beginning in 1994, limiting the City's aggregate property tax levy to an amount equal to the prior year's aggregate property tax levy plus the lesser of (a) five percent or (b) the percentage increase in the annualized Consumer Price Index, based on Ihe ordinance. The ordinance provides an exception for that portion of any property tax debt service levy equal to the aggregate interest and principal payments on the City's general obligation bonds and notes during the 12-month period ended January 1, 1994, subject to annual increase in the manner described above for the aggregate levy, all as provided by the ordinance. Most general obligation bond levies approved after 2001 have also been excluded from this limit.
52
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
6) Interfund Balances and Transfers
The following balances at December 31, 2014 represent due from/to balances among al) funds (dollars in thousands):
Fund Type/Fund Due From Due To
Governmental Funds:
General $ 109,514 $ 276,805
Federal, State and Local Grants 10,059 296,159
Special Taxing Areas 423,933 11,682
Service Concession and Reserve 5,000 5,140
Bond, Note Redemption and Interest - 85,700
Community Development and Improvement Projects.. 97,053 56,996
Nonmajor Governmental Funds 79,210 94,698
Total Governmental Funds 724,769 827,180
Enterprise Funds:
Water 91,224 20,130
Sewer 29,416 71,228
Chicago Midway International Airport 527 9,134
Chicago-O'Hare International Airport 33,751 3,519
Chicago Skyway - 15
Total Enterprise Funds 154,918 104,026
Fiduciary activities:
Pension Trust 51,519 -
Total Fiduciary activities 51,519 -
Total $ 931,206 $ 931,206
The balances resulted from the time lag between the dates that (1) interfund goods and services are provided or
reimbursable expenditures occur, (2) transactions are recorded in the accounting system and (3) payments
between funds are made.
The following balances at December 31, 2014 represent interfund transfers among all funds (dollars in
thousands):
Fund Type/Fund Transfer In Transfer Out
Governmental Funds:
General $ 39,700 $ 10,081
Special Taxing Areas 97,513 44,463
Service Concession and Reserve 5,000 13,900
Bond, Note Redemption and Interest 366,198 164,268
Community Development and Improvement Projects.. 7,004 279,009
Nonmajor Governmental Funds 137,171 140,865
Total Governmental Funds $ 652.586 $ 652,586
Transfers are used to move revenues from the fund that the statute or budget requires to collect them to the fund that statute or budget requires to expend them and to move receipts restricted to debt service from the funds collecting the receipts to the debt service fund as debt service payments become due.
53
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
7) Capital Assets
a) Capital Assets activity for the year ended December 31,
Balance
January 1, 2014
Governmental activities:
1,392,613 30,749 260,192
Capital assets, not being depreciated:
Land $
Works of Art and Historical Collections
1,683,554
Construction in Progress
Total capital assets, not being depreciated
2,545,699 1,381,545 8,151,833
Capital assets, being depreciated:
Buildings and Other Improvements
Machinery and Equipment
12,079,077
Infrastructure
Total capital assets, being depreciated
877,695 1.155,690 3,735,664 5,769,049
6,310L028
Less accumulated depreciation for:
Buildings and Other Improvements
Machinery and Equipment
Infrastructure
Total accumulated depreciation
$ 7,993,582 $ 578,600 $ (291,008) $ 8,281,174
Total capital assets, being depreciated, net
Total governmental activities
Business-type activities:
1,016,635 1,207,828
Capital assets, not being depreciated:
Land $
2,224,463
Construction in Progress
Total capital assets, not being depreciated
15,138,127 682,588 15,820,715
Capital assets, being depreciated:
Buildings and Other Improvements
Machinery and Equipment
Total capital assets, being depreciated
4,486,528 346.314 4,832,842
10,987,873
Less accumulated depreciation for:
Buildings and Other Improvements
Machinery and Equipment
Total accumulated depreciation
$ 13,212,336 $ 1.187,851 $ (577,701) $ 13.822,486 $ 21,205,918 $ 1,766,451 $ (868,709) $ 22,103,660
Total capital assets, being depreciated, net
Total business-type activities
Total Capital Assets
54
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
b) Depreciation expense was charged to functions/programs of the City as follows (dollars in thousands):
Governmental activities:
General Government $ 44,735
Public Safety 27,464
Streets and Sanitation 14,936
Transportation 251,702
Health 955
Cultural and Recreational 28,053
Total Depreciation Expense - Governmental Activities $ 367,845
Business-type Activities:
Water $ 54,802
Sewer 34,061
Chicago Midway International Airport 46,044
Chicago-O'Hare International Airport 215,918
Chicago Skyway 10,202
Total Depreciation Expense - Business-type Activities $ 361,027
8) Leases
a) Operating Leases
The City leases building and office facilities under noncancelable operating leases. Total costs for such leases were approximately $13.6 million for the year ended December 31, 2014.
The future minimum lease payments for these leases are as follows (dollars in thousands):
$ 8,986
4,096
2,813
2,457
2,183
2020- 2024 7,196
2025 - 2029 336
2030 - 2034 254
2035- 2039 216
2040 - 2042 66
Total Future Rental Expense S 28,603
b) Capital Leases
During 2003, the City entered into lease and lease back agreements with third parties pertaining to 911 Center Qualified Technological Equipment (QTE), with a book value of $143.3 million at December 31, 2003. Under the QTE lease agreement, which provided certain cash and tax benefits to the third party, the City entered into a long-term lease for applicable assets back to the City under a sublease. Under the sublease, the City was required to make future minimum lease payments.
55
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
In June 2014, the City terminated the two lease/leaseback transactions relating to its 911 and 311 systems (QTE-1 and QTE-2). Under the termination agreements, the leases were terminated and the City regained unrestricted title to its 911 and 311 systems. Under the termination agreement relating to QTE-1, the City paid a gross amount of $1.0 million to Bank of America N.A. To terminate the QTE-2 transaction, the City made a net payment of $1.3 million to SMBC Leasing Investment LLC.
During 2005, the City entered into a sale and leaseback agreement with third parties pertaining to the City owned portion of a rapid transit line with a book value of $430.8 million at December 31, 2005. Under the lease agreement, which provides certain cash and tax benefits to the third party, the City entered into a long-term lease for applicable assets back to the City under a lease. Under the lease, the City is required to make future minimum lease payments.
The future minimum payments for this lease are as follows (dollars in thousands):
Year Ending Total
December 31,
$
9,000
9,000
18,977
3,003
2020-2024 15,016
2025 - 2029 2,000
2030 - 2032 165,164
Total Minimum Future Lease Payments 222,160
Less Interest 105,302
Present Value of Minimum
Future Lease Payments $ 116,858
c) Lease Receivables
Most of the O'Hare land, buildings and terminal space are leased under operating lease agreements to airlines and other tenants. The following is a schedule of the minimum future rental income on noncancelable operating leases as of December 31, 2014 (dollars in thousands):
$ 93,228
93,222
94,218
93,283
91,967
2020 - 2024 8,144
2025 - 2029 9,432
Total Minimum Future Rental Income $ 483,494
Contingent rentals that may be received under certain leases based on the tenants' revenues or fuel flow are not included in minimum future rental income. Rental income for O'Hare, consisting of all rental and concession revenues except ramp rentals and automobile parking, amounted to S418.5 million, including contingent rentals of $89.0 million.
56
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
Most of the Midway land and terminal space is leased under operating lease agreements to airlines and other tenants. The following is a schedule of the minimum future rental income on noncancelable operating leases as of December 31, 2014 (dollars in thousands):
2015 $ 48,634
2016 48,171
26,763
26,609
26,609
2020-2024 133,045
2025 - 2029 133,045
Total Minimum Future Rental Income $ 442,876
Contingent rentals that may be received under certain leases based on tenants' revenues are not included in minimum future rental income. Rental income for Midway, consisting of all rental and concession revenues except aircraft parking fees and certain departure fees (turns) and automobile parking, amounted to $92.9 million, including contingent rentals of $39.6 million.
9) Short-term Debt
Matured bonds represent principal due on coupon bonds in which the coupons have not been presented for payment. As of December 31, 2014, the outstanding balance was at $0.7 million.
Line of Credit and Commercial Paper Notes The City issues commercial paper notes and maintains revolving lines of credit for working capital in anticipation of receipt of other revenue and to fund capital projects, debt refinancing or restructuring; the latter are typically repaid from proceeds of later issuances of general obligation bonds. Historically, the commercial paper notes have been supported by underlying letters of credit that extend beyond one year from the date of the financial statements and the lines of credit have also extended beyond one year from the date of the financial statements. Thus, the outstanding amounts at December 31 have been historically recorded as long-term debt.
Due to the Moody's downgrade of the City's general obligation credit in May 2015, see Note 17, an event of default was triggered under each of the revolving credit agreements and the letter of credit reimbursement agreements for the commercial paper notes. Subsequent to December 31, 2014 the City terminated the letter of credit from Wells Fargo Bank; no commercial paper notes secured by that letter of credit were then outstanding. For the remaining banks, the City entered into forbearance agreements pursuant to which the affected banks agreed to forbear from exercising their respective rights resulting from the event of default. The forbearance period under each of the forbearance agreements extends to September 30, 2015, but can terminate earlier if: (i) there are any other events of default by the City under the related credit agreements, (ii) there are further downgrades of the rating on the City's general obligation bonds, or (iii) the forbearance period in one of the other forbearance agreements terminates prior to its scheduled end date. As the forbearance period with respect to the credit agreements and the underlying letter of credit associated with the outstanding commercial paper notes is less than one year from the date of the financial statements, the outstanding general obligation commercial paper notes and lines of credit at December 31, 2014 have been recorded as fund liabilities in the fund financials, as follows (dollars in thousands):
Outstanding
Type Fund at 12/31/14
Line of Credit Community Development and Improvement Projects $75,000
Commercial Paper Community Development and Improvement Projects 2,800 Commercial Paper Bond, Note Redemption and Interest 198,086 Commercial Paper Other Governmental Funds 21,423 Total $297,309
57
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
10) Long-term Obligations
a) Long-term Debt activity for the year ended December 31, 2014 was as follows (in thousands):
Amounts
Balance Balance Due
January 1, December 31, within
2014* Additions Reductions 2014 One Year
Governmental activities: Bonds and notes payable:
General obligation debt $ 7,730,178 S 883,420 $ 278,092 $ 8,335,506 $ 100,094
Taxincrement 88,397 33,410 47,412 74,395 9,035
Revenue 753,162 123,063 132,430 743,795 18,400
8,571,737 1,039,893 457,934 9,153.696 127,529
Add unamortized premium 160,014 17,465 22,712 154,767
Add accretion of capital appreciation bonds 293,789 32,595 28,372 298.012 22.213
Total bonds, notes and certificates payable 9,025.540 1,089,953 509,018 9,606,475 149,742
Other liabilities:
Pension and other postemployment
benefits obligations 7,589,929 1,340,753 46,378 8,884,304
Lease obligations 171,674 20,805 75,621 116,858
Pollution Remediation 8,598 - 66 8,532
Claims and judgments 879,768 170,356 149,508 900.616 164,940
Total other liabilities 8,649,969 1,531,914 271.573 9,910,310 164,940
Total governmental activities $ 17,675,509 $ 2,621,867 $ 780,591 $ 19,516,785 $ 314,682
Business-type activities:
Revenue bonds and notes payable:
Water $ 1,996,858 $ 428,889 $ 43,976 $ 2,381,771 $ 51,535
Sewer 1,369,459 307,405 37,929 1.638,935 39,837
Chicago-O'Hare International Airport 7,665,205 31,026 168,895 7,527,336 189,605
Chicago Midway International Airport 1,495,008 896,520 867,938 1,523.590 17,265
12,526,530 1,663.840 1,118,738 13,071,632 298,242
Add unamortized premium 330,022 149,885 37,648 442,259
Add accretion of capital appreciation bonds 89,158 8,720 9,170 88,708 9,571
Total business-type activities 5 12.945.710 $ 1.822,445 $ 1,165,556 $ 13,602,599 $ 307,813
Total long-term obligations 5 30,621,219 $ 4,444,312 $ 1,946,147 $ 33,119,384 $ 622,495
* Commercial Paper and Line of Credit are no longer included due to reclassification as short term debt.
The Pension obligation liability will be liquidated through a Special Revenue Fund (Pension Fund) as provided by tax levy and State Personal Property Replacement Tax revenues.
58
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
b) Issuance of New Debt
General Obligation Bonds
General Obligation Bonds, Project and Refunding Series 2014A ($432.6 million), and Taxable Project and Refunding Series 2014B ($450.8 million) were sold at a premium in March 2014. The bonds have interest rates ranging from 4.0 percent to 6.314 percent and maturity dates from January 1, 2018 to January 1, 2044. Net proceeds of $881.6 million will be used to finance infrastructure improvements; transportation improvements; grants or loans to assist not-for-profit organizations or educational or cultural institutions; or to assist other municipal corporations or units of local government, or school districts; cash flow needs of the City; acquisition of personal property; acquisition, demolition, remediation or improvement of real property for industrial, commercial or residential purposes; constructing, equipping, altering and repairing various municipal facilities including fire stations, police stations, libraries, senior and health centers and other municipal facilities; enhancement of economic development within the City by making grants or deposits to secure obligations of not-for-profit or for-profit organizations doing or seeking to do business in the City; litigation judgments or settlements agreements involving the City, including escrow accounts or other reserves needed for such purposes; payments of certain pension contributions; repayment of Commercial Paper Notes and Lines of Credit; providing for facilities, services and equipment to protect and enhance public safety, and other uses permitted by the Ordinance ($628.0 million), to refund certain maturities of bonds outstanding ($185.2 million), and to fund capitalized interest ($68.3 million). The current refunding of the bonds increased the City's total debt service payments by $217.8 million, resulted in a net economic loss of approximately $13.5 million and a book loss of approximately $7.9 million.
Motor Fuel Tax Revenue Bonds
Motor Fuel Tax Revenue Refunding Bonds, Series 2013 ($105.9 million) were sold at a premium in June 2014. The bonds have interest rates ranging from 2.0 percent to 5.0 percent and maturity dates from January 1, 2015 to January 1, 2033. Net proceeds of $114.7 million and prior bonds reserves of $2.9 million were used to advance refund all maturities of the outstanding Motor Fuel Tax Revenue Bonds, Series 2003 ($114.7 million) and fund the debt service reserve account ($2.9 million). The advance refunding of the bonds decreased the City's total debt service payments by $13.6 million and resulted in an economic gam of $9.9 million and a book loss of approximately $2.4 million.
Tax Increment Allocation Bonds
Tax Increment Allocation Revenue Refunding Bonds (Pilsen Redevelopment Project), Series 2014A ($17.3 million) and 2014B Taxable ($16.1 million) were sold at a premium in November 2014. The bonds have interest rates ranging from 0.95 percent to 5.0 percent and maturity dates from June 1, 2015 to June 1, 2022. Net proceeds of $35.0 million and prior bonds reserves of $5.1 million were used to refund all maturities of principal and interest outstanding on the Series 2004B Pilsen Bonds ($25.9 million), the Series 2004G Bonds for the Pilsen Redevelopment Project ($10.7 million) and fund the debt service reserve account ($3.5 million). The current refunding of the bonds decreased the City's total debt service payments by $7.9 million, resulted in a net economic gain of approximately $5.4 million and a book loss of approximately $1.1 million.
Revenue Loans
In June 2013, the City entered into a loan agreement with the United States Department of Transportation under the Transportation Infrastructure Finance and Innovation Act (TIFIA) program lo complete the Wacker Drive Reconstruction Project. The loan amount of $98.66 million will fund the Chicago Riverwalk along the main branch of the Chicago River. The interest rate is 3.33 percent and the final maturity of the loan is January 1, 2048. There have been loan disbursements made to the City in the total of $17.2 million as of December 31, 2014.
59
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
v) Enterprise Fund Revenue Bonds and Notes
In August 2013, the City entered into a loan agreement with the United States Department of Transportation under the Transportation Infrastructure Finance and Innovation Act (TIFIA) program to fund a portion of Consolidated Rental Car Facility at O'Hare, additions, extensions and improvements to the airport transit system (ATS) including the purchase of new ATS vehicles and certain public parking facilities. The loan amount of $288.1 million is subordinate to the O'Hare Customer Facility Charge Senior Lien Revenue Bonds, Series 2013. The interest rate is 3.86 percent and the final maturity of the loans is January 1, 2052. There were no loan disbursements made to the City as of December 31, 2014.
Chicago Midway International Airport Second Lien Revenue Bonds, Series 2014 A&B ($771.8 million) were sold at premium in June 2014. The bonds have interest rates ranging from 4.0 percent to 5.0 percent and maturity dates from January 1, 2019 to January 1, 2041. Net proceeds of $842.2 and other monies ($20.6 million) were used to finance the costs of certain Airport projects ($114.9 million), to refund certain maturities of bonds outstanding ($673.7 million), fund capitalized and debt service reserve ($16.5 million) and to repay the Commercial Paper notes ($57.7 million). The current refunding decreased the City's total debt service payments by $135.7 million, resulted in a net economic gain of approximately $69.2 million and a book loss of approximately $15.9 million.
Chicago Midway International Airport Second Lien Refunding Revenue Bonds, Series 2014C ($124.7) were sold in June 2014. The bonds were issued at a daily rate of 0.08 percent. The bonds have maturities of January 1, 2041 to January 1, 2044. Net proceeds of $124.4 million were used to refund certain maturities of bonds outstanding ($124.1 million). The current refunding resulted in a book loss of approximately of $0.6 million.
Second Lien Water Revenue Bonds, Series 2014 ($367.9 million) were sold at a premium in September 2014. The bonds have interest rates ranging from 3.0 percent to 5.0 percent and maturity dates from November 1, 2015 to November 1, 2044. Net proceeds of $400.0 million will be used to finance certain costs of improvements and extensions to the water system.
On May 27, 2014, a loan agreement was signed with the Illinois Environment Protection Agency to install water meters at residences throughout the City that are currently unmetered. In 2014 the Water Fund drew $6.5 million from this loan agreement. The loan has an interest rate of 2.295% with maturity dates from September 21, 2014 to March 21, 2034.
On August 5, 2013, a loan agreement was signed with the Illinois Environment Protection Agency to replace approximately 10 miles of damaged, undersized and leaking watermains located throughout the City with new 8-inch diameters watermain. In 2014 the Water Fund drew $39.4 million from this loan agreement. The loan has an interest rate of 1.93% with maturity dates from January 16, 2015 to July 16, 2034.
On September 19, 2013, a loan agreement was signed with the Illinois Environment Protection Agency to install water meters at residents throughout the City that are currently unmetered. Installations will be performed by a private contractor. Meters will be equipped with an AMR (Automatic Meter Reading) capabilities. In 2014 the Water Fund drew $15.0 million from this loan agreement. The loan has an interest rate of 1.93% with maturity dates from April 16, 2015 to October 16, 2034.
Second Lien Wastewater Transmission Revenue Bonds, Series 2014 ($292.4 million) were sold at a premium in September 2014. The bonds have interest rates ranging from 3.0 percent to 5.0 percent and maturity dates from January 1, 2016 to January 1, 2044. Net proceeds of $320.0 million will be used to finance certain costs of improvements and extensions to the wastewater system.
In 2014, the Sewer Fund drew $15.0 million from the Illinois Environment Protection Agency loan agreement line to replace existing sewer pipes throughout the city. The loan has an interest rate of 2.295 percent with maturity dates from March 4, 2015 to September 4, 2034.
60
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
In 2014, $31.0 million of Chicago O'Hare International Airport Commercial Paper Notes Series 2013 were issued. Outstanding O'Hare Commercial Paper Notes at December 31, 2014 were $51.0 million. The proceeds were used to finance portions of the cost of authorized airport projects.
In 2014, $30.0 million of Chicago Midway International Airport Commercial Notes Series 2013 were issued. The proceeds were used to finance portions of the costs of authorized airport projects.
c) Annual requirements listed below for each year include amounts payable January 1 of the following year. Bonds maturing and interest payable January 1, 2015 have been excluded because funds for their payment have been provided for. Annual requirements to amortize debt outstanding as of December 31, 2014 are as follows (dollars in thousands):
General Obligation Tax Increment
Year Ending Principal Interest Principal Interest
December 31,
$ 235,676 $ 438,328 $ 9,335 $ 3,272
251,072 428,190 10,640 2,795
274,537 417,278 11,795 2,306
287.152 405,157 16,010 1,757
296,244 392,075 6,020 960
2020-2024 1,554,715 1,780,488 16,195 1,392
2025-2029 1,532,769 1,452,485
2030-2034 1,790,238 1,025,642
2035-2039 1,277,419 554,626
2040-2043 772,425 94,623 - -
$8,272,247 $6,988,892 $ 69,995 $ 12,482
Revenue Business-type Activities
Year Ending Principal Interest Principal Interest
December 31,
2015 $ 18,170 $ 34,316 $ 314,322 $ 640,650
17,880 33,397 392,640 624,517
18,250 32,487 445,178 606,773
19,150 31,590 457,732 586,321
20,335 30,649 441,142 567,407
2020-2024 119,187 137,871 2,194,324 2,519,632
2025-2029 141,116 120,681 2,614,614 1,963,663
2030-2034 132,133 126,900 3,083,740 1,208,250
2035-2039 200,730 39,362 2,134,220 517,087
2040-2043 38,445 1.922 699,065 62,832
$ 725,396 $ 589,175 $12,776,977 $ 9,297,132
For the debt requirements calculated above, interest rates for fixed rate bonds debt range from 1.92 percent to 7.78 percent and interest on variable rate debt was calculated at the rate in effect or the effective rate of a related swap agreement, if applicable, as of December 31, 2014. Standby bond purchase agreements or letters of credit were issued by third party financial institutions that are expected to be financially capable of honoring their agreements.
The City's variable rate bonds may bear interest from time to time at a flexible rate, a daily rate, a weekly rate, an adjustable long rate, or the fixed rate as determined by the remarketing agent, in consultation with the City. An irrevocable letter of credit provides for the timely payment of principal and interest. In the event the bonds are put
61
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
back to the bank and not successfully remarketed, or if the letter of credit agreements expire without an extension or substitution, the bank bonds will convert to a term loan. There is no principal due on the potential term loans within the next fiscal year.
d) Derivatives
i) Interest Rate Swaps
(1) Objective of the swaps. In order to protect against the potential of rising interest rates and/or changes in cash flows, the City has entered into various separate interest rate swaps at a cost less than what the City would have paid to issue fixed-rate debt. The notional amounts related to bonds maturing on January 1, 2015 have been excluded in the following table because funds for their payment have been provided for.
Changes in Fair Value Classification Amount
Fair Value at December 31, 2014
Classification
Notional Amount
Governmental Activities
Hedges:
Deferred Outflow of
Deferred Outflow of
Interest Rate Swaps Resources $ (15,850) Resources $(158,328) $1,192,175
Investment Derivative Instruments:
Investment Investment
Interest Rate Swaps Income (4,821) Revenue (32,467) 363.700
Business-type Activities
Hedges:
Deferred Deferred
Outflow of Outflow of
Interest Rate Swaps Resources (50,998) Resources (200,095) 924,280
Total $ (390,890)
(2) Terms, fair values, and credit risk. The objective and terms, including the fair values and credit ratings, of the City's hedging derivative instruments outstanding as of December 31, 2014, are as follows. The notional amounts of the swaps match the principal amounts of the associated debt. The City's swap agreements contain scheduled reductions to outstanding notional amounts that are expected to approximately follow scheduled or anticipated reductions in the associated "bonds payable" category. The notional amounts related to bonds maturing on January 1, 2015 have been excluded below because funds for their payment have been provided for. Under the swaps on a net basis for each related series of bonds, the City pays the counterparty a fixed payment and receives a variable payment computed according to the London Interbank Offered Rate (LIBOR) and/or The Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Index. The terms as of December 31, 2014. are as follows (dollars in thousands):
62
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
Associated Bond Issue
Hedging Instruments Governmental Activities:
Notional Effective Amounts Date
Counter-Termi- party Fair nation Credit Values Date Rating
150.000 11/8/2007 Pay 3.9982% receive SIFMA 50.000 11/8/2007 Pay 3.9982% receive SIFMA 200,000 1/1/2014 Pay SIFMA, receive 72.5% of 1 Mo. LIBOR'
(43.370) 1/1/2042 A3/A (5,443) 8/1/2018 Baa2/A-(17,373) 1/1/2042 Aa3/AA-
155,953 8/17/2005 Pay 4.104% receive SIFMA 66,837 8/17/2005 Pay 4.104% receive SFMA
Pay SIFMA +.045% 100,000 1/1/2014 receive 72.5%ol 1 Mo. LIBOR' 61,395 1/1/2014 Pay SIFMA; receive 72 5% of 1 Mo LIBOR * 61,395 1/1/2014 Pay SIFMA; receive 72 5% of 1 Mo LIBOR *
Pay SIFMA+ .05% 207,880 1/1/2031 receive 72 5%of 1 Mo. LIBOR'
7/1/2020 Baal/A 1/1/2040 Aa3/A+
(6,096) 1/1/2031 Aa2/AA-
(3,343) 1/1/2031 A3/A
(3.343) 1/1/2031 A3/A
(6,028) 1/1/2040 A2/A
111,715 6/27/2002 Pay 4 23% receive 75.25%of 3 Mo. LIBOR
27,000 9/1/1999 Pay 5.084% receive 67% of 1 Mo. LIBOR
Business-type Activities: Chicago Midway International Airport Revenue Bonds (Series 2004C&D)..
84.405 12/14/2004 Pay 4.174% receive SIFMA Plus 05% 56,270 4/21/2011 Pay 4.247% receive SIFMA Plus 05%
(17,678) 1/1/2035 Baa1/A (12,450) 1/1/2035 Aa3/AA-
Wastewater Transmission Vanable Rale Revenue Bonds (Series 2008C).
Pay 3.886% receive95%of3 Mo LIBOR
(ifLIBORis<3%)or 232.560 1/3/2011 67% of 3 Mo LIBOR (if LIBOR is > 3%)
Pay 3 886% receive SIFMA 49,835 7/29/2004 (if LIBOR is < 3%) 49,835 7/29/2004 or 67% ol 1 Mo. LIBOR (if LIBOR is > 3%)
(11,472) (11,362)
(49,027) 1/1/2039 A3/A
1/1/2039 A2/A 1/1/2039 Aa3/A+
Water Variable Rate Revenue Refunding Bonds (Series 2004)
Second Lien Water Revenue Relinding Bonds (Series 2000)
173,345 8/5/2004 Pay 3.8694% receive 67%of1 Mo Libor (30,996) 11/1/2031 A2/A
(29,460) 11/1/2030 A2/A
182.230 8/5/2004 Pay3.8669% receive 67%of1 Mo Libor (37,650) 11/1/2031 Aa3/AA-
100,000 4/16/2008 Pay3.8694% receive67%of 1 Mo Libor
Investment Instruments Governmental Activities:
Pay 4.052%
136,385 8/7/2003 receive 66 91 % of 10 Yr USD ISDA Swap Rate (20,434) 1/1/2034 Aa3/AA-Pay 4 052%
45.465 8/7/2003 receive 66 91%of 10 Yr USD ISDA Swap Rate (6,755) 1/1/2034 Aa3/A+
Pay 66 91% of 10 Yr USD ISDA Swap Rate +
45.465 3/1/2014 .05% receive 75%of1 Mo LIBOR ' (1,361) 1/1/2019 A2/A
Pay 66 31 % of 10 Yr USD ISDA Swap Rale
136,385 11/1/2014 receive 75% of 1 Mo. LIBOR * (3,917) 1/1/2019 Aa2/AA-
See Table 31 in Statistical Section (or Coui See Footnote 18- Subsequent Events for Type and objective for all the Swaps is the * Reflects Swap Overlay agreement VRDB means vanable rate demand bonds
Total $(390,890)
nterparty Enhlies and additional details (or credit ratings swap terminations and amendments to agreements effective in 2015 same, as mentioned earlier.
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CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
Fair Value. As of December 31, 2014, the swaps had a negative fair value of $390.9 million. As per industry convention, the fair values of the City's outstanding swaps were estimated using the zero-coupon method. This method calculates the future net settlement payments required by the swap, assuming that the forward rates implied by the yield curve correctly anticipate future spot rates. These payments are then discounted using the spot rates implied by the current yield curve for hypothetical zero-coupon bonds due on the date of each future net settlement on the swap. Because interest rates are below the Fixed Rate Paid, the City's swaps had negative values. Note that the combination of the negative fair value of $390.9 million less the unamortized interest rate swap premium balance of $6.9 million related to investment derivative instruments and $34.9 million related to governmental cash flow hedges represent the total fair value of the derivative liability in the statement of net position. During 2014, the City terminated the swap associated with Series 2002B General Obligation Variable Rate Demand Bond (Neighborhoods Alive 21 Program); the termination payment amounted to $36.3 million.
Credit Risk. The City is exposed to credit risk (counterparty risk) through the counterparties with which it enters into agreements. If minimum credit rating requirements are not maintained, the counterparty is required to post collateral to a third party. This protects the City by mitigating the credit risk, and therefore the ability to pay a termination payment, inherent in a swap. Collateral on all swaps is to be in the form of cash or Eligible Collateral held by a third-party custodian. Upon credit events, the swaps also allow transfers, credit support, and termination if the counterparty is unable to meet the said credit requirements.
Basis Risk. Basis risk refers to the mismatch between the variable rate payments received on a swap contract and the interest payment actually owed on the bonds. The two significant components driving this risk are credit and SIFMA/LIBOR ratios. Credit may create basis risk because the City's bonds may trade differently than the swap index as a result of a credit change in the City. SIFMA/LIBOR ratios (or spreads) may create basis risk. With percentage of LIBOR swaps, if the City's bonds trade at a higher percentage of LIBOR over the index received on the swap, basis risk is created. This can occur due to many factors including, without limitation, changes in marginal tax rates, lax-exempt status of bonds, and supply and demand for variable rate bonds. The City is exposed to basis risk on all swaps except those that are based on Cost of Funds, which provide cash flows that mirror those of the underlying bonds. For all other swaps, if the rate paid on the bonds is higher than the rate received, the City is liable for the difference. The difference would need to be available on the debt service payment date and it would add additional underlying cost to the transaction.
Tax Risk. The swap exposes the City to tax risk or a permanent mismatch (shortfall) between the floating rate received on the swap and the variable rate paid on the underlying variable-rate bonds due to tax law changes such that the federal or state tax exemption of municipal debt is eliminated or its value reduced. There have been no tax law changes since the execution of the City's swap transactions.
Termination Risk. The risk that the swap could be terminated as a result of certain events including a ratings downgrade for the issuer or swap counterparty, covenant violation, bankruptcy, payment default or other defined events of default. Termination of a swap may result in a payment made by the issuer or to the issuer depending upon the market at the time of termination.
Rollover Risk. The risk that the City may be exposed to rising variable interest rates if (i) the swap expires or terminates prior to the maturity of the bonds and (ii) the City is unable to renew or replace the swap.
Swap payments and associated debt. Bonds maturing and interest payable January 1, 2015 have been excluded because funds for their payment have been provided for. As of December 31, 2014, debt service requirements of the City's outstanding variable-rate debt and net swap payments, assuming current interest rates remain the same, for their term are as follows (dollars in thousands):
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CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
Year Ending
December 31,
2015 $
2016
2017
2018
2019
2020 - 2024
2025 - 2029
2030 - 2034
2035 - 2039
2040 - 2042
Variable-Rate Bonds
Principal
31,965 51,365 53,750 59,865 58,410 413,660 300,625 418,560 235,900 43,535
Interest Rate Swaps, Net
$ 62,676 61,330 59,429 57,437 55,167 236,467 168,159 100,499 35,232 2,608
Total
98,842 116,910 117,196 121,112 117,170 665,021 478,202 524,803 272,636
46,163
$ 1,667,635 $ 51,416 $ 839,004 $ 2,558,055
e) Debt Covenants
Water Fund - The ordinances authorizing the issuance of outstanding Water Revenue Bonds provide for the creation of separate accounts into which net revenues, as defined, or proceeds are to be credited, as appropriate. The ordinances require that net revenues available for bonds, as adjusted, equal 120 percent of the current annual debt service on the outstanding senior lien bonds and that City management maintains all covenant reserve account balances at specified amounts. The above requirements were met at December 31, 2014. The Water Rate Stabilization account had a balance in restricted assets of $88.4 million at December 31, 2014.
The ordinances authorizing the issuance of outstanding Second Lien Water Revenue Bonds provide for the creation of separate accounts into which monies will be deposited, as appropriate. The ordinances require that net revenues are equal to the sum of the aggregate annual debt service requirements for the fiscal year of the outstanding senior lien bonds and 110 percent of the aggregate annual debt service requirements of the outstanding second lien bonds. This requirement was met at December 31, 2014.
Sewer Fund - The ordinances authorizing the issuance of outstanding Wastewater Transmission Revenue Bonds provide for the creation of separate accounts into which net revenues, as defined, or proceeds are to be credited, as appropriate. The ordinances require that net revenues available for bonds equal 115 percent of the current annual debt service requirements on the outstanding senior lien bonds. This requirement was met at December 31, 2014. The Sewer Rate Stabilization account had a balance in restricted assets of $32.6 million at December 31, 2014.
The ordinances authorizing the issuance of outstanding Second Lien Wastewater Transmission Revenue Bonds provide for the creation of separate accounts into which monies will be deposited, as appropriate. The ordinances require that net revenues equal 100 percent of the sum of the current maximum annual debt service requirements of the outstanding senior lien bonds and the maximum annual debt service requirements of the second lien bonds. This requirement was met at December 31, 2014.
Chicago Midway International Airport Fund - The Master Indenture of Trust securing Chicago Midway Airport Revenue Bonds requires in each year the City set rates and charges for the use and operation of Midway and for services rendered by the City in the operation of Midway so that revenues, together with any other available monies and the cash balance held in the Revenue Fund on the first day of such fiscal year not then required to be deposited in any fund or account, will be at least sufficient (a) to provide for the Operation and Maintenance Expenses for the fiscal year and (b) to provide for the greater of (i) the
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CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
amounts needed to be deposited into the First and Junior Lien Debt Service Funds, the Operations & Maintenance Reserve Account, the Working Capital Account, the First Lien Debt Service Reserve Fund, the Repair and Replacement Fund, and the Special Project Fund and (ii) an amount not less than 125 percent of the Aggregate First Lien Debt Service for such Fiscal Year reduced by an amount equal to the sum of any amount held in any Capitalized Interest Account for disbursement during such Fiscal Year to pay interest on First Lien Bonds. These requirements were met at December 31, 2014.
The Master Indenture of Trust Securing Chicago Midway Airport Second Lien Obligations requires that the City set rentals, rates and other charges for the use and operation of Midway and for certain services rendered by the City in the operation of Midway in order that in each Fiscal Year, Revenues, together with Other Available Moneys deposited with the First Lien Trustee or the Second Lien Trustee with respect to such Fiscal Year and any cash balance held in the First Lien Revenue Fund or the Second Lien Revenue Fund on the first day of such Fiscal Year not then required to be deposited in any Fund or Account under the First Lien Indenture for the Second Lien Indenture, will be at least sufficient (1) to provide for the payment of Operation and Maintenance Expenses for the Fiscal Year and (2) to provide for the greater of (A) or (B) as follows: (A) the greater of the amounts needed to make the deposits required under the First Lien Indenture described in the immediately preceding paragraph above; or (B) the greater of the amounts needed to make the deposits required under the First Lien Indenture described in the immediately preceding paragraph above or an amount not less than 110 percent of the Aggregate First Lien Debt Service and Aggregate Second Lien Debt Service for the Bond Year commencing during such Fiscal Year, reduced by (X) any amount held in any Capitalized Interest Account for disbursement during such Bond Year to pay interest on First Lien Bonds, and (Y) any amount held in any capitalized interest account established pursuant to a Supplemental Indenture under the Second Lien Indenture for disbursement during such Bond Year to pay interest on Second Lien Obligations. These requirements were met at December 31, 2014.
iv) Chicago-O'Hare International Airport Fund - The Master Indenture of Trust securing Chicago O'Hare International Airport General Airport Senior Lien Obligations requires that Revenues in each Fiscal Year, together with Other Available Moneys deposited with the Trustee with respect to that Fiscal Year and any cash balance held in the Revenue Fund on the first day of that Fiscal Year not then required to be deposited in any Fund or Account, will be at least sufficient: (i) to provide for the payment of Operation and Maintenance Expenses for the Fiscal Year; and (ii) to provide for the greater of (a) the sum of the amounts needed to make the deposits required to be made pursuant to all resolutions, ordinances, indentures and trust agreements pursuant to which all outstanding Senior Lien Bonds Obligations or other outstanding Airport Obligations are issued and secured, and (b) one and ten-hundreths times Aggregate Debt Service for the Bond Year commencing during that Fiscal Year, reduced by any proceeds of Airport Obligations held by the Trustee for disbursement during that Bond Year to pay principal of and interest on Senior Lien Obligations. This requirement was met at December 31, 2014.
The Master Trust Indenture securing Chicago O'Hare International Airport Passenger Facility Charge (PFC) Obligations requires PFC Revenues, as defined, to be deposited into the PFC Revenue Fund. The City covenants to pay from the PFC Revenue Fund not later than the twentieth day of each calendar month the following amounts in the following order of priority: (1) to the Trustee for deposit in the Bond Fund, the sum required to make all of the Sub-Fund Deposits and Other Required Deposits to be disbursed from the Bond Fund [to meet debt service and debt service reserve requirements] in the calendar month pursuant to the Master Indenture; (2) to make any payments required for the calendar month with respect to Subordinated PFC Obligations; and (3) all moneys and securities remaining in the PFC Revenue Fund shall be transferred by the City (or the Trustee if it then holds the PFC Revenue Fund pursuant to the Master Indenture) to the PFC Capital Fund.
The Indenture of Trust Securing Chicago O'Hare International Airport Customer Facility Charge Senior Lien Revenue Bonds requires that, as long as any Bonds remain Outstanding, in each Fiscal Year, the City shall set the amount of the CFC (when multiplied by the total number of projected Contract Days) plus projected Facility Rent at an annual level sufficient to provide sufficient funds (1) to pay principal of and interest on the Bonds due in such Fiscal Year, (2) to reimburse the Rolling Coverage Fund, the
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CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
Supplemental Reserve Fund, the Debt Service Reserve Fund and any Subordinate Reserve Fund for any drawings upon such Funds over a period not to exceed twelve months, as determined by the City, (3) to provide funds necessary to pay any "yield reduction payments" or rebate amounts due to the United States under the Indenture for which funds in the Rebate Fund or the CFC Stabilization Fund are not otherwise available. (4) to maintain the balance of the CFC Stabilization Fund in an amount of no less than the CFC Stabilization Fund Minimum Requirement and to reimburse any drawings below the CFC Stabilization Fund Minimum Requirement over a period not to exceed twelve months, as determined by the City, and (5) to maintain the balance of the Operation and Maintenance Fund in an amount of no less than the Operation and Maintenance Fund Requirement and to reimburse any drawings below the Operation and Maintenance Fund Minimum Requirement over a period of not to exceed twelve months, as determined by the City.
No-Commitment Debt and Public Interest Loans include various special assessment, private activity bonds and loans. These types of financings are used to provide private entities with low-cost capital financing for construction and rehabilitation of facilities deemed to be in the public interest. Bonds payable on no-commitment debt are not included in the accompanying financial statements because the City has no obligation to provide for their repayment, which is the responsibility of the borrowing entities. In addition, federal programs/grants, including Community Development Block Grants and Community Service Block Grants, provide original funding for public interest loans. Loans receivable are not included as assets because payments received on loans are used to fund new loans or other program activities in the current year and are not available for general City operating purposes. Loans provided to third parties are recorded as current and prior year programs/grants expenditures. Funding for future loans will be from a combination of the repayment of existing loans and additional funds committed from future programs/grants expenditures.
Defeased Bonds have been removed from the Statement of Net Position because related assets have been placed in irrevocable trusts that, together with interest earned thereon, will provide amounts sufficient for payment of all principal and interest. Defeased bonds at December 31, 2014, not including principal payments due January 1, 2015, are as follows (dollars in thousands)'
Amount
Defeased Outstanding
General Obligation Emergency Telephone System - Series 1993 $ 213,730 $ 103,570
General Obligation Bonds - Series 2001A 406,571 64,805
General Obligation Project Bonds - Series 2004A 323,040 3,405
General Obligation Project and Refunding Bonds - Series 2005B 11,435 1,750
General Obligation Direct Access Bonds - Series 2005E 22,186 5,555
General Obligation Project and Refunding Bonds - Series 2006A 28,695 7,440
General Obligation Project and Refunding Bonds - Series 2007A 10,505 4,350
Lakefront Millennium Project Parking Facilities Bonds - Series 1998 149,880 43,880
Special Transportation Revenue Bonds - Series 2001 118,715 90,395
Total $ 1.284.757 $ 325,150
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CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
11) Pension Funds
a) Retirement Benefit-Eligible City employees participate in one of four single-employer defined benefit pension plans (Plans). These Plans are: the Municipal Employees'; the Laborers' and Retirement Board Employees'; the Policemen's; and the Firemen's Annuity and Benefit Funds of Chicago. Plans are administered by individual retirement boards of trustees comprised of City officials or their designees and of trustees elected by plan members. Certain employees of the Chicago Board of Education participate in the Municipal Employees' Fund or the Laborers' and Retirement Board Employees' Annuity and Benefit Fund. Each Plan issues a publicly available financial report that includes financial statements and required supplementary information.
The financial statements of the Plans are prepared using the accrual basis of accounting. Employer and employee contributions are recognized in the period in which employee services are performed. Benefits and refunds are recognized when payable.
Plan investments are reported at fair value. Short-term investments are reported at cost, which approximates fair value. Securities traded on national or international exchanges are valued at the last reported sales price at current exchange rates. Fixed income securities are valued principally using quoted market prices provided by independent pricing services. For collective investments, the net asset value is determined and certified by the investment managers as of the reporting date. Real estate investments are generally valued by appraisals or other approved methods. Investments that do not have an established market are reported at estimated fair value.
The Plans have a securities lending program. At year-end, the Plans have no credit risk exposure to borrowers because the amounts the Plans owe the borrowers exceed the amounts the borrowers owe the Plans. The contract with the Plans' master custodian requires it to indemnify the Plans if the borrowers fail to return the securities (and if the collateral is inadequate to replace the securities lent) or fail to pay the fund for income distributions by the securities' issuers while the securities are on loan. All securities loans can be terminated on demand by either the Plans or the borrower, although the average term of the loans has not exceeded 154 days. The Plans' custodian lends securities for collateral in the form of cash, irrevocable letters of credit and/or U.S. government obligations equal to at least 102 percent of the fair value of securities or international securities for collateral of 105 percent. Cash collateral is invested in the lending agents' short-term investment pool, which at year-end has a weighted average maturity that did not exceed 39 days. The Plans cannot pledge to sell collateral securities received unless the borrower defaults. Loans outstanding as of December 31, 2014 are as follows: market value of securities loaned $883.6 million, market value of cash collateral from borrowers $906.2 million and market value of non-cash collateral from borrowers $1.5 million.
The Plans provide retirement, disability, and death benefits as established by State law. Benefits generally vest after 20 years of credited service. Employees who retire at or after age 55 (50 for policemen and firemen) with 20 years of credited service qualify to receive a money purchase annuity and those with more than 20 years of credited service qualify to receive a minimum formula annuity. The annuity is computed by multiplying the final average salary by a percentage ranging from 2.0 percent to 2.5 percent per year of credited service. The final average salary is the employee's highest average annual salary for any four consecutive years within the last 10 years of credited service.
Historically, State law required City contributions at statutorily, not actuarially, determined rates. The City's contribution was calculated based on the total amount of contributions by employees to the Plan made in the calendar year two years prior, multiplied by (in recent years) 1.25 for the Municipal Employees', 1.00 for the Laborers', 2.00 for the Policemen's, and 2.26 for the Firemen's. State law also requires covered employees to contribute a percentage of their salaries.
Beginning in 2016, current State law requires significantly increased contributions by the City to the Policemen's and Firemen's Plans. This is projected to require an increase in the City's contributions to the Policemen's and Firemen's Plans by more than $548 6 million starting in 2016 and increasing by
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CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
approximately three percent each year thereafter. A bill was recently passed by the Illinois General Assembly which would, among other things, institute an extension to 2055 of the period by which the unfunded liabilities of the Policemen's and Firemen's Plans are amortized to a 90 percent Funded Ratio. This would also phase-in over the next five years the increases in the City's contributions to the Policemen's and Firemen's Plans. A motion to reconsider this vote has been filed in the Illinois Senate and is under consideration.
Also beginning in 2016, State law requires significantly increased contributions by the City to the Municipal Employees' and Laborers' Plans. The multiplier determining the City contribution, based on the total amount of contributions by employees to the respective Plans made in the calendar year two years prior, will increase as follows: for the City contribution to be made in 2016, 1.60 (Laborers') and 1.85 (Municipal Employees'); for the contribution made in 2017, 1.90 (Laborers') and 2.15 (Municipal Employees'); for the contribution made in 2018, 2.20 (Laborers') and 2.45 (Municipal Employees'); for the contribution made in 2019, 2.50 (Laborers') and 2.75 (Municipal Employees'); and for the contribution made in 2020, 2.80 (Laborers') and 3.05 (Municipal Employees'). Beginning in 2021, the City's payment contributions for Laborers' and Municipal Employees' will equal the Normal Cost (based on actuarial calculations) for such year plus the amount, determined on a level percentage of payroll basis, that is sufficient to achieve a Funded Ratio of 90 percent in Laborers' and Municipal Employees' by the end of contribution year 2055. This will require an increase in the City's contributions to the Municipal Employees' and Laborers' Plans of more than $89.1 million starting in 2016 and increasing by approximately three percent each year thereafter.
The City's annual pension cost for the current year and related information for each Plan is as follows (dollars in thousands):
Municipal
Employees' Laborers' Policemen's Firemen's Total
Contribution rates:
City (a) (a) (a) (a) (a) rVa
Plan members 8.5% 8.5% 9.0% 9 125% rVa
Annual required contribution S 839,038 $ 106,018 $ 491.651 $ 304.2G5 $ 1.740,972
Interest on nel pension obligation 200.461 2,336 209.449 150,726 562,972
Adjustment to annual required
contribution (210,521) (2,453) (147,857) (154.961) (515,792)
Annual pension cost 828.978 105.901 553,243 300,030 1,788.152
Contributions made 149,747 12,160 178,158 107,334 447,399
Increase in net pension obligation 679,231 93,741 375,085 192.696 1,340,753
Net pension obligation.
beginning of year 2,672,812 31,148 2,702,573 1,884,074 7,290,607
Net pension obligation,
end of year $ 3,352,043 $ 124.889 $ 3,077,658 S 2.076,770 $ 8.631,360
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CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
Municipal
Employees' Laborers' Policemen's Firemen's
Actuarial valuation date 12/31/2014 12/31/2014 12/31/2014 12/31/2014
Actuarial cost method Entry age normal Entry age normal Entry age normal Entry age normal
Amortization method Level dollar, open Level dollar, open Level percent, open Level dollar, open
Remaining amortization period 30 years 30 years 30 years 30 years
Asset valuation method 5-yr. Smoothed 5-yr. Smoothed 5-yr. Smoothed 5-yr. Smoothed
Market Market Market Market
Actuarial assumptions:
Investment rate of return (a) 7.5% 7.5% 7.5% 8.0%
Projected salary increases (a):
Inflation 3.0 3.0 3.0 3.0
Seniority/Merit (b) (c) (d) (e)
Postretiremen! benefit increases (f) (f) (g) (g)
Proceeds from a tax levy not more than the amount equal to the total amount of contributions by the employees to the Fund made in the calendar year, two years prior to the year for which the annual applicable tax is levied multiplied by 1 25 for Municipal. 1 00 for Laborers', 2 00 Policemen's and 2.26 for Firemen's.
Service-based increases equivalent lo a level annual rate increase of 1.4 percent over a full career
Servtce-based increases equivalent lo a level annual rale increase of 1 9 percent over a full career.
Service-based increases equivalent to a level annual rate increase of 1 8 percent over a full career.
Service-based increases equivalent to a level annual rate increase of 1 8 percent over a full career.
(0 The lessor of 3.0 percent or 1/2 of CPI (simple) per year, applied lo Ihe annuity in effect as of December 31, 2014, with a minimum of 1.0 percent per year for total annuities less than $22,000.00 . Beginning at the earlier of.
the later of Ihe first of January of the year after retirement and age 61:
the later of the first of January of the year allerthe fourth anniversary of retirement and age 54
(g) Uses 3 0 percent per year for annuitants age 55 or over, born before 1955 with at least 20 years of service and 1.5 percent per year for 20 years for annuitants age 60 or ovor, born in 1955 or lalor.
For particpants thai first became members on or after January 1, 2011, increases arc equal to the lesser of 3.0 percent and 50 percent of CPI-U of the original benefit, commencing at age 60.
The following tables of information assist users in assessing each fund's progress in accumulating sufficient assets to pay benefits when due. The three-year historical information for each Plan is as follows (dollars in thousands):
Annual % of Annual Net Pension
Pension Pension Cost (Asset) /
Year Cost Contributed Obligation
Municipal Employees':
2012 $ 687,519 21.65% $ 2,008,546
812,463 18.24 2,672,812
828,978 18.06 3,352,043
Laborers':
2012 77,857 15 22 (63,707)
106,439 10.88 31,148
105,901 11.48 124,889
Policemen's:
483,359 40 94 2,350,739
531,355 33.79 2,702,573
553,243 32.20 3,077,658
Firemen's:
268,112 30.41 1,696,679
291,064 35.62 1,884,074
300,030 35.77 2,076,770
70
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
SCHEDULE OF FUNDING PROGRESS
(dollars in thousands)
Actuarial
Accrued
Actuarial Liability
Actuarial Value of (AAL) Unfunded
Valuation Assets Entry Age AAL
Year Date (a) (Jb) (b-a)
Municipal Employees':
2012 12/31/12 $ 5,073,320 $ 13,475,377 $ 8,402,057
12/31/13 5,114,208 13,828,920 8,714,712
12/31/14 5,039,297 12,307,094 7,267,797
Laborers':
12/31/12 1,315,914 2,336,189 1,020,275
12/31/13 1,354,261 2,383,499 1,029,238
12/31/14 1,357,451 2,107,110 749,659
Policemen's:
12/31/12 3,148,930 10,051,827 6,902,897
12/31/13 3,053,882 10,282,339 7,228,457
12/31/14 2,954,319 11,334,799 8,380,480
Firemen's:
12/31/12 993,284 4,020,138 3,026,854
12/31/13 991,213 4,128.735 3,137,522
12/31/14 988,141 4,338,593 3,350,452
Funded Ratio
38% S
37
41
56 57 64
31 30 26
25 24 23
Covered Payroll
1,590,794 1,580,289 1,602,978
198,790 200,352 202,673
1,015,171 1,015,426 1,074,333
418,965 416,492 460,190
Unfunded (Surplus) AAL as a Percentage of Covered Payroll <(b-a)/c)
528 %
551
453
513 514 370
680 712 780
722 753 728
The unfunded liability to the Plans poses significant financial challenges. The unfunded liability has consistently increased in recent years, but is expected to decrease in the future. Such a decrease is expected to result from significantly increased City contributions to the Plans, beginning in 2016, as required by State law (see Note 1). These increased contributions to the Plans are expected to pose a substantial burden on the City's financial condition.
b) Other Post Employment Benefits (OPEB) - The Pension Funds also contribute a portion of the City's contribution as subsidy toward the cost for each of their annuitants to participate in the City's health benefits plans, which include basic benefits for eligible annuitants and their dependents and supplemental benefits for Medicare eligible annuitants and their dependents. The amounts below represent the accrued liability of the City's pension plans related to their own annuitants and the subsidy paid to the City (see Note 12). The plan is financed on a pay as you go basis (dollars in thousands).
71
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
Annual OPEB Cost and Contributions Made For Fiscal Year Ended December 31, 2014
Municipal
Employees' Laborers' Policemen's Firemen's Total
A portion of the City's employer contribution to the Pension Funds is used to finance the health insurance supplement benefit payments.
Annual Required Contribution Interest on Net OPEB Obligation Adjustment to Annual -Required Contribution
Annual OPEB Cost (Gain) Contributions Made
(4,079)
(4,143) (36,795)
S 9,826 $ 2,520 $ 9,723 $ 2,739 $ 24,808
3,404 290 547 536 4,777
567 2,360
(7,210) 23,539
6,191 9,657
(868) 2,471
(26,330) (2,243)
(13,100) 9,051
Decrease in
Net OPEB,Obligation
Net OPEB Obligation, Beginning of Year
53,486 $ 4,649 $ 8.6B4 $ 8,563 $ 75,382
Actuarial Method and Assumptions - For the Pension Funds' subsidies, the actuarial valuation for the fiscal year ended December 31, 2014 was determined using the Entry Age Normal actuarial cost method. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan understood by the employer and plan members) and included the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to thai point. The actuarial method and assumptions used include techniques that are designed to reduce the effects of short term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long term perspective of the calculations.
72
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
Actuarial Valuation Date Actuarial Cost Method
Amortization Method
Remaining Amortization Method
Asset Valuation Method
Actuarial assumptions: OPEB Investment Rate of Return (a)
Projected Salary Increases (a) Inflation
Municipal Employees'
12/31/2014
Entry Age Normal
Level Dollar, Open
2 years Closed
No Assets (Pay-as-you-go)
4.5% 3.0%
Laborers'
12/31/2014
Entry Age Normal
Level Dollar, Open
2 years Closed
No Assets (Pay-as-you-go)
4.5% 3.0%
(c) 0.0%
rate of increase of rate of increase of rate of increase of
Policemen's
12/31/2014
Entry Age Normal
Level Percent, Open
2 years Closed
No Assets (Pay-as-you-go)
4.5% 3.0%
(d) 0.0%
1.4 percent over a full career 1.9 percent over a full career 1.8 percent over a full career
OPEB COST SUMMARY
(dollars in thousands)
Annual OPEB Cost
of Annual OPEB Obligation
Net OPEB Obligation
Municipal Employees' 2012 $ 2013
2014
Laborers'
2012 2013 2014
Policemen's
2012 2013 2014
Firemen's
2012 2013 2014
13,703 13,389 (13,100)
2,994 3,009 567
10,573 10,536 6,191
4,154 4,071 (868)
69.49 % 71.01
85.56 83.67 416.04
92.37 93.46 155 99
63.13 62.66
71,756 75,637 53,486
5,951 6,442 4,649
11,461 12,150 8,684
10,382 11.902 8,563
* The negative cost is primarily due to the insurance subsidy ending in 2016
Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revisions as the results are compared with past expectations and new estimates are made about the future The schedule of funding progress, presents, as required,
73
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
supplementary information following the notes to the financial statements (dollars in thousands, unaudited).
Unfunded
Actuarial (Surplus)
Accrued AAL as a
Actuarial Liability Unfunded Percentage
Actuarial Value of (AAL) (Surplus) Funded Covered of Covered
Valuation Assets Entry Age UAAL Ratio Payroll Payroll
Date (jij (_bj ( b-a ) ( a/b ) j^cj (( b-a ) / c )
Municipal
Employees' 12/31/2014 $ - $ 17,495 S 17,495 - $ 1,602,978 1.09
Laborers' 12/31/2014 - 4,593 4,593 - 202,673 2.27
Policemen's 12731/2014 - 18,762 18,762 - 1,074,333 1.75
Firemen's 12731/2014 - 4,995 4.995 - 460,190 1.09
12) Other Post Employment Benefits - City Obligation
Up to June 30, 2013, the annuitants who retired prior to July 1, 2005 received a 55 percent subsidy from the City and the annuitants who retired on or after July 1, 2005 received a 50, 45, 40 and zero percent subsidy from the City based on the annuitant's length of actual employment with the City for the gross cost of retiree health care under a court approved settlement agreement, known as the "Settlement Plan." The pension funds contributed their subsidies of $65 per month for each Medicare eligible annuitant and $95 per month for each Non-Medicare eligible annuitant to their gross cost. The annuitants contributed a total of $84.8 million in 2014 to the gross cost of their retiree health care pursuant to premium amounts set forth in the below-referenced settlement agreement.
The City of Chicago subsidized a portion of the cost (based upon service) for hospital and medical coverage for eligible retired employees and their dependents based upon a settlement agreement entered in 2003 and which expired on June 30, 2013.
On May 15, 2013, the City announced plans to, among other things: (i) provide a lifetime healthcare plan to former employees who retired before August 23, 1989 with a contribution from the City of up to 55% of the cost of that plan; and (ii) beginning July 1, 2013, provide employees who retired on or after August 23, 1989 with healthcare benefits in a new Retiree Health Plan (Health Plan), but with significant changes to the terms including increases in premiums and deductibles, reduced benefits and the phase-out of the Health Plan for such employees by December 31, 2016.
The cost of health benefits is recognized as an expenditure in the accompanying financial statements as claims are reported and are funded on a pay-as-you-go basis. In 2014, the net expense to the City for providing these benefits to approximately 24,381 annuitants plus their dependents was approximately $79.3 million.
Plan Description Summary - The City of Chicago was party to a written legal settlement agreement outlining the provisions of the Settlement Plans, which ended June 30, 2013. The Health Plan provides for annual modifications to the City's level of subsidy. It is set to phase out over three years, at which the Health Plan, along with any further City subsidy, will expire by December 31, 2016, for all but the group of former employees (the Korshak class of members) who retired before August 23, 1989, who shall have lifetime benefits. Duly Disabled retirees who have statutory pre-63/65 coverage will continue to have fully subsidized coverage under the active health plan until age 65.
The provisions of the Health Plan provide in general, that the City pay a percentage of the cost (based upon an employee's service) for hospital and medical coverage to eligible retired employees and their dependents for the specified period, ending December 31, 2016. The percentage subsidies were revised to reduce by approximately 25 percent of 2013 subsidy levels in 2014 and 50 percent of 2013 subsidy levels in 2015. Additional step downs in subsidy levels for 2016 have not yet been finalized.
74
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
In addition, State law authorizes the four respective Pension Funds (Policemen's, Firemen's, Municipal Employees', and Laborers') to provide a fixed monthly dollar subsidy to each annuitant who has elected coverage under any City health plan through December 31, 2016. After that date, no Pension Fund subsidies are authorized. The liabilities for the monthly dollar Pension Fund subsidies contributed on behalf of annuitants enrolled in the medical plan by their respective Pension Funds are included in the NPO actuarial valuation reports of the respective four Pension Funds under GASB 43 (see Note 11).
Special Benefits under the Collective Bargaining Agreements (CBA) - Under the terms of the collective bargaining agreements for the Fraternal Order of Police (FOP) and the International Association of Fire Fighters (IAFF), certain employees who retire after attaining age 55 with the required years of service are permitted to enroll themselves and their dependents in the healthcare benefit program offered to actively employed members. They may keep this coverage until they reach the age of Medicare eligibility. These retirees do not contribute towards the cost of coverage, but the Policemen's Fund contributes S95 per month towards coverage for police officers; the Firemen's Fund does not contribute.
Both of these agreements which provide pre-65 coverage originally expired at June 30, 2012. These benefits have been renegotiated to continue through 2016 or June 30, 2017, depending on bargaining unit agreements. This valuation assumes that the CBA special benefits, except for those who will have already retired as of December 31, 2016, will cease on December 31, 2016 or June 30, 2017, depending on bargaining unit agreements. The renegotiated agreements also provided that retirees will contribute 2% of their pension toward the cost of their health care coverage.
Funding Policy - No assets are accumulated or dedicated to funding the retiree health plan benefits.
Annual OPEB Cost and Net OPEB Obligation - The City's annual other post-employment benefit (OPEB) cost (expense) is calculated based on the annual required contribution of the employer (ARC). The ARC (Annual Required Contribution) represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost each year and to amortize any unfunded actuarial liabilities over a period of ten years.
The following table shows the components of the City's annual OPEB costs for the year for the Health Plan and CBA Special Benefits, the amount actually contributed to the plan and changes in the City's net OPEB obligation. The Net OPEB Obligation is the amount entered upon the City's Statement of Net Position as of year end as the net liability for the other post-employment benefits - the Health Plan. The amount of the annual cost that is recorded in the Statement of Changes in Net Position for 2014 is the Annual OPEB Cost (expense).
75
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
Annual OPEB Cost and Contributions Made
(dollars in thousands)
Retiree CBA
Settlement Special
Health Plan Benefits Total
Contribution Rates:
City Pay As You Go
Plan Members N/A
Annual Required Contribution $ 67,713
Interest on Net OPEB Obligation 1,806
Adjustment to Annual Required Contribution (6.853)
Annual OPEB Cost 62,666
Contributions Made 93.962
Decrease in Net OPEB Obligation (31,296)
$ 28,914
Net OPEB Obligation, Beginning of Year 60,210
Net OPEB Obligation, End of Year
Pay As You Go Pay As You Go
N/A N/A
S 60.912 $ 128,625 3,989 5,795 (15,135) (21,988)
49,766 112,432
34,099 128,061
15,667 (15.629)
132,981 193,191
$ 148,648 $ 177.562
The City's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for fiscal year 2014 are as follows (dollars in thousands):
Schedule of Contributions, OPEB Costs and Net Obligations
Fiscal Year Annual Percentage of Annual Net OPEB
Ended OPEB Cost OPEB Cost Contributed Obligation
Settlement Plan
12/31/2014 12/31/2013 12/31/2012
CBA Special Benefits
12/31/2014 12/31/2013 12/31/2012
Total
12/31/2014 12/31/2013 12/31/2012
62,666 75,444 37,444
49,766 41,722 39,533
112,432 117,166 76,977
149 9%
148.4
260.5
68.5%
65.5
46.6
113.9%
118.9
150.6
28,914 60,210 96,760
148,648 132.981 118,601
177,562 193,191 215.361
Funded Status and Funding Progress - As of January 1, 2014, the most recent actuarial valuation date, the actuarial accrued liability for benefits was $964.6 million all of which was unfunded. The covered payroll (annual payroll of active employees covered by the plan) was approximately $2,425.0 million and the ratio of the unfunded actuarial accrued liability to the covered payroll was 39.8 percent.
Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revisions as the results are compared with past
76
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
expectations and new estimates are made about the future. The schedule of funding progress, presents, as required, supplementary information following the notes to the financial statements (dollars in thousands, unaudited).
Unfunded UAAL
Actuarial Actuarial Actuarial Actuarial as a
Valuation Value of Accrued Accrued Liability Funded Covered Percentage of
Date Assets Liability (AAL) (UAAL) Ralio Payroll Covered Payroll
Settlement Plan
12/31/2013 $ - $ 498,205 $ 498,205 0% $2,425,000 20.5 %
CBA Special Benefits
12/31/2013 $ - $ 466,421 $ 466,421 0% $ 1,400,269 33.3 %
Total
12/31/2013 $ - $ 964,626 $ 964,626 0% $2,425,000 39.8 %
Actuarial Method and Assumptions - Projections of benefits for financial reporting purposes are based on the substantive plan (the plan understood by the employer and plan members) and included the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial method and assumptions used include techniques that are designed to reduce the effects of short term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long term perspective of the calculations.
For the Health Plan benefits (not provided by the Pension Funds), the entry age normal actuarial cost method was used. The actuarial assumptions included an annual healthcare cost trend rate of 8.0% initially, reduced by decrements to an ultimate rate of 5.0% in 2026. The range of rates included a 3.0% inflation assumption. Rates included a 2.5% inflation assumption. The plan has not accumulated assets and does not hold assets in a segregated trust. However, the funds expected to be used to pay benefits are assumed to be invested for durations which will yield an annual return rate of 3.0%. The remaining Unfunded Accrued Actuarial Liability is being amortized as a level dollar amount over ten years. The benefits include the provisions under the new Health Plan, which will be completely phased-out by December 31, 2016, except for the Korshak category, which is entitled to lifetime benefits. Also included in the Non-CBA benefits are the duty disability benefits under the active health plan payable to age 63/65.
For the Special Benefits under the CBA for Police and Fire, the renewed contracts' expiration dates of June 30, 2016 (for Police Captains, Sergeants and Lieutenants) and June 30, 2017 for all other Police and Fire are reflected, such that liabilities are included only for payments beyond the end of the calendar year of contract expiration on behalf of early retirees already retired and in pay status as of December 31 of the expiration year of the contract. The entry age normal method was selected. The actuarial assumptions included an annual healthcare cost trend rate of 8.0% in 2014. reduced by decrements to an ultimate rate of 5.0% in 2026. Rates included a 2.5% inflation assumption. The plan has not accumulated assets and does not hold assets in a segregated trust. The funds expected to be used to pay benefits are assumed to be invested for durations which will yield an annual return rate of 3.0%. The remaining Unfunded Accrued Actuarial Liability is being amortized as a level dollar amount over ten years.
77
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
Summary of Assumptions and Methods
Actuarial Valuation Date
Actuarial Cost Method
Amortization Method
Remaining Amortization Period
Asset Valuation Method
Actuarial Assumptions: Investment Rate of Return Projected Salary Increases Healthcare Inflation Rate
Settlement Health Plan
December31,2013 Entry Age Normal Level Dollar, open
10 years Market Value
3.0% 2.5%
8.0% initial to 5.0% in 2026
CDA Special Benefits
December 31, 2013 Entry Age Normal Level Dollar, open
10 years Market Value
3.0% 2.5%
8.0% initial to 5.0% in 2026
13) Risk Management
The City is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; certain benefits for and injuries to employees and natural disasters. The City provides worker's compensation benefits and employee health benefits under self-insurance programs except for insurance policies maintained for certain Enterprise Fund activities. The City uses various risk management techniques to finance these risks by retaining, transferring and controlling risks depending on the risk exposure.
Risks for O'Hare, Midway, and certain other major properties, along with various special events, losses from certain criminal acts committed by employees and public official bonds are transferred to commercial insurers. Claims have not exceeded the purchased insurance coverage in the past three years, accordingly, no liability is reported for these claims. All other risks are retained by the City and are self-insured. The City pays claim settlements and judgments from the self-insured programs. Uninsured claim expenditures and liabilities are reported when it is probable that a loss has occurred and the amount of that loss can be reasonably estimated. These losses include an estimate of claims that have been incurred but not reported. The General Fund is primarily used to record all non-Enterprise Fund claims. The estimated portion of non-Enterprise Fund claims not yet settled has been recorded in the Governmental Activities in the Statement of Net Position as claims payable along with amounts related to deferred compensatory time and estimated liabilities for questioned costs. As of December 31, 2014, the total amount of non-Enterprise Fund claims was $483.2 million and Enterprise Fund was $57.1 million. This liability is the City's best estimate based on available information. Changes in the reported liability for all funds are as follows (dollars in thousands):
2014 2013
Balance, January 1 $ 547,674 $608,485
Claims incurred and
change in estimates 627,488 699,582
Claims paid on current and
prior year events (634,890) (760,393)
Balance, December 31 $ 540,272 $547,674
14) Expenditure of Funds and Appropriation of Fund Balances
The City expends funds by classification as they become available, and "Restricted" funds are expended first. If/when City Council formally sets aside or designates funds for a specific purpose, they are considered "Committed." The Mayor (or his/her designee) may in this capacity, also set aside or designate funds for specific purposes and all of these funds will be considered "Assigned." Any remaining funds, which are not specifically allocated in one or more of the previous three categories, are considered "Unassigned' until such allocation is completed.
78
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
In addition to the categories above, any amounts which will be used to balance a subsequent year's budget will be considered "Assigned" as Budgetary Stabilization funds. The amounts may vary from fiscal year to fiscal year or depending on the City's budgetary condition, or may not be designated at all. The funds may be assigned by the Mayor or his designee, up to the amount of available "Unassigned" fund balance at the end of the previous fiscal year.
a) Fund Balance Classifications
On the fund financial statements, the Fund Balance consists of the following (dollars in thousands):
General
Nonspendable Purpose'
Inventory $ 24,498
Restricted Purpose'
TIF and Special Service Area Programs and
Redevelopment
Capital Projects
Grants
Debt Service
General Government
Committed Purpose:
Debt Service
Budget and Credit Rating Stabilization
Repair, Maintenance and City Services.. Assigned Purpose'
Future obligations
Special Projects 65,223
Unassigned 51,557
Total Government Fund Balance $ 141,278
Federal, State and Local Grants
Community
347,652
139,491
Service Bond, Note Development Other
Special Concession Redemption Improvement Governmental
Taxing Areas and Reserve and Interest Projects Funds
15,230
1.327,058
75,176
(240,275)
620,891
(1,576.293) (26,872)
$ (225,045) $ 1,327,058 S (955.402) $ (26,872) $ 347,652 S 214,667
At the end of the fiscal year, total encumbrances for the General Operating Fund amounted to $29.2 million, $47.3 million for the Special Taxing Areas Fund, $75.5 million for the Capital Projects Fund and $7.3 million for the Non Major Special Revenue Fund.
15) Commitments and Contingencies
The City is a defendant in various pending and threatened individual and class action litigation relating principally to claims arising from contracts, personal injury, property damage, police conduct, alleged discrimination, civil rights actions and other matters. City management believes that the ultimate resolution of these matters will not have a material adverse effect on the financial position of the City.
The City participates in a number of federal-and state-assisted grant programs. These grants are subject to audits by or on behalf of the grantors to assure compliance with grant provisions. Based upon past experience and management's judgment, the City has made provisions in the General Fund for questioned costs and other amounts estimated to be disallowed. City management expects such provision to be adequate to cover actual amounts disallowed, if any.
As of December 31, 2014, the Enterprise Funds have entered into contracts for approximately $518.1 million for construction projects.
The City's pollution remediation obligation of $8.5 million is primarily related to Brownfield redevelopment projects.
79
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
These projects include removal of underground storage tanks, cleanup of contaminated soil, and removal of other environmental pollution identified at the individual sites. The estimated liability is calculated using the expected cash flow technique. The pollution remediation obligation is an estimate and subject to changes resulting from price increases or reductions, technology, or changes in applicable laws or regulations.
Concession Agreements
The major fund entitled Service Concession and Reserve Fund is used for the purpose of accounting for the deferred inflows associated with governmental fund long-term lease and concession transactions. Deferred inflows are amortized over the life of the related lease and concession agreements. Proceeds from these transactions may be transferred from this fund in accordance with ordinances approved by the City Council that define the use of proceeds.
In February 2009, the City completed a $1.15 billion concession agreement to allow a private operator to manage and collect revenues from the City's metered parking system for 75 years. The City received an upfront payment of $1.15 billion which was recognized as a deferred inflow that will be amortized and recognized as revenue over the term of the agreement. The City recognizes $15.3 million of revenue for each year through 2083.
In December 2006, the City completed a long-term concession and lease of the City's downtown underground public parking system. The concession granted Chicago Loop Parking, LLC (CLP) the right to operate the garages and collect parking and related revenues for the 99-year term of the agreement. The City received an upfront payment of $563.0 million of which $347.8 million was simultaneously used to purchase three of the underground garages from the Chicago Park District. The City recognized a deferred inflow that will be amortized and recognized as revenue over the term of the lease. The City recognizes $5.7 million of revenue for each year through 2105. In January 2014, CLP assigned all of its interests in the concession and lease agreement to LMG2, LLC, the designee of its lenders, in lieu of foreclosure by the lenders on their leasehold mortgage on the underground garages.
In January 2005, the City completed a long-term concession and lease of the Skyway. The concession granted a private company the right to operate the Skyway and to collect toll revenue from the Skyway for the 99-year term of the agreement. The City received an upfront payment of $1.83 billion; a portion of the payment ($446.3 million) advance refunded all of the outstanding Skyway bonds. The City recognized a deferred inflow of $1.83 billion that will be amortized and recognized as revenue over the 99-year term of the agreement. The City recognizes $18.5 million of revenue related to this transaction for each year through 2103. Skyway land, bridges, other facilities and equipment continue to be reported on the Statement of Net Position and will be depreciated, as applicable, over their useful lives. The deferred inflow of the Skyway is reported in the Proprietary Funds Statement of Net Position.
Subsequent Events Ratings
In February 2015, Moody's Investors Service (Moody's) downgraded the ratings of the City's General Obligation bonds, Sales Tax revenue bonds and Motor Fuel Tax revenue bonds from Baal to Baa2, the City's Wastewater senior lien revenue bonds from A2 to A3, and the Wastewater second lien revenue bonds from A3 to Baal, each with a negative outlook.
In March 2015, Kroll Bond Rating Agency (Kroll) rated the City's General Obligation bonds A- with a stable outlook.
In May 2015 Moody's downgraded the City's General Obligation bonds, Sales Tax revenue bonds and Motor Fuel Tax revenue bonds from Baa2 to Ba1, with a negative outlook. At the same time, Moody's downgraded the City's Water senior lien revenue bonds from A2 to Baal, the Water second lien revenue bonds from A3 to Baa2 and the City's Wastewater senior lien bonds from A3 to Baa2 and the Wastewater second lien revenue bonds from Baal to Baa3, each with a negative outlook. The Moody's May 20.15 downgrades triggered (with respect to the City's General Obligation debt, Sales Tax revenue bonds. Water second lien revenue bonds and Wastewater second lien revenue bonds) defaults under certain credit and/or liquidity facilities, certain general obligation revolving credit agreements and, for the Series 2008C Wastewater second lien revenue bonds, certain continuing covenant agreements with those bondholders. The Moody's May 2015 downgrades also triggered termination events under interest rate swap
80
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
agreements to which the City is a party. The City does not have any such facilities or agreements relating to its Motor Fuel Tax revenue bonds. In response to the triggering of these defaults and termination events, the City took several actions: (i) it terminated the Wells Fargo letter of credit securing two series of its General Obligation commercial paper notes (no such notes were outstanding at the time of termination) and terminated the associated reimbursement agreement; (ii) it entered into forbearance agreements with (A) the providers of credit and/or liquidity facilities for its General Obligation bonds, General Obligation commercial paper notes and Sales Tax revenue bonds, (B) the lenders on its General Obligation revolving credit agreements, (C) the counterparties on its General Obligation and Sales Tax Revenue interest rate swap agreements, and (D) the holders of its Series 2008C Wastewater second lien revenue bonds; (iii) it amended and/or transferred the interest rate swap agreements for its Water second lien revenue bonds and its Wastewater second lien revenue bonds to remove such termination event from the swap agreements prior to any demand being made for a termination payment by the counterparties; and (iv) it obtained a waiver of the event of default from the provider of a letter of credit relating to its Water second lien revenue bonds.
In May 2015, subsequent to the Moody's downgrades, Standard and Poor's (S&P) downgraded the City's General Obligation bonds from A+ to A- with a negative watch. S&P also downgraded the City's Water senior lien revenue bonds from AA lo A, the Water second lien revenue bonds from AA- to A- the City's Wastewater senior lien bonds from AA to A and the Wastewater second lien revenue bonds from AA- to A-, each with a negative watch.
In May 2015, subsequent to the Moody's downgrades, Fitch Ratings (Fitch) downgraded the City's General Obligation bonds and Sales Tax revenue bonds from A- to BBB+, with a negative watch.
In June 2015, Kroll rated the Sales Tax revenue bonds AA+ with a stable outlook.
Bonds
In May 2015, the City converted its General Obligation Bonds (Neighborhoods Alive 21 Program), Series 2002B ($176.2 million) from variable rate to fixed rate. The bonds were converted at interest rates ranging from 5.0 percent to 5.5 percent and mandatory sinking fund or maturity dates from January 1, 2016 to January 1, 2037. Proceeds were used to pay a portion of the purchase price of the bonds mandatorily tendered on the conversion date and the costs of conversion. The remaining portion of $24.8 million was redeemed by the City.
In May 2015, the City converted its General Obligation Bonds, Project and Refunding Series 2003B ($170.1 million) from variable rate to fixed rate. The bonds were converted at interest rates ranging from 5.0 percent to 5.5 percent and maturity dates from January 1, 2016 to January 1, 2034. Proceeds were used to pay a portion of the purchase price of the bonds mandatorily tendered on the conversion date and the costs of conversion. The remaining portion of $11.8 million was redeemed by the City.
In June 2015, the City converted its General Obligation Bonds, Project and Refunding Series 2005D ($174.0 million) from variable rate to fixed rate. The bonds were converted at an interest rate of 5.5 percent and mandatory sinking fund or maturity dates from January 1, 2033 to January 1, 2040. Proceeds were used to pay a portion of the purchase price of the bonds mandatorily tendered on the conversion date and the costs of conversion. The remaining portion of $48.8 million was redeemed by the City.
In June 2015, the City converted its General Obligation Bonds, Refunding Series 2007E, F and G ($153.7 million) from variable rate to fixed rate. The bonds were converted at an interest rate of 5.5 percent and mandatory sinking fund or maturity dates from January 1, 2034 to January 1, 2042. Proceeds were used to pay a portion of the purchase price of the bonds mandatorily tendered on the conversion date and the costs of conversion. The remaining portion of $46.3 million was redeemed by the City.
In June 2015, the City converted its Sales Tax Revenue Refunding Bonds, Series 2002 ($111.7 million) from variable rate to fixed rale The bonds were converted at interest rates ranging from 2.0 percent to 5.0 percent. Proceeds were used to pay the purchase price of the bonds mandatorily tendered on the conversion date and the costs of conversion.
81
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
Swaps
In May and June 2015, the City terminated all of its General Obligation and Sales Tax revenue swaps and transferred and modified certain thresholds with respect lo Additional Termination Events for its Water second lien revenue swaps and Wastewater second lien revenue swaps.
The City terminated the swaps relating to its (1) General Obligation Bonds, Project and Refunding Series 2003B for total termination payments of $31.0 million, (2) General Obligation Bonds, Project and Refunding Series 2005D for total termination payments of $62.8 million, (3) General Obligation Bonds, Refunding Series 2007 E, F and G for total termination payments of $62.0 million and 4) Sales Tax Revenue Refunding Bonds, Series 2002 for a termination payment of $29.0 million.
The City transferred the swaps with UBS related to its Water Second Lien Revenue Bonds, Series 2000 ($100.0 million notional amount) and Series 2004 ($173.3 million notional amount) to Barclays. At the same time, the ATE rating threshold was reduced from below Baal by Moody's or BBB+ by S&P to below Baa3 or BBB- by Moody's and S&P respectively. In addition, the swap with Royal Bank of Canada relating to the City's Water Second Lien Revenue Bonds, Series 2004 ($182.2 million notional amount) was modified to reduce the ATE rating threshold from below Baal by Moody's or BBB+ by S&P to below BBB+ by S&P or Fitch.
The City modified the ATE rating thresholds related to its Second Lien Wastewater Transmission Revenue Bonds, Series 2008C swaps with JPMorgan ($49.8 million notional amount) and Bank of America ($49.8 million notional amount) from below Baal by Moody's or BBB+ by S&P to below Baa3 or BBB- by Moody's or S&P, respectively.
Commercial Paper, Letters of Credit, Lines of Credit and Continuing Covenant Agreements
As of December 31, 2014, the outstanding balance for the City's General Obligation Commercial Paper Notes and General Obligation Lines of Credit (G.O. CP) was $297.4 million. Since January 2015, the City has paid down $54.2 million of G.O. CP and has issued $591.8 million to refund certain outstanding bonds, facilitate the conversion of variable rate bonds to fixed rate, fund swap termination payments and pay certain settlements and judgments. The current G.O. CP outstanding is approximately $835.0 million.
In February 2015, the City's Midway Commercial Paper program was reduced from $150 million to $85 million. As such, the PNC letter of credit was not extended.
In April 2015, the City issued $30.5 million aggregate principal amount of its Chicago O'Hare International Airport Commercial Paper Notes (O'Hare CP Notes). The proceeds of these O'Hare CP Notes were used to finance a portion of the cost of authorized airport projects.
In May and June 2015, the City converted its General Obligation bonds and Sales Tax revenue bonds from variable rate to fixed rate, as discussed above. The related letters of credit and liquidity facilities were terminated at the time of the conversion.
Due to the May 2015 downgrades by Moody's, the City entered into forbearance agreements with its General Obligation commercial paper credit providers (except Wells Fargo), the lenders on its General Obligation revolving credit agreements and the Orange Line letter of credit provider. The forbearance agreements extend to September 30, 2015, unless another event of default is triggered, including another rating downgrade by Moody's or a downgrade below investment grade by S&P or Fitch. The Wells Fargo letter of credit was terminated; there were no such General Obligation commercial paper notes outstanding secured by that letter of credit. The City also entered into forbearance agreements with the holders of its Series 2008C Wastewater second lien revenue bonds. Each of those holders has a continuing covenant agreement with the City with respect to its bonds. An event of default was triggered under each continuing covenant agreement due to the May 2015 downgrades by Moody's. The forbearance agreements extend to June 30, 2016 (provided that the City has taken certain steps prior to June 30, 2016 to convert the Series 2008C Wastewater second lien revenue bonds to fixed rates of interest), unless another event of default is triggered, including another rating downgrade by Moody's or a downgrade below investment grade by S&P or Fitch.
In May 2015, the City entered into a Line of Credit Agreement with DNT Asset Trust, which allows the City to draw on the line of credit in an aggregate amount not to exceed S200 0 million to facilitate the conversions of the City's
82
CITY OF CHICAGO, ILLINOIS
NOTES TO BASIC FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2014
General Obligation variable rate bonds to fixed rate, by funding a portion of the purchase price of tendered bonds as well as paying for the redemption of bonds which were not converted to fixed rate. The line of credit was subsequently reduced to $151.6 million, to reflect the amount of the draws related to the conversions. The City's repayment obligation under the line of credit is a general obligation of the City. The line of credit expires September 30, 2015. In June 2015, the City amended its Revolving Credit Agreement with Bank of America, which increases the line of credit amount to $348.4 million. The City's repayment obligation under the line of credit is a general obligation of the City. The line of credit remains in effect through the forbearance period ending on September 30, 2015, although any draws on the line of credit during and after the forbearance period are subject to approval by the bank in its sole discretion.
83
REQUIRED SUPPLEMENTARY INFORMATION CITY OF CHICAGO, ILLINOIS
SCHEDULE OF OTHER POSTEMPLOYMENT BENEFITS FUNDING PROGRESS Last Three Years (dollars arc in thousands)
Actuarial Valuation Date
Actuarial
Value of Assets (a)
Actuarial Accrued Liability (AAL) Entry Age (b)
Unfunded Actuarial Accrued
Liability (UAAL)
(b-a)
Funded Ratio (a/b)
Covered Payroll (c)
Unfunded (Surplus) AAL as a Percentage of Covered
Payroll ((b-a)/c)
Municipal Employees'
12/31/2012 $
12/31/2013
12/31/2014
162,083 27,573 17,495
162,083 27,573 17,495
$ 1,590,794 1,580,289 1,602,978
10.19 1.74 1.09
Laborers'
12/31/2012
12/31/2013
2014 12/31/2014
Policemen's
12/31/2012
12/31/2013
12/31/2014
Firemen's
12/31/2012
12/31/2013
12/31/2014
City of Chicago
12/31/2011
12/31/2012
2014 12/31/2013
38,654 7,074 4,593
168,811 28,376 18,762
46,206 7,692 4,995
470,952 997,281 964,626
38,654 7,074 4,593
168,811 28,376 18,762
46,206 7,692 4,995
470,952 997,281 964,626
198,790 200,352 202,673
1,015,171 1,015,426 1,074,333
418,965 416,492 460,190
2,518,735 2,385,198 2,425,000
19.44 3.53 2.27
%
16.63 2.79 1.75
11.03 1.85 1.09
18.70 41.81 39.78
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APPENDIX D PROPERTY TAXES
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PROPERTY TAXES
Real Property Assessment, Tax Levy and Collection Procedures
General
Information under this caption provides a general summary of the current procedures for real property assessment, tax levy and tax collection in Cook County (the "County"). The following is not an exhaustive discussion, nor can there be any assurance that the procedures described under this caption will not be changed cither retroactively or prospectively. The Illinois laws relating to real property taxation are contained in the Illinois Property Tax Code (the "Property Tax Code").
Substantially all (approximately 99.99 percent) ofthe "Equalized Assessed Valuation" (described below) of taxable property in the City is located in the County. The remainder is located in DuPage County Accordingly, unless otherwise indicated, the information set forth under this caption and elsewhere in this Official Statement with respect to taxable property in the City does nol reflect the portion situated in DuPage County
Assessment
The Cook County Assessor (the "Assessor") is responsible for the assessment of all taxable real properly wilhin the County, except for certain railroad property and pollution control equipment assessed directly by the State. One-third ofthe real property in the County is reassessed each year on a repeating triennial schedule established by the Assessor. The suburbs in the northern and northwestern portions of the County were reassessed in 2013. The suburbs in the western and southern portions ofthe County were reassessed in 2014 The City is being reassessed in 2015.
Real property in the County is separated into various classifications for assessment purposes After the Assessor establishes the fair cash value of a parcel of land, that value is multiplied by one ofthe classification percentages to arrive at the assessed valuation (the "Assessed Valuation") for the parcel. Beginning with the 2009 tax year, the classification percentages range from 10 to 25 percent depending on the type of property (eg, residential, industrial, commercial) and whether it qualifies for certain incentives for reduced rates. For prior years, the classification percentages ranged from 16 to 38 percent.
The Cook County Board of Commissioners has adopted various amendments to the County's Real Property Assessment Classification Ordinance (the "Classification Ordinance"), pursuant to which the Assessed Valuation of real property is established Among other things, these amendments have reduced certain property classification percentages, lengthened certain renewal periods of classifications and created new property classifications.
The Assessor has established procedures enabling taxpayers lo contest the Assessor's tentative Assessed Valuations Once the Assessor certifies final Assessed Valuations, a taxpayer can seek review of its assessment by the Cook County Board of Review (the "Board of Review") The Board of Review has powers to review and adjust Assessed Valuations set by the Assessor Owners of property are able lo appeal decisions ofthe Board of Review to the Illinois Property Tax Appeal Board (the "PTAB"), a statewide administrative body, or to the Circuit Court of Cook County (the "Circuit Court'") The PTAB has the power to determine the Assessed Valuation of real property based on equity and the weight of the evidence Based on the amount of the proposed change in assessed valuation, taxpayers may appeal decisions of the PTAB to either the Circuit Court or the Illinois Appellate Court under the Illinois Administrative Review Law
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In a series of PTAB decisions, the PTAB reduced the assessed valuations of certain commercial and industrial property in the County based upon the application of median levels of assessment derived from Illinois Department of Revenue sales-ratio studies instead of utilizing the assessment percentages provided in the Classification Ordinance. On appeal, the Illinois Appellate Court determined that it was improper for the PTAB, on its own initiative, to use the sales-ratio studies when such studies were not even raised as an issue by the taxpayer before the Board of Review or in its appeal to the PTAB.
The Appellate Court decisions do nol preclude a taxpayer in a properly presented case from introducing into evidence sales-ratio studies for the purpose of obtaining an assessment below that which would result from application of the Classification Ordinance No prediction can be made whether any currently pending or future case would be successful. The City believes that the impact of any such case on the Cily would be minimal, as the Cily's ability to levy or collect real property taxes would be unaffected.
As an alternative to seeking review of Assessed Valuations by the PTAB, taxpayers who have first exhausted their remedies before the Board of Review may file an objection in the Circuit Court. The City filed a petition to intervene in certain of these proceedings for the first time in 2003, but the Circuit Court denied the City's petition in early 2004. The City appealed Ihe Circuit Court decision. On appeal, the Circuit Court decision was reversed and the matter was remanded lo the Circuit Courl with instructions to allow the City to proceed with its petitions to intervene In addition, in cases where the Assessor agrees that an assessment error has been made after tax bills have been issued, the Assessor can correct the Assessed Valuation, and thus reduce the amount of taxes due, by issuing a Certificate of Error.
Equalization
After the Assessed Valuation for each parcel of real estate in a county has been determined for a given year including any revisions made by the Board of Review, the Illinois Department of Revenue reviews the assessments and determines an equalization factor (the "Equalization Factor"), commonly called the "multiplier," for each county The purpose of equalization is to bring the aggregate assessed value of all real property, except farmland, wind turbines with a nameplate capacity of at least 0.5 megawatts and undeveloped coal, in each counly to the statutory requirement of 33-1/3 percent of estimated fair cash value Adjustments in Assessed Valuation made by the PTAB or the courts are not reflected in the Equalization Factor. The Assessed Valuation of each parcel of real estate in the County is multiplied by the County's Equalization Factor lo determine Ihe parcel's equalized assessed valuation (the "Equalized Assessed Valuation").
The Equalized Assessed Valuation for each parcel is the final property valuation used for determination of tax liability, fhe aggregate Equalized Assessed Valuation for all parcels in any taxing body's jurisdiction, after reduction for all applicable exemptions, plus the valuation of property assessed directly by the Slate, constitutes the total real estate tax base for the taxing body and is the figure used lo calculate tax rates (the "Assessment Base") The Equalization Factor for a given year is used in computing the taxes extended for collection in the following year fhe Equalization Factors for each of the last 11 tax levy years, from 2003 through 2013 (the most recent years available), are listed in this Official Statement under "FINANCIAL DISCUSSION AND ANALYSIS—Property Taxes" (see the table captioned "Assessed, Equalized Assessed and Estimated Value of All Taxable Property 2003-2014").
In 1991. legislation was enacted by the State which provided that for 1992 and for subsequent years' tax levies, the Equalized Assessed Valuation used to determine any applicable tax limits is the one for the immediately preceding year and not the current year This legislation impacts taxing districts with
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rate limits only and currently does not apply to the City See "—Property Tax Limit Considerations" below.
Exemptions
The Illinois Constitution allows homestead exemptions tor residential property. Pursuant to the Illinois Property Tax Code, property must be occupied by the owner as a principal residence on January 1 ofthe tax year for which the exemption will be claimed
The annual general homestead exemption provides for the reduction ofthe Equalized Assessed Valuation ("EAV") of certain property owned and used exclusively for residential purposes by the amount ofthe increase over the 1977 EAV, currently up to a maximum reduction of $7,000 in Cook County and $6,000 in all other counties. There is an additional homestead exemption for senior citizens (individuals at least 65 years of age), for whom the Assessor is authorized to reduce the EAV by $5,000. There is also an exemption available for homes owned and exclusively used for residential purposes by disabled veterans or their spouses, for whom the Assessor is authorized to annually exempt up to $70,000 of the Assessed Valuation. An additional exemption is available for disabled persons, for whom the Assessor is authorized to reduce the EAV by $2,000. An exemption is available for homestead improvements by an owner of a single family residence of up to $75,000 ofthe increase in the fair cash value of a home due to certain home improvements to an existing structure for at least four years from the date the improvement is completed and occupied. Senior citizens whose household income is $55,000 or less, and who are either the owner of record or have a legal or equitable interest in the property, qualify to have the EAV of their property frozen in the year in which they first qualify for the so-called "freeze" and each year thereafter in which the qualifying criteria are maintained Each year applicants for the Senior Citizens Assessment Freeze Homestead Exemption musl file the appropriate application and affidavit with the chief county assessment office
Aside from homestead exemptions, upon application, review and approval by the Board of Review, or upon an appeal to the Illinois Department of Revenue, there are exemptions generally-available for properties of religious, charitable (including qualifying not-for-profit hospitals), and educational organizations, as well as units of federal, state and local governments.
Additionally, counties have been authorized to create special property tax exemptions in long-established residential areas or in areas of deteriorated, vacant or abandoned homes and properties. Under such an exemption, long-time, residential owner-occupants in eligible areas would be entitled to a deferral or exemption from that portion of property taxes resulting from an increase in market value because of refurbishment or renovation of other residences or construction of new residences in the area On .lune 5, 2001, the County enacted the Longtime Homeowner Exemption Ordinance, which provides properly lax relief from dramatic rises in property taxes directly or indirectly attributable to gentnfication in the form of an exemption. This is generally applicable to homeowners (i) who have resided in their homes for 10 consecutive years (or five consecutive years for homeowners who have received assistance in the acquisition ofthe properly as part of a government or nonprofit housing program), (ii) whose annual household income foi the year ofthe homeowner's triennial assessment does not exceed 115 percent of the Chicago Primary Metropolitan Statistical Area median income as defined by the United States Department of Mousing and Urban Development, (iii) whose property has increased in assessed value to a level exceeding 150 percent ofthe current average assessed value for properties in the assessment district where the property is located, (iv) whose properly has a market value for assessment purposes of $300,000 or less in the current reassessment year, and (v) who, for any triennial assessment cycle, did not cause a substantial improvement which resulted in an increase in the property's fair cash value in excess of Ihe $45,000 allowance set forth in the Pioperty l ax Code
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Tax Levy
There are over 800 units of local government (the "Units") located in whole or in part in the County that have taxing power. The major Units having taxing power over property within the City are the City, the Chicago Park District, the Board of Education of the City of Chicago, the School Finance Authority, Community College District No 508, the Metropolitan Water Reclamation District of Greater Chicago, the County and the Forest Preserve District of Cook County.
As part of the annual budgetary process of the Units, each year in which the determination is made to levy real estate taxes, proceedings arc adopted by the governing body for each Unit The tax levy proceedings impose the Units' respective real estate taxes in terms of a dollar amount. Each Unit certifies its real estate tax levy, as established by the proceedings, lo the County Clerk's Office. The remaining administration and collection of the real estate taxes is statutorily assigned to the County Clerk and the County Treasurer, who is also the County Collector (the "County Collector").
After the Units file their annual tax levies, the County Clerk computes the annual tax rate for each Unit by dividing the levy of each Unit by the Assessment Base ofthe respective Unit. If any tax rate thus calculated or any component of such a lax rate (such as a levy for a particular fund) exceeds any applicable statutory rate limit, the County Clerk disregards the excessive rate and applies the maximum rate permitted by law.
The County Clerk then computes the total tax rate applicable to each parcel of real property by aggregating the lax rates of all Ihe Units having jurisdiction over the particular parcel. The County Clerk enters in the books prepared for the County Collector (the "Warrant Books") the tax (determined by multiplying that total tax rate by the Equalized Assessed Valuation of that parcel), along with the tax rates, the Assessed Valuation and the Equalized Assessed Valuation. The Warrant Books are the County Collector's authority for Ihe collection of taxes and are used by the County Collector as the basis for issuing tax bills to all property owners.
The Illinois Truth in Taxation Law (the "Truth in Taxation Law") contained within the Property Tax Code imposes procedural limitations on a Unit's real estate taxing powers and requires that a notice in a prescribed form must be published if the aggregate annual levy is estimated to exceed 105 percent of the levy ofthe preceding year, exclusive of levies for debt service, levies made for the purpose of paying amounts due under public building commission leases and election costs. A public hearing must also be held, which may not be in conjunction with the budget hearing ofthe Unit on the adoption ofthe annual levy No amount in excess of 105 percent ofthe preceding year's levy may be used as the basis for issuing tax bills to property owneis unless the levy is accompanied by certification of compliance vvith the foregoing procedures, fhe Truth in Taxation Law does not impose any limitations on the rate or amount ofthe levy to pay principal of and interest on the general obligations bonds and notes ofthe City
Collection
Property taxes are collected by the County Collector, who remits to each Unit its share ofthe collections Taxes levied in one year become payable during the following year in two installments, the first due on March I and the second on the later of August 1 or 30 days after the mailing ofthe lax bills The first installment is an estimated bill calculated at 55 percent ofthe prior year's tax bill. The second installment is for the balance ofthe current year's tax bill, and is based on the current levy, assessed value and Equalization Factor and applicable tax rates, and reflects any changes from the prior year in those factors. Taxes on railroad real property used for transportation purposes are payable in one lump sum on the same date as the second installment
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The following table sets forth the second installment penalty date for the lax years 2005 to 2014, the first installment penally date has been March 2 or March 3 for all years.
Second Installment
Tax Year
2014 2013 2012 2011 2010 2009 2008 2007 2006 2005
Penalty Dale
August 3, 2015 August 1, 2014 August I, 2013
November 1, 2012 November 1,2011 December 13,2010 December 1,2009 November 3, 2008 December 3, 2007 September 1,2006
The County may provide for tax bills lo be payable in four installments instead of two. The County has not determined lo require payment of lax bills in four installments. During the periods of peak collections, tax receipts are forwarded to each Unit not less than weekly.
At the end of each collection year, the County Collector presents the Warrant Books to the Circuit Court and applies for a judgment for all unpaid taxes. The court order resulting from the application for judgment provides for an annual sale of all unpaid taxes shown on the year's Warrant Books (the "Annual Tax Sale"). The Annual Tax Sale is a public sale, at which time successful tax buyers pay the unpaid taxes plus penalties Unpaid taxes accrue interest at the rate of 1 5 percent per month from their due date until the date of sale. Taxpayers can redeem their property by paying the amount paid at the sale, plus an additional penally fee calculated from the penally bid at sale times a certain multiplier based on each six-month period after the sale. If no redemption is made within the applicable redemption period (ranging from six months to two and one-half years depending on the type and occupancy of the property) and the tax buyer files a petition in Circuit Court, notifying the necessary parties in accordance with applicable law, the tax buyer receives a deed to the properly. In addition, there are miscellaneous statutory provisions for foreclosure of tax liens.
If there is no sale ofthe tax lien on a parcel of property at Ihe Annual Tax Sale, the taxes are forfeited and eligible to be purchased at any time thereafter at an amount equal to all dclinqucnl taxes, interest and certain other costs to the dale of purchase Redemption periods and procedures are the same as applicable to the Annual Tax Sale, except that a different penally rate may apply depending on the length ofthe redemption period.
A scavenger sale (the "Scavenger Sale"), like the Annual Tax Sale, is a sale of unpaid taxes. A Scavenger Sale must be held, at a minimum, every two years on all properly in which laxes are delinquent for two or more years The sale price ofthe unpaid taxes is the amount bid at ihe Scavenger Sale, which may be less lhan the amount ofthe delinquent taxes Redemption periods vary from six months to two and one-half years depending upon Ihe type and occupancy ofthe properly.
The annual appropriation ordinance ofthe City has a provision for an allowance for uncollectible taxes The City reviews this provision annually to determine whether adjustments arc appropriate For tax year 2014, collectible in 2015, the allowance for uncollectible taxes is about four percent ofthe estimated gross tax levy For financial reporting purposes, uncollected taxes are written off by the City after four years, but are fully reserved alter one year
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Property Tax Limit Considerations
Suite of Illinois. The Property Tax Code limits (a) the amount of properly taxes that can be extended for non-home rule units of local government located in the County and five adjacent counties and (b) the ability of those entities to issue general obligation bonds without voter approval (collectively, the "State 'fax Cap") Generally, the extension of property taxes for a unit of local government subject to the State Tax Cap may increase in any year by five percent or the percent increase in the Consumer Price Index for the preceding year, whichever is less, or the amount approved by referendum. The State Tax Cap does not apply to "limited bonds" payable from a unit's "debt service extension base" or to "double-barreled alternate bonds" issued pursuant to Section 15 ofthe Local Government Debt Reform Act.
As a home rule unit of government, the City is not subject to the Stale Tax Cap. Under the Illinois Constitution of 1970, the enactment of legislation applying the State Tax Cap to the City and other home rule municipalities would require a law approved by the vote of three-fifths ofthe members of each house ofthe Illinois General Assembly and the concurrence ofthe Governor of the State of Illinois. It is not possible to predict whether, or in what form, any property tax limitations applicable to the City would be enacted by the Illinois General Assembly The adoption of any such limits on the extension of real property taxes by the Illinois General Assembly may, in future years, adversely affect the City's ability lo levy property taxes to finance operations at current levels and the City's power to issue additional general obligation debt without the prior approval of voters
As a home rule unit of government, the City is not limited as to the amount of debt it may issue payable from ad valorem property taxes. The General Assembly may limit by law the amount and require referendum approval of such debt, but only to the extent such debt, in the aggregate, exceeds three percent ofthe assessed value of all taxable properly in the City
State law imposes certain notice and public hearing requirements on non-home rule units of local government that propose to issue general obligation debt. These requirements do not apply to the City.
The City In 1993, the City Council of the City adopted an ordinance (the "Chicago Property Tax Limitation Ordinance") limiting, beginning in 1994, the Cily's aggregate property tax levy to an amount equal to the prior year's aggregate property tax levy (subject to certain adjustments) plus the lesser of (a) five percent or (b) the percentage increase in the annualized Consumer Price Index for all urban consumers for all items, as published by the United States Department of Labor, during the 12-month period most recently announced prior to the filing ofthe preliminary budget estimate report The Chicago Property Tax Limitation Ordinance also provides that such limitation shall not reduce that portion of each levy attributable lo the greater of (i) for any levy year, interest and principal on general obligation notes and bonds ofthe Cily outstanding on January 1, 1994, to be paid from collections ofthe levy made for such levy year, or (ii) the amount ofthe aggregate interest and principal payments on ihe City's general obligation bonds and notes during the 12-month period ended January 1, 1994, subject to annual increase in Ihe manner described above for the aggregate levy (the "Safe Harbor") Additional safe harbors are provided for portions of any levy attributable to payments under installment contracts or public building commission leases or attributable to payments due as a result ofthe refunding of general obligation bonds or notes or of such installment contracts or leases
Pursuant to the Bond Ordinance, the taxes levied by the City for the payment of principal and interest on the Bonds are not subject to the limitations contained in the City Property Tax Limitation Ordinance
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APPENDIX E RETIREMENT FUNDS
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RETIREMENT FUNDS
TABLE OF CONTENTS
Page
General E-l
Source Information E-2
Background Information Regarding the Retirement Funds E-3
Determination of Employee Contributions E-7
Determination of City's Contributions E-8
The Actuarial Valuation E-ll
Actuarial Methods E-l3
Actuarial Assumptions E-l5
Funded Status ofthe Retirement Funds E-l 7
Net Pension Liability and Discount Rate E-25
Projection of Funded Status F.-26
Legislative Changes E-32
Diversion of Grant Money to the Retirement Funds Under P.A. 96-1495 and P.A 98-641 E-36
Effect on MEABF and LABF If P.A. 98-641 Found Unconstitutional E-36
Pension Reform E-40
Report and Recommendations ofthe Commission to Strengthen Chicago's Pension Funds E-40
Special Revenue and Enterprise Fund Allocation of Retirement Fund Costs E-42
Impact of Retirement Funds' Unfunded Liability on the City's Bond Ratings E-42
PAYMENT FOR OTHER POST-EMPLOYMENT BENEFITS E-43
General E-43
The Settlement K-44
City Financing ofthe Health Plan E-44
Actuarial Considerations E-45
Funded Status E-46
Retiree Health Benefits Commission E-47
Status of Healthcare Benefits Alter the Settlement Period E-47
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RETIREMENT FUNDS
General
Pursuant to the Illinois Pension Code, as revised from time to time (the 'Pension Code"), the Cily contributes to four retirement funds, which provide benefits upon retirement, death or disability to members of these retirement funds. Such retirement funds arc, in order from largest to smallest membership: (i) the Municipal Employees' Annuity and Benefit Fund of Chicago ("MEABF"); (u) the Policemen's Annuity and Benefit Fund of Chicago ("PABF"), (in) the Firemen's Annuity and Benefit Fund of Chicago ("FABF"); and (iv) the Laborers' and Retirement Board Employees' Annuity and Benefit Fund of Chicago ("LABF" and, together with MEABF, PABF and FABF, the "Retirement Funds").
The Retirement Funds are established, administered and financed under the Pension Code, as separate bodies politic and corporate and for the benefit ofthe members of the Retirement Funds. The City's contributions to the Retirement Funds, and benefits for members of the Retirement Funds, arc governed by the provisions ofthe Pension Code. See "— Determination of City's Contributions" below. This Appendix describes, among other things, the current provisions ofthe Pension Code applicable lo the City's funding ofthe Retirement Funds. No assurance can be made that the Pension Code will not be amended in the future.
The Retirement Funds' funding sources are the City's contributions, the employees' contributions and investment income on the Retirement Funds' assets. The City's and employees' contribution levels are determined pursuant to the Pension Code.
The Retirement Funds have been actuarially determined to be significantly underfunded. See "— Funded Status ofthe Retirement Funds" and "— Projection of Funded Status" below. The funded status ofthe Retirement Funds has adversely impacted, and threatens to further negatively impact, the City and its taxpayers in several ways, certain of which are described in this paragraph and throughout this Appendix First, the City's bond ratings have declined based, according to the reports of the rating agencies issued with respect to such downgrades, in part on the size ofthe Retirement Funds' unfunded liabilities and the projected impact of future City contributions to the Retirement Funds on the City Sec "Impact of Retirement Funds' Unfunded Liabilities on the City's Bond Ratings" below In addition, as described m the following paragraphs, the magnitude of the Retirement Funds' underfunding has prompted the Illinois General Assembly to pass legislation which would, as currently constituted, significantly increase the Cily's contributions to the Retirement Funds Such additional contributions are expected to substantially burden the City's financial condition Further, the governmental units with which the tax base ofthe City overlaps, which include, but are not limited to, the Chicago Board of Education of the City of Chicago (the "Board of Education"), the Chicago Park District ("CPD"), the County of Cook (the "County") and the State of Illinois (the "State") (collectively, all such other units are referred to herein as the "Governmental Units"), as defined and described herein, have overlapping tax bases with the City and are also experiencing significant pension plan underfunding which, in combination with the current financial position of the Retirement Funds, places a substantial potential burden on the City's taxpayers who bear the burden of funding a portion ofthe contributions ofthe City and the Governmental Units. See "—Background Information Regarding the Retirement Funds— Overlapping fax Bodies" below
As noted above, in an effort to improve the funded status ofthe Retirement Funds, the Illinois General Assembly passed two statutes designed to improve the funding levels ofthe Retirement Funds PA 98-641 (winch is defined and described herein), which modifies provisions of the Pension Code
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related to MEABF and LABI-", and P.A. 96-1495 (which is defined and described herein), which modifies provisions ofthe Pension Code with respect to PABF and FABF.
PA 98-641 significantly increases the City's contributions to MEABF and LABF and makes other adjustments that caused the unfunded liabilities of MEABF and LABF to decrease on its effective date and will cause such unfunded liabilities to decrease further over time See "—Determination of City's Contributions"—City's Required Contributions to LABF and MEABF Pursuant to P.A. 98-641" below. Information regarding projected future City contributions to LABF and MEABF pursuant to P.A 98-641 is set forth in TABLE 13—"Projection of Future Funding Status—MEABF," TABLE 14— "Projection of Future Funding Status—LABF" and TABLE 18—"Projected Contributions MEABF and LABF" below. P.A 98-641 is currently being challenged as to its constitutionality in two separate lawsuits. See"—Legislative Changes—P.A. 98-64P' below.
P.A. 96-1495 is expected to reduce the unfunded liabilities of PABF and FABF because it significantly increased future City contributions to be made by the City to PABF and FABF. See "— Determination of City's Contributions—City's Required Contributions to PABF and FABF Beginning in 2016" below P.A. 96-1495 has been projected to require an increase in the City's contributions to PABF and FABF from approximately $297 million in 2015 to approximately $839 million in 2016, with increase of approximately three percent each year thereafter. See TABLE 15—"PROJECTION OF FUTURE FUNDING STATUS"—FABF" and TABLE 16—"PROJECTION OF FUTURE FUNDING STATUS—PABF" below In addition, as a result of certain changes to PABF's actuarial assumptions beginning with the 2014 Actuarial Valuation (as defined and described herein), the City's contributions to PABF are expected to increase by approximately $62 million for the 2017 Contribution. The City expects that the increases in the City's contributions to PABF and FABF mandated by P A 96-1495 will substantially burden the Cily's financial condition. Taken together with the increase in City contributions under P.A. 98-641, the burden on the Cily's financial condition would be even greater.
Certain statements made in this Appendix are based on projections, are forward-looking in nature and are developed using assumptions and information currently available. Such statements are subject to certain risks and uncertainties The projections set forth in this Appendix rely on information produced by the Retirement Funds' independent actuaries (except where specifically noted otherwise) and were not prepared with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information This information is not fact and should not be relied upon as being necessarily indicative of future results Readers of this Appendix are cautioned not to place undue reliance on the prospective financial information. Neither the City, the City's independent auditors, nor any other independent accountants have compiled, examined, or performed any procedures with respect to the prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achicvability, and assume no responsibility for, and disclaim any association with, the prospective financial information.
Source Information
The information contained in this Appendix relies in part on information produced by the Retirement Funds, their independent accountants and their independent actuaries (the "Source Information") Neither the City nor the City's independent auditors have independently verified the Source Information and make no representations nor express any opinion as to the accuracy ofthe Source Information
Furthermore, where the tables in this Appendix present aggregate information regarding the Retirement Funds, such combined information results solely from the arithmetic calculation of numbers
presented in the Source Information and may not conform to the requirements for the presentation of such information by the Governmental Accounting Standards Board ("GASB"') or the Pension Code.
Certain of the comprehensive annual financial reports of the Retirement funds (each a "CAFR"' and together the "CAFRs"), and certain of the actuarial valuations of the Retirement Funds (each, an "Actuarial Valuation" and together, the "Actuarial Valuations"), may be obtained by contacting the Retirement Funds Certain of these reports may also be available on the Retirement Funds' websites (www.meabf.org ; www.chipabf org, wwwlabfchicago.org , and wwwfabf.org ), provided, however, that the contents of these reports and ofthe Retirement Funds' websites are not incorporated herein by such reference.
The Retirement Funds typically release their Actuarial Valuations in the April or May following the close of their fiscal year on December 31. All ofthe Retirement Systems have released their 2014 Actuarial Valuations.
Background Information Regarding the Retirement Funds
General
Each of the Retirement Funds is a single-employer, defined-benefit public employee retirement system. "Single-employer" refers to the fact that there is a single plan sponsor, in this case, the City. "Defined-benefit" refers to the fact that the Retirement Funds pay a periodic benefit lo employees upon retirement and survivors in a fixed amount determined at the time of retirement. The amount of the periodic benefit is generally determined on the basis of service credits and salary Eligible employees receive the defined benefit on a periodic basis for life, along with certain benefits to spouses and children that survive the death of the employee.
To fund the benefits to be paid by a defined-benefit pension plan, bolh employees and employers make contributions to the plan. Generally in a dcfincd-bcncfil pension plan, employees contribute a fixed percentage of their annual salary and employers contribute the additional amounts required (which amounts may be determined pursuant to statute, as in the case of the City), when combined with the investment earnings on plan assets, to pay the benefits under the pension plan Sec "Table 1 -Membership," "—Determination of Employee Contributions" and "—Determination of City's Contributions" below
The benefits available under the Retirement Funds accrue throughout the time an employee is employed by the City. Although the benefits accrue during employment, certain age and service requirements must be achieved by an employee lo generate a retirement or survivor's periodic defined benefit payment upon retirement or termination from the City 'fhe Retirement Funds also provide cerlain disability benefits and, until the later ofthe date on which the City no longer provides a health care plan for the annuitants or December 31, 2016, retiree healthcare benefits to eligible members
Section 5 of Article XIII ofthe Illinois Constitution (the "Pension Clause") provides as follows
"Membership in any pension retirement system ofthe State, any unit of local government or school district, or any agency or instiumentality thereof, shall be an enforceable contractual relationship, the benefits ol" which shall not be diminished or impaired ":
For a discussion ofthe Pension Clause in the context of possible pension reform related to the Retirement Funds, sec "—Pension Reform" below
References in this Appendix lo "member" are references to ihe active, inactive and retired employees ofthe City and their beneficiaries, the active, inactive and retired employees ofthe Retirement Funds participating in the Retirement Funds and their beneficiaries, and with regard to MEABF, certain employees of the Board of Education who are members of MEABF as described below, and their beneficiaries.
The Retirement Funds
Municipal Employees' Annuity and Benefit Fund of Chicago MEABF is established by and administered under Article 8 ofthe Pension Code MEABF provides age and service retirement benefits, survivor benefits and disability benefits to all eligible members. MEABF is administered under the direction of a five-member board of trustees (the "MEABF Board"), whose members are responsible for managing and administering MEABF for the benefit of its members In addition to City and Retirement Fund employees, former employees and survivors, MEABF's membership includes non-instructional employees of the Board of Education ("CBOE Employees"). With respect to MEABF, the terms "employee" and "member" include the CBOE Employees. The CBOE Employees account for almost half of MEABF's membership. The Mayor ofthe City, the City Clerk, the City Treasurer, and members ofthe Cily Council may participate in MEABF if such persons file, while in office, written application lo the MEABF Board.
Policemen's Annuity and Benefit Fund of Chicago PABF is established by and administered under Article 5 of the Pension Code. PABF provides retirement and disability benefits to the police officers of the City, their surviving spouses and their children PABF is administered by an eight-member board of trustees (the "PABF Board"). Members ofthe PABF Board are charged with administering the PABF under the Pension Code for the benefit of its members.
Firemen's Annuity and Benefit Fund of Chicago. FABF is established by and administered under Article 6 of the Pension Code. FABF provides retirement and disability benefits to fire service employees and iheir survivors. FABF is governed by an eight-member board of trustees (the "FABF Board") Members ofthe FABF Board are statutorily mandated to discharge their duties solely in the interest of FABF's members.
Laborers' and Retirement Board Employees' Annuity and Benefit Fund of Chicago. LABF is established by and administered under Article 11 of Ihe Pension Code. LABF provides retirement and disability benefits for employees of the City and the Board of Education who arc employed in a title recognized by the City as labor service and for the survivors of such employees. LABF is governed by an eight-member board of trustees (the "LABF Board" and, together with the MEABF Board, the PABF Board and the FABF Board, the "Retirement Fund Boards"). Members ofthe LABF Board arc statutorily mandated to discharge their duties solely in the interest of LABF's members.
The membership ofthe Retirement Funds as of December 31, 2014, was as follows'
TABLE 1 - MEMBERSHIP
Retirement Fund
MEABF
PABF
FABF
LABF
Total
Active Members
30,160 12,020 4,809 2,837
49,826
Inactive/ Entitled to Benefits
15.495 630 65 1,449
17,639
Retirees and Beneficiaries
24,855 13,230 4,703 3,902
46,690
Totals
70,510 25,880 9,577 8.188
114,155
Source Actuarial Valuations ofthe Retirement Systems as of December 31, 2014.
Overlapping Taxing Bodies
The City's tax base overlaps with the Governmental Units, which includes, but is not limited to, the Board of Education, the CPD, the County and the State. Certain ofthe Governmental Units maintain their own defined benefit pension plans (collectively, all such other plans are referred to herein as the "Other Retirement Funds"), many of which are also significantly underfunded. The underfunding of these Other Retirement Funds places a substantial additional potential burden on the City's taxpayers, who bear the burden of funding a portion ofthe contributions of the Governmental Units.
State Pension Reform Act and Litigation On May 8, 2015, the Illinois Supreme Court affirmed the decision of Ihe Sangamon County Circuit Court that Public Act 98-0599 (the "State Pension Reform Act") is unconstitutional. The State Pension Reform Act would have provided for certain cost-saving and other reforms to the State's four largest pension plans, including, but not limited to, changes to the employee and employer contribution formula, cost of living adjustments, retirement ages and employee contributions The State Pension Reform Act was challenged on behalf of various classes of annuitants, current and former workers, and labor organizations, alleging, among other things, that the legislation violates the Pension Clause.
Chicago Park District Pension Reform On January 7, 2014, then Governor Pat Quinn signed Public Act 98-0622 into law (the "CPD Pension Reform Act") The CPD Pension Reform Act provides for certain cost-saving and other reforms to CPD's pension plan, including, but nol limited to, changes to the employee and employer contribution formula, cost of living adjustments, retirement ages and employee contributions Such changes became effective on June 1, 2014. The City is not aware of any lawsuit that has been filed challenging the CPD Pension Reform Act 'fhe City makes no prediction as to whether any lawsuit will be filed challenging the CPD Pension Reform Act, or whether the filing of any such lawsuit or its outcome would impact the City's pension reform efforts, nor does the City make any prediction as to whether the Illinois Supreme Court decision with respect to the State Pension Reform Act will impact the CPD Pension Reform Act
For more information on these Other Retirement Funds, please refer lo the State's Commission on Government Forecasting and Accountability ("COGFA") website at hltpV/cgfa ilga gov/homc aspx, provided, however, that the contents of the COGFA website are nol incorporated herein by such reference 'fhe City believes the information on COGFA"s website to be reliable, however, the City takes no responsibility for the continued accuracy ofthe Internet address or for the accuracy or timeliness of information posted on that website
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Certain Duties
Each Retirement Fund Board is a fiduciary of its respective Retirement Fund and is authorized to perform all functions necessary for operation ofthe Retirement Funds. The Pension Code authorizes each Retirement Fund Board to make certain decisions, including decisions regarding the investment of funds, the management of assets, the disbursement of benefits, and the hiring of staff, financial advisors and asset managers.
Each Retirement Fund Board is authorized to promulgate rules and procedures regarding their administration of benefits and other matters in accordance with the Illinois Administrative Procedure Act, and their decisions in awarding, limiting, or denying benefits are subject to the Illinois Administrative Procedure Act. Certain aspects of the Retirement Funds, however, including the defined benefits and the employer and employee contribution levels, are established in the Pension Code and may be amended only by an amendment to the Pension Code.
The Pension Code provides that the expenses incurred in connection with the administration of the Retirement Funds are not construed to be debt imposed upon the City. Such expenses are the obligation ofthe Retirement Funds exclusively, as separate bodies politic and corporate
The Illinois Attorney General and annuitants may bring a civil action to obtain relief for violations of a fiduciary duty to the Retirement Funds or any act or practice which violates any provision of the Pension Code.
Investments
Each Retirement Fund Board manages the investments of its respective Retirement Fund. State law regulates the types of investments in which the Retirement Funds' assets may be invested. Furthermore, the Retirement Fund Boards invest the Retirement Funds' assets in accordance with the prudent person rule, which requires members ofthe Retirement Fund Boards, who are fiduciaries ofthe Retirement Funds, to discharge their duties with the care, prudence and diligence that a prudent person acting in a like capacity and familiar with such matters would use in a similar situation.
In carrying out their investment duty, the Retirement Fund Boards may appoint and review investment managers as fiduciaries to manage the investment assets of the Retirement Funds Such investment managers are granted discretionary authority to manage the Retirement Funds' assets. Additional information regarding the Retirement Funds' investments and investment management may be found on the Retirement Funds' websites; provided, however, that the contents of such websites are not incorporated into this Appendix by such reference.
Table 2 provides information on the investment returns experienced by each of the Retirement
Funds
TABLE 2 - INVESTMENT RATES OF RETURN, 2005-2014
MEABF
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Assumed Rate"
6% 12.7
73 (28 7) 19.6 14 2
0.1 12.8 16.1
4.7|1010|9.5% 140 11 0 (33 8) 23.7 17.7 (2.0) 162 19.5
2 9
8.0
7.8% 11 2
8.0 (29.2) 21 5 15 5 (0.3) 14.6 15.8
3.8
7.5
7 3% 12.1
8.8 (27.8) 21 5 12 7
0.8 124 137
5 9
7.5
Source For FABF, ihe audited financial statements of FABF for fiscal years 2003-2012 and the Actuarial Valuations of FABF for fiscal years 2013 and 2014 For MliABT. the CAFRs of MEABF for fiscal years 2003 and 2004 and the Actuarial Valuation of MEABF as of December 31, 2014 For LABF and PABF, the respective CAFRs of such Retirement Funds for Ihe fiscal years 2003-2012 and the respective Actuarial Valuations of such Retirement Funds for fiscal years 2013 and 2014.
(1) Reflects the assumed rate of return of ihe Retirement Funds as of December 31, 2014, as discussed in further detail under "Actuarial Assumptions—Assumed Investment Rate of Return" below
Determination of Employee Contributions
Employees are required to contribute to their respective Retirement Fund as set forth in the Pension Code.
Prior to the implementation of PA. 98-641 on January I, 2015, MEABF employees contributed 8.5 percent of their salary lo MEABF (consisting of a 6.5 percent contribution for employee benefits, a 1.5 percent contribution for spouse benefits, and a 05 percent contribution for an annuity increase benefit). For a summary ofthe increases in employee contributions that take effect under P.A. 98-641, sec "—Legislative Changes —P.A 98-64J."
PABF employees contribute 9.0 percent of their salary to PABF (consisting of a 7 0 percent contribution for employee benefits, a I 5 percent contribution for spouse benefits and a 0 5 percent contribution for an annuity increase benefit)
FABF employees contribute 9 125 percent of their salary lo FABF (consisting of a 7.125 percent contribution for employee benefits, a 1 5 percent contribution for spouse benefits, a 0 375 percent contribution for an annuity increase benefit and a 0 125% contribution for disability benefits).
Prior to the implementation of PA 98-641 on January 1, 2015, LABF employees contributed 8.5 percent of their salary to LABF (consisting of a 6 5 percent contribution for employee benefits, a I 5 percent contribution for spouse benefits, and a 0 5 percenl contribution for an annuity increase benefit) For a summary ofthe increases in employee contributions that look effect under PA 98-641, see "— Legislative Changes —P.A. 95-67/."
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For each Retirement Fund, if an employee leaves without qualifying for an annuity, accumulated employee contributions are refunded.
Determination of City's Contributions
Under the Pension Code, the City's contributions to the Retirement Funds are determined pursuant to a statutory formula on an annual basis. Currently, the Cily's contributions equal the Multiplier Funding (as defined below) and certain other amounts as required by the Pension Code. "Multiplier Funding" is equal to the product of a multiplier established by the Pension Code for each Retirement Fund (each, a "Multiplier") and the amount contributed by the Cily's employees two years prior to the year in which the tax is levied. With respect to the City's 2015 contribution, the Multiplier for each Retirement Fund is as follows 1.25 for MEABF; 2.00 for PABF; 2 26 for FABF; and 1.00 for LABF. The City's contributions are made as governed by the Pension Code and are not based on the Actuarially Required Contribution (as hereinafter defined). See "—The Actuarial Valuation—City's Contributions Nol Related to GASB Standards" below. However, pursuant to P.A. 96-1495, beginning in 2016, the City's contributions to PABF and FABF will be determined pursuant to the P.A 96-1495 Funding Plan (as hereinafter defined) rather than the Multiplier Funding system. See "—City's Contributions to PABF and FABF Beginning in 2016" below. Furthermore, beginning in 2021, P.A. 98-641 requires that the City's contributions to MEABF and LABF be determined pursuant to the PA. 98-641 Funding Plan (as hereinafter defined) rather than the Multiplier Funding system. See "—City's Required Contributions to LABF and MEABF Pursuant to P.A. 98-641" below.
The Pension Code provides that the Retirement Fund Boards must each annually certify to the City Council a determination of the required Cily contribution to the Retirement Funds. In making its request for the City's annual contribution, each Retirement Fund, acting through its Retirement Fund Board, annually approves and then submits a resolution to the City Council requesting that the City Council levy for a particular contribution amount. The City has generally paid the amounts so requested. Sec "—City's Contributions to FABF" below.
The City's contributions to the Retirement Funds have historically been made primarily from the proceeds of an annual levy of properly taxes for each ofthe Retirement Funds (collectively, the "Pension Levy") by the City solely for such purpose, as provided by the Pension Code However, the Pension Code allows the City to use any other legally available funds (collectively, the "Other Available Funds," as described below) in lieu ofthe Pension Levy to make its contributions to the Retirement Funds. The amount ofthe Pension Levy, like any City property lax levy, must be approved by the City Council The Pension Levy is exclusive of and in addition to the amount of property taxes which the City levies for other purposes
If Other Available Funds are being utilized to pay a portion ofthe City's contributions, such funds are to be deposited with the City Treasurer lo be used for the same purpose as the Pension Levy fhe City's practice has been to use a portion of the City's Personal Property Replacement Tax revenue ("PPRT") to pay a portion ofthe City's contributions PPRT revenue is paid by the State of Illinois (the "State") to the City from the Personal Property Replacement Tax Fund ofthe State pursuant to Section 12 ofthe Revenue Sharing Act ofthe Slate Fhe City's distributive share of PPRT is nol required to be used for this purpose but it can be used by the City for corporate purposes. Since 2003, the amount of PPRT contributed by the City to the Retirement Funds in the aggregate has averaged approximately $78,387,000 annually In 2012, 2013 and 2014, the amounts of PPRT contributed to the Retirement Funds m the aggregate were approximately $101,875,000, $126,639,000 and $127,239,000 respectively For those same "years, the City's total distributive share of PPRT was $139,461,000, $159,559,000 and $158,547,000, respectively
The contnbulions to the Retirement Funds in accordance with the Pension Code, which have been generally lower than the Actuarially Required Contribution, have contributed to the significant underfunding of the Retirement Funds. Moreover, the contributions to the Retirement Funds in accordance with the Pension Code have had the effect of deferring the funding of the Retirement Funds' liabilities, which increases the costs of such liabilities and the associated financial risks, including the risk that each Retirement Fund will not be able to pay its obligations as they become due. Any significant increases in the City's contributions (such as those scheduled to occur under P.A 96-1495 and P A. 98-641 if determined to be constitutional ) to the Retirement Funds can be expected to place significant strain on the City's finances. As shown in TABLE 15—"Projection of Future Funding Status—FABF" and TABLE Id)—"Projection of Future Funding Status—PABF" herein, the City's contributions to FABF and PABF are projected to increase in fiscal year 2016, when compared to fiscal year 2015, by approximately $136.3 million and $405.0 million, respectively, pursuant to the provisions of P.A. 96-1495. In addition, as shown in TABLE 13—"Projection of Future Funding Status—MEABF," TABLE 14—"Projection of Future Funding Status—LABF" and TABLE 18—"Projected Contributions—MEABF and LABF" herein, the City's contributions to MEABF and LABF are projected to increase in fiscal year 2016, when compared to the Cily's contributions in fiscal year 2015, by approximately $85.3 million and $9 6 million, respectively pursuant to the provisions of P.A 98-641, if such act is determined to be constitutional.
Cily's Contributions to FABF
With respect to the contribution lo be made in 2015, Ihe FABF has requested certain amounts which the City has determined are not required by the Pension Code. The amount requested by the FABF Board in excess of the amount the City has determined to be the statutory requirement for 2014 was $18,147,000. The FABF Board has made similar requests for amounts in excess ofthe amount the Cily has determined to be the statutory requirement in each of the last several years In each such year, including the current year, the City has indicated that it will not contribute amounts in excess of the amount the City has determined to be the statutory contribution requirement for the City to FABF.
City's Required Contributions to PA BFand FABF Beginning in 2016
Public Act 096-1495 ("P A 96-1495") was signed into law on December 30, 2010. Among other things, P.A. 96-1495 created a new method of determining the contributions to be made by the City to PABF and FABF P.A. 96-1495 requires that, beginning in 2016, the City's contributions each year for PABF and FABF (the "P A. 96-1495 Contribution") will be equal to the amount necessary to achieve a Funded Ratio (as hereafter defined) of 90 percent in PABF and FABF by the end of fiscal year 2040 (the "P.A. 96-1495 Funding Plan").
Pursuant to the P.A 96-1495 Funding Plan, the P A 96-1495 Contribution for PABF and FABF will be calculated as the level percentage of payroll necessary to reach the 90 percent Funded Ratio target by 2040 In Cook and DuPage Counties (in which the City is located), property taxes levied in one year become payable during the following year in two installments As such, any property tax to be levied by the City for the purpose of raising the P A 96-1495 Contribution to be made by the City m 2016 would be levied in calendar year 2015 and collected in calendar year 2016
Unless amended by the Illinois General Assembly, the PA 96-1495 Funding Plan will significantly increase the City's required contributions to PABF and FABF beginning in 2016 and will impose a significant financial burden on the City Based on the amounts budgeted by the City for the 2015 contribution to PABF and FABI- and the 2013 Actuarial Valuation for PABF and FABF, the City's required contribution to PABF and FABF is expected to increase by appioximately $549 million in 2016 when compared lo the budgeted contribution for 2015 This contribution is expected lo increase by an
additional $62 million for fiscal year 2017 as a result of new assumptions lo be used by Ihe actuary for PABF beginning with the 2014 Actuarial Valuation Sec "—Funded Status of the Retirement Funds"' herein
Senate Bill 777 ("SB 777") passed both houses oflhc Illinois General Assembly as of May 31. 2015. SB 777 would extend the period by which the unfunded liabilities of PABF and FABF are amortized to a 90 percent Funded Ratio from 2040 to 2055 (the "Revised Amortization Period") and institute a phase-in period during 2016-2020 to reduce the City's required payment in the initial years to allow for a more gradual phase-in of the requirements of P.A. 96-1495 (the "Phase-in Period"). The Revised Amortization Period would reduce the annual funding obligation required to reach a 90 percent Funded Ratio, but extend the number of years over which such payments would need to be made. A motion to reconsider the vote on SB 777 was filed in the Illinois Senate on May 31, 2015, and, as such, SB 777 has not been sent to the Governor for consideration In addition to, or in lieu of, a Revised Amortization Period or a Phase-in Period, the Illinois General Assembly may consider other legislation that could affect the City payment obligations for PABF and FABF and/or funding sources for those obligations, including a City-owned casino. The City makes no representation as to whether or when SB 777 or any such other legislation would be enacted into law.
Any change to the P.A. 96-1495 Funding Plan which would reduce the contributions required of the City, such as a Revised Amortization Period or a Phase-in Period, would have the effect of increasing (he unfunded liabilities and decreasing the Funded Ratios of PABF and FABF when compared to the projected unfunded liabilities and Funded Ratios of such Retirement Funds set forth in Tables 13 and 14 below. The City expects that the City Council will consider options for addressing its pension funding requirement for PABF and FABF, including improvements in operating efficiencies and incremental revenues, after the Illinois General Assembly concludes its spring session. If an increase in property taxes were the sole source of incremental City contributions to PABF and FABF, and those contributions were not reduced by a Revised Amortization Period or Phase-in Period, the projected increase in the City's contribution to such Retirement Funds in 2016 would be $549 million, as described above, on a total estimated 2015 aggregate lax levy of $4 2 billion, including the City and overlapping taxing jurisdictions.
City s Required Contributions to LABF and MEABF Pursuant to P.A. 08-641
PA 98-641, which became law on June 9, 2014, modifies the manner in which the City's contributions lo LABF and MEABF arc calculated. For payment years 2016 through 2020, P A 98-641 retains the Multiplier Funding system as the method of calculating the City's contributions lo LABF and MEABF (unless the amount determined pursuant to the Multiplier Funding system for any year is more than the Normal Cost (as hereinafter defined) for such year plus the amount, determined on a level percentage of payroll basis, that is sufficient to achieve a Funded Ratio of 90 percent by the end of contribution year 2055), but increases the Multiplier as follows: for the contribution made in 2016, 1.60 (LABF) and 1 85 (MEABF); for the contribution made in 2017, 1 90 (LABF) and 2 15 (MEABF); for the contribution made in 2018, 2.20 (LABF) and 2 45 (MEABF), for the contribution made in 2019, 2.50 (LABI") and 2.75 (MEABF): and for the contribution made in 2020, 2.80 (LABF) and 3 05 (MEABF) Beginning in 2021, the City's contributions for LABF and MEABF will equal the Normal Cost for such year plus the amount, determined on a level percentage of payroll basis, that is sufficient to achieve a Funded Ratio of 90 percent in LABF and MEABF by the end of contribution year 2055 (the "P.A 98-641 Funding Plan").
PA. 98-641 is currently the subject of multiple legal challenges as to its constitutionality. Sec "Legislative Changes—PA 98-641" below If PA. 98-641 is overturned by a court, the concomitant reversion to the Pension Code provisions effective prior to its enactment would have the effect of increasing the UAAL and decreasing the Funded Ratio of MEABF and LABI-' Sec "—Effect on MEABF
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and LABF if P A 98-641 Found Unconstitutional" below for additional information regarding the effect of P.A 98-641 being overturned on the funded status of MEABF and LABF.
The Actuarial Valuation
General
The Pension Code requires that the Retirement Funds annually submit to the City Council a report containing a detailed statement ofthe affairs of such Retirement Fund, its income and expenditures, and assets and liabilities, which consists of the Actuarial Valuation. With respect to the Retirement Funds, the Actuarial Valuation measures the financial position of a Retirement Fund, determines the amount to be contributed by the City lo such Retirement Fund pursuant to the statutory requirements described above, and produces certain information mandated by the financial reporting standards issued by the Governmental Accounting Standards Board, as described below.
In producing the Actuarial Valuations, the Retirement Funds' actuaries use demographic data (including employee age, salary and service credits), economic assumptions (including estimated future salary and interest rates), and decrement assumptions (including employee turnover, mortality and retirement rales) to produce the information required by the Prior GASB Standards or the New GASB Standards, each as hereinafter defined, 'ihe Retirement Funds' Actuarial Valuations are publicly available and may be obtained from the Retirement Funds. See "—Source Information" above A description of the statistics generated by the Retirement Funds' actuaries in Ihe Actuarial Valuations follows in the next few paragraphs. This information was derived from the Source Information.
GASB, which is part of a private non-profit corporation known as the Financial Accounting Foundation, promulgates standards regarding accounting and financial reporting for governmental entities. These principles have no legal effect and do not impose any legal liability on the City The references to GASB principles in this Appendix do not suggest and should not be construed to suggest otherwise
Prior GASB Standards
For the fiscal years discussed in this Appendix prior to and including December 31. 2013, the applicable GASB financial reporting standards were GASB Statement No 25 ("GASB 25") and GASB Statement No. 27 ("GASB 27" and, together with GASB 25, the Prior GASB Standards"). The Prior GASB Standards required the determination of the Actuarially Required Contribution and the calculation of pension funding statistics such as the UAAL and the Funded Ratio in the Actuarial Valuation. In addition, the Prior GASB Standards allowed pension plans to prepare financial reports pursuant to a variety of approved actuarial methods, certain of which arc described in "'—Actuarial Methods" below
GASB 25 required disclosure of an "Actuarially Required Contribution," which was such pronouncement's method for calculating the annual amounts needed to fully fund the Retirement Funds, though the Actuarially Required Contribution was a financial reporting requirement and not a funding requirement. The Prior GASB Standards referred lo the Actuarially Required Contribution as Ihe "Annual Required Contribution", however, this Appendix refers to the concept as the Actuarially Required Contribution lo denote the fact that the Actuarially Required Contribution is the amount an actuary would calculate pursuant to the Prior GASB Standards to be contributed in a given year, to differentiate it from the amount the City will be required to contribute under Ihe Pension Code
The Actuarially Required Contribution as defined in GASB 25, consisted oflwo components (I) that portion ofthe present value of pension plan benefits which is allocated to the valuation year by ihe
actuarial cost method (as described in "—Actuarial Methods—Actuarial Accrued Liability" below), termed the "Normal Cost", and (2) an amortized portion of any UAAL (defined below)
The Actuarial Accrued Liability was an estimate of the present value of the benefits each Retirement Fund must pay lo members as a result of past employment with the City and participation in such Retirement Fund The Actuarial Accrued Liability was calculated by use of a variety of demographic and other data (such as employee age, salary and service credits) and various assumptions (such as estimated salary increases, interest rates, employee turnover, retirement date and age and mortality and disability rates). The Actuarial Value of Assets reflected the value ofthe investments and other assets held by each Retirement Fund. Various methods existed under the Prior GASB Standards for calculating the Actuarial Value of Assets and the Actuarial Accrued Liability. For a discussion of the methods and assumptions used to calculate the Retirement Funds' Actuarial Accrued Liability and Actuarial Value of Assets under GASB 25, see "—Actuarial Methods" and "—Actuarial Assumptions" below
Any shortfall between the Actuarial Value of Assets and the Actuarial Accrued Liability was referred to as the "Unfunded Actuarial Accrued Liability" or "UAAL." The UAAL represented the present value of benefits attributed to past service that are in excess of plan assets In addition, the actuary computed the "Funded Ratio," which was the Actuarial Value of Assets divided by the Actuarial Accrued Liability, expressed as a percentage. The Funded Ratio and the UAAL provide one way of measuring the financial health of a pension plan.
New GASB Standards
Beginning with the fiscal year ended December 31, 2014, GASB 25 was replaced with GASB Statement No. 67 ("GASB 67"), and GASB 27 will be replaced with GASB Statement No 68 beginning with the fiscal year ending December 31, 2015 ("GASB 68" and, together with GASB 67, the "New GASB Standards"). Unlike the Prior GASB Standards, the New GASB Standards do not establish approaches to funding pension plans. Instead, (he New GASB Standards provide standards solely for financial reporting and accounting related to pension plans The New GASB Standards require calculation and disclosure of a "Net Pension Liability," which is the difference between the actuarial present value of projected benefit payments that is attributed to past periods of employee service calculated pursuant to the methods and assumptions set forth in the New GASB Standards (referred to in such statements as the "Total Pension Liability") and the fair market value ofthe pension plan's assets (referred to as the "Fiduciary Net Position"). This concept is similar to the UAAL, which was calculated under the Prior GASB Standards, but most likely will differ from the UAAL on any calculation date because the Fiduciary Net Position is calculated at fair market value and because ofthe differences in the manner of calculating the Total Pension Liability as compared to the Actuarial Accrued Liability under the Prior GASB Standards
Furthermore, the New GASB Standards employ a rate, referred to m such statements as the "Discount Rate," which is used to discount projected benefit payments to their actuarial present values The Discount Rate may be a blended rate comprised of (I) a long-term expected rate of return on a Retirement Fund's investments (lo the extent that such assets arc projected to be sufficient lo pay benefits), and (2) a tax-exempt municipal bond rale meeting certain specifications set forth in the New GASB Standards Therefore, in certain cases in which Ihe assets of a Retirement Fund arc not expected lo be sufficient to pay the projected benefits of such Retirement Fund, the Discount Rate calculated pursuant to the New GASB Standards may differ from the assumed investment rale of return used in reporting pursuant to the Prior GASB Standards.
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Finally, the New GASB Standards require that the Net Pension Liability be disclosed in the notes to the financial statements of the pension system and that a proportionate share of the Net Pension Liability be recognized on the balance sheets ofthe employer In addition, the New GASB Standards require an expense (the "Pension Expense") to be recognized on the income statement ofthe City. The recognition ofthe Net Pension Liability and the Pension Expense do not measure the manner in which a Retirement Fund is funded and therefore do not conflict with the various manners of funding the Retirement Funds described in this Appendix.
As stated above, GASB 67 was first applied with respect to the Actuarial Valuation for the fiscal year ended December 31, 2014 The City expects that the New GASB Standards may significantly alter the financial statements produced by the City. For example, the Retirement Funds disclosed a combined Net Pension Liability of $22 1 billion as of December 31, 2014, which will impact the City's balance sheet in future years. However, because the City contributes to the Retirement Funds pursuant to the methods established in the Pension Code, the New GASB Statements will not materially impact the contributions made by the City without legislative action.
City's Contributions Not Related to GASB Standards
The City's contributions to the Retirement Funds are not based on the contribution calculations promulgated by GASB for reporting purposes. Instead, the City's contributions are calculated pursuant to the formulas established m the Pension Code. Sec "— Determination of City's Contributions" above.
'fhe methods for contributing to the Retirement Funds set forth in the Pension Code do not conform to the manner of funding established by the Prior GASB Standards which funding was based on the Actuarially Required Contribution. The difference between the City's actual contributions and the Actuarially Required Contribution (as calculated by the Retirement Funds' actuaries) for fiscal years 2005-2014 is shown in TABLE 4—"Information Regarding City's Contributions—Aggregated" below Each Retirement Fund's Actuarially Required Contribution is equal to its Normal Cost plus an amortization of the Retirement Funds' UAAL over a 30-year period MEABF, LABF and FABF amortize the UAAL on a level dollar basis, whereas PABF amortizes the UAAL on a level percent of payroll basis. P.A. 98-641 requires amortization for LABF and MEABF on a level percent of payroll basis. Both methods of calculating the Actuarially Required Contribution were acceptable under the Prior GASB Standards
Furthermore, beginning in 2016 with respect to PABF and FABF under the P.A 96-1495 Funding Plan and not later than 2021 with respect lo MEABF and LABF under the P A 98-641 Funding Plan, the City will contribute an actuarially determined amount, as opposed to the current, non-actuarial, multiplier-based approach, as set forth in the Pension Code. The P.A. 96-1495 Funding Plan and the P A. 98-641 Funding Plan differ from the manner of calculation required by the Prior GASB Standards for financial reporting purposes, primarily because the goal of such funding plans is to reach a Funded Ratio in the respective Retirement Funds of 90 percent whereas the Prior GASB Standards required the Retirement Funds to amortize the UAAL towards attainment of a 100 percent Funded Ratio.
The New GASB Standards do not require calculation of an Actuarially Required Contribution
Actuarial Methods
fhe Retirement Funds' actuaries employ a variety of actuarial methods to arrive al the pension statistics required by the Prior GASB Standards and the New GASB Standards Certain of these methods are discussed in the following sections
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Actuarial Value of Assets
Under the Prior GASB Standards, the Retirement Funds calculate their respective Actuarial Value of Assets by smoothing investment gains and losses over a period of five years, a method of valuation referred to as the "Asset Smoothing Method." Under the Asset Smoothing Method, the Retirement Funds recognize in the current year 20 percent ofthe investment gam or loss realized in that year and each ofthe previous four years. The Asset Smoothing Method was an allowable method of calculating the Actuarial Value of Assets under the Prior GASB Standards.
The Asset Smoothing Method lessens the immediate impact of market fluctuations on the Actuarial Value of Assets, which is used to calculate the UAAL and the Funded Ratio, that may otherwise occur as a result of market volatility. However, asset smoothing delays recognition of gains and losses, thereby providing an Actuarial Value of Assets that differs from the market value of pension plan assets at the time of measurement. As a result, presenting the Actuarial Value of Assets as determined under the Asset Smoothing Method might provide a more or less favorable presentation of the current financial position of a pension plan than would a method that recognizes investment gains and losses annually.
As described above, under the New GASB Standards, the Fiduciary' Net Position is equal to the fair market value of a pension plan's assets as ofthe date of determination. As such, the Asset Smoothing Method docs not apply to the determination of the Fiduciary Net Position under the New GASB Standards
fable 3 provides a comparison ofthe assets ofthe Retirement Funds (as aggregated) on a fair value basis and after application ofthe Asset Smoothing Method.
TABLE 3 - ACTUARIAL VALUE OF ASSETS VS. FAIR VALUE OF NET ASSETS -
AGGREGATED'"
Actuarial Value as
Fiscal Actuarial Value Fair Value of a Percentage of
Year of Assets12' Net Assets Fair Value
$13,086,060 $13,245,445 98 80%
13,435,692 14,164,347 94 86
14,254,816 14,595,514 97.67
13,797,344 9,844,339 140.16
13,051,349 10,876,846 119 99
12,449,863 11,408,555 109.13
11,521,138 10,536,135 109.35
10,531,447 10,799,603 97.52
10,513,564 11,261,254 93.36
10,339,208 10,665,597 96 94
Source 2005 through 2010 data is from ihe Actuarial Valuations ofthe Retirement funds as of December 31, 2010, and from the fund CAFRs for Ihe fiscal year ended December 31, 2010 Data from 201 I through 2014 is from the Actuarial Valuations ofthe Retirement funds for the fiscal yeais 201 1 through 2014
In thousands of dollars Dala is presented in the aggregate for the Retirement Funds
The Actuarial Value of Assets is calculated thiough use of Ihe Assel Smoothing Method
Actuarial Accrued Liability
As the final step in the calculation of actuarial liabilities, the actuary applies a cost method lo allocate the total value of benefits to past, present and future periods ol employee service This allocation
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is accomplished by the development ofthe Actuarial Accrued Liability and the Normal Cost under the Prior GASB Standards and the Pension Code and the Total Pension Liability under the New GASB Standards Currently, all of the Retirement Funds use the entry age normal actuarial cost method (the "EAN Method") with costs allocated on the basis of earnings fhe EAN Method was an approved actuarial cost method under the Prior GASB Standards and is the only allowable actuarial cost method under the New GASB Standards
Under the EAN Method, the present value of each employee's projected pension is assumed to be funded by annual installments equal to a level percentage of the employee's earnings for each year between entry age and assumed exit age. Each employee's Normal Cost, as calculated pursuant lo the Prior GASB Standards, for the current year is equal to Ihe portion of the value so determined, assigned to the current year Therefore, the Normal Cost for the plan for the year is the sum of the Normal Costs of all employees.
P.A. 96-1495 requires that, beginning in 2016, PABF and FABF calculate the Actuarial Accrued Liability pursuant to the projected unit credit actuarial cost method (the "PUC Method"). Under the PUC Method, Normal Cost represents the actuarial present value of that portion of an employee's projected bcncfil that is attributable to service in Ihe current year, based on future compensation projected to retirement. Under this method, the Actuarial Accrued Liability equals the actuarial present value of that portion of a member's projected benefit that is attributable to service to date, again, on the basis of future compensation projected to retirement.
Under either cost method, the Actuarial Accrued Liability is the portion of the present value of benefits assigned by the cost method to years of service up to the valuation date, i.e., for past service This value changes as the employee's salary changes and years of service increase, and as some employees leave and new employees are hired. Future Normal Cost is the portion ofthe present value of benefits assigned to future years of service and is assumed to be funded annually.
As compared to the EAN Method, the PUC Method will produce a more back-loaded growth in liabilities because the PUC Method allocates a higher portion of retirement costs closer to the time of retirement. Therefore, the PUC Method results in a slower accumulation of assets, which in turn requires smaller initial, and larger future, contributions (assuming funding is actuarially based, as under the PA. 96-1495 Funding Plan and under P.A 98-641). Deferring contributions in this manner increases the cost ofthe liabilities and the associated financial risks for PABF and FABF
Actuarial Assumptions
The Actuarial Valuations of the Retirement Funds use a variety of assumptions in order to calculate the statistics required by the Prior GASB Standards and the New GASB Standards Although several of the assumptions arc the same across all of the Retirement Funds, each Retirement Fund determines, within actuarial standards, the assumptions to be used in its Actuarial Valuation unless a specific assumption is fixed by the Pension Code No assurance can be given that any ofthe assumptions underlying the Actuarial Valuations will reflect the actual results experienced by the Retirement Funds Variances between the assumptions and actual results may cause increases or decreases in the statistics calculated pursuant to the Prior GASB Standards or the New GASB Standards Additional information on each Retirement Fund's actuarial assumptions is available in the respective 2014 Actuarial Valuations ofthe Retirement Funds See "—Source Information" above
The actuarial assumptions used by the Retirement Funds are determined by the individual Retirement Fund Boards upon the advice ofthe actuary for each Retirement Fund Board The Retirement Funds periodically perform experience studies to evaluate the actuarial assumptions in use The purpose
of an experience study is to validate that the actuarial assumptions used in the Actuarial Valuation continue to reasonably estimate the actual experience of the pension plan or, if necessary, to develop recommendations for modifications to the actuarial assumptions to ensure their continuing appropriateness.
Assumed Investment Rale of Return
The Actuarial Valuations assume an investment rate of return on the assets in each Retirement Fund. The average long-term investment rates of return currently assumed by the Retirement Funds are described in Table 2 above. Due to the volatility ofthe marketplace, however, the actual rate of return earned by the Retirement Funds on their assets in any year may be higher or lower than the assumed rate. Changes in the Retirement Funds' assets as a result of market performance will lead to an increase or decrease in the UAAL and the Funded Ratio As a result of the Retirement Funds' use of the Asset Smoothing Method, however, only a portion of these increases or decreases will be recognized in the current year, with the remaining gam or loss spread over the remaining four years See "—Actuarial Methods—Actuarial Value of Assets" above.
The assumed investment rate of return is used by each Retirement Fund's actuary as the discount rate to determine the present value of future payments to such Retirement Fund's members. Such a determination is part of the actuary's process to develop the Actuarial Accrued Liability under the Prior GASB Standards. Reducing the assumed investment rate of return will, taken independently of other changes, produce a larger Actuarial Accrued Liability for each Retirement Fund. Furthermore, as discussed above, an increase in the Actuarial Accrued Liability will, taken independently, increase the UAAL, decrease the Funded Ratio and increase the Actuarially Required Contribution.
Under the New GASB Standards, each Retirement Fund's actuary will calculate the Discount Rate, as described under "—Actuarial Valuation" above, a reduction in which will, taken independently of other factors, produce a larger Total Pension Liability for each Retirement Fund. Information regarding the Discount Rate and the sensitivity of the Total Pension Liability to changes in the Discount Rate is provided below in Table 12
Beginning with calendar year 2012, the Retirement Fund Boards of MEABF, LABF and PABF reduced the assumed investment rate of return lo be used by their respective actuaries in preparing future actuarial valuations. For MEABF and LABF, the assumed investment rate of return has been decreased to 7 50 percent beginning with calendar year 2012 For PABF, the assumed investment rate of return was decreased to 7.75 percent for calendar year 2012 and to 7 50 percent for calendar year 2014. FABF continues to assume an investment rate of return of 8.0 percent. For a discussion ofthe rate to be used by Moody's in analyzing public pension plans, see "—Impact of Retirement Funds' Unfunded Liability on the City's Bond Ratings" below.
These changes to the assumed investment rate of return will not impact contributions by the City to Retirement Funds when such contributions are determined pursuant to the Multiplier Funding System. However, beginning in 2016 with respect to PABF and no later than 2021 with respect lo MEABF and LABF, when P.A 96-1495 and PA 98-641, respectively, become effective and the City contributes to the Retirement Funds on an actuarial basis, such changes in the assumed investment rate of return will, taken independently of other facts, increase the City's contributions lo such Retirement Funds because the respective UAALs of PABF, LABF and MEABF will increase as described above and the P A 96-1495 Funding Plan and the PA. 98-641 Funding Plan require an amortization ofthe UAAL to reach a 90 percent funding target by 2040 and 2054, respectively
Funded Status ofthe Retirement Funds
In recent years, the Cily has contributed to the Retirement Funds the full amount of Multiplier Funding and certain other amounts determined by the City to be required by the Pension Code through a
combination of property tax revenues (through the Pension Levy) and PPRT funds. However, these amounts have not been sufficient to fully fund the Retirement Funds' Actuarially Required Contributions Moreover, expenses related to the Health Plan (as defined below) are paid from the Cily's contributions, which has the effect of reducing the Actuarial Value of Assets and decreasing the Funded Ratio.
Furthermore, the income from all sources (including employee contributions, City contributions and investment earnings) to the Retirement Funds has been lower than the cash outlays ofthe Retirement Funds in some recent years. As a result, the Retirement Funds have liquidated investments and used assets ofthe Retirement Funds to satisfy these cash outlays, fhe use of investment earnings or assets of the Retirement Funds for these purposes reduces the amount of assets on hand to pay benefits in the future and prevents the Retirement Funds from recognizing the full benefits of compounding investment returns
Table 4 provides information on the Actuarially Required Contribution, the City's actual contributions in accordance with the Pension Code and the percentage of the Actuarially Required Contribution made in each year.
As discussed under"— Determination ol'City's Comribuiions" above, the Citv and I'Alil- have disagreed ovei whether certain amounts are rctjinrcd unJer ihe Pension Code In addition, puisiianl In the IViimou Code the City did not make any connilmiious to LABT in fiscal years 2001 through 2006 because LABI7 had funds on hand in excess of us liabilities The Pension Code piovides lhal Ihe Cily will cease to make connibulions to LAI.il " in such a situation fhe City continued lo make conliihuliuns lo the uihcr Retirement funds dm ing lliose veais
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TABLE 4- INFORMATION REGARDING CITY'S CONTRIBUTIONS'1'-AGGREGATED
Percentage of Actuarially
Actuarially Required
Fiscal Required Actual Employer Contribution
Year Contribution Contribution'21 Contributed'''
$ 698,185 $423,515" 60.7%
785,111 394,899 50 3
2007'4) 865,776 395,483 45 7
2008(4> 886,215 416,130 47.0
2009,4) 990,381 423,929 42 8
2010(4> 1,112,626 425,552 38 2
2011<4> 1,321,823 416,693 315
2012(4) 1,470,905 440,120 29 9
2013(4) 1,695,278 442,970 26.1
2014,4) 1,740,973 447,400 25 7
Sources Actuarial Valuations ofthe Retirement Funds as of December 31, 2010, Dcccniher 31, 2011, December 31, 2012, December 31, 2013. and December 31, 2014. the Fund CAFRs for the fiscal year ended December 31, 2010. and the City CAFRs for the fiscal years ended December 31, 2011, December 31, 2012 and December 31. 2013
In thousands of dollars Data is presented in the aggregate for the Retirement Funds and uses assumptions and methods employed by each ofthe Retirement Funds For the data presented as of December 31. 2005 and December 31, 2006, contribution information includes amounts related to other post-employment benefits Beginning in 2007, as a result of a change in GASB standards, contribution information is presented exclusive of amounts related to other post-employment benefits.
Includes the portion of the PPRT contributed lo the Retirement Funds in each year
The estimated multipliers that would have been necessary for FABF, LABI-' and PABF to make the full Actuarially Required Contribution in 2014 were as follows 7 98 for FABF. 4 K7 for LABF. and 7 94 for PABF The estimated multiplier that would have been necessary for MEABF to make the full Actuarially Required Contribution in 2014 has not been publicly disclosed, however the necessary contribution multiple for 2013 was 4 52 Beginning in 2016, the City's contributions to PABF and FABF will nol be calculated in accordance with the Multiplier Funding system Pursuant to PA 98-641, ihe City's contributions lo LABF and MEABF will nol be calculated in accordance with the Multiplier Funding system beginning in 2021 See "—Determination ofCilys Contributions" above
Beginning in 2006, as a result of a change in GASB standards, the information in this Table 4 does nol include olher post-employment benefits, which the Cily's Compiehensive Annual Financial Repoil presents separately
PABF changed cerlain actuarial assumptions beginning with the fiscal year ended December 31, 2014 Specifically, PABF reduced its assumed investment rate of return from 7.75 percent to 7.50 percent and changed the mortality table used by its actuary to RP-2014, which projects longer lives for PABF members Considered independently of other factors, these changes increased Ihe GASB 25 Actuarial Accrued Liability, and, as a result, increased PABF's UAAL and Actuarially Required Contribution With respect to the City's 2017 contribution to PABF, these changes arc expected to result in an additional contribution of $62 million.
The continued decline in the percentage ofthe Actuarially Required Contribution contributed by the City, as shown in Table 4 above, results, in part, from the fact that the actuarial liability continues to grow due to the delayed recognition of gains and losses resulting from the Retirement Funds' use ofthe Asset Smoothing Method for financial reporting purposes under the Prior GASB Standards Sec "— Actuarial Methods—Value of Assets" above.
The following tables summarize the financial condition and the funding trends ofthe Retiiement
Funds
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