‘STATEMENT FROM BUDGET DIRECTOR SAMANTHA FIELDS ON 2018 BUDGET PROPOSAL TO ‘THE CITY COUNCIL COMMITTEE ON BUDGET AND GOVERNMENT OPERATIONS Monday, October 23, 2017 Good morning Chairman Austin, Vice Chairman Ervin, members of the Committee on Budget and Government Operations, and members of the City Council Mayor Rahm Emanuel’s 2018 budget recommendation builds on the significant work from the Previous six budgets to improve Chicago's long-term financial stability by addressing the City’s legacy liabilities from pensions to “scoop and toss” all while expanding investments in public safety, youth and family programming, and neighborhood services. The proposed 2018 budget balances the lowest operating budget shortfall in a decade; a deficit that has been reduced by over 80 percent since the Mayor took office. In 2015, Mayor Emanuel pledged to end the financial practice of “scoop and toss” by the 2019 budget, and as part of the proposed 2018 budget, the City has eliminated the need for “scoop and toss” a full year ahead of plan. ‘Over the past six years, the City Council and Mayor Emanuel have systematically worked to address the City’s legacy liabilities through fundamental changes to the way the City manages its finances. It took hard work and difficult decisions to get to this point, and the stable and balanced 2018 budget reflects our work, allowing the City to make significant investments in public safety for the second year in a row alongside other essential youth and neighborhood services Overview Just as it has been done in the six previous budgets, this proposed budget aligns our expenses with our revenues by streamlining government operations and increasing sustainable revenues, while maintaining core services and enhancing public safety. In 2012, the City’s projected the operating budget shortfall was $635.7 million. Through fundamental financial and budgetary reforms and revenue growth, we are now solving for a $114.2 million budget shortfall. We are also increasing investments in public safety, community policing, youth programming, and paying for a portion of Chicago Public Schools’ public safety costs for an additional expense in 2018 of $123.8 million Page 1 0f6The total local fund budget for 2018 is $8.58 billion. The proposed corporate fund budget, our core operating budget, is $3.77 billion. This is an increase of $23.6 million over 2017 year-end estimates dug to the shift of the Office of Emergency Management and Commun ations ("OEMC") expenses related to 911 operations and emergency preparedness off the corporate fund to its own dedicated special revenue fund. While this shift appears to remove over $100 million of expenses and corresponding revenue transfers from the corporate fund budget, the budgeting of 911 expenses and 911 surcharge revenue in a dedicated fund provides transparency and clarity to residents, allowing them to clearly see the costs supported directly by the 911 surcharge revenue. With an additional $1.43 billion in grant funding, the total proposed budget for 2018 is just over $10 billion. Public Safety and Other Key Investments ‘The invest ments in the 2018 budget reflect Mayor Emanuel and the City Council's ongoing work {0 strengthen law enforcement tools, improve critical city services, and expand early childhood, student and family programming in all neighborhoods. ‘As you know, in| 2017, the Chicago Police Department ("CPD") began a two-year plan to hire an additional 970 sworn officers. Included in the proposed 2018 budget is an additional investment of over $60 million to support the hiring of 250 Police Officers, 100 Detectives and 75 Sergeants. In| addition to the two year hiring plan, as part of CPD’s reform efforts, CPD will also add an addjtional 100 Field Training Officers bringing the total sworn count to 13,631 by the end of 2018. With this investment in the two-year hiring plan, there will be a new class of Police officers hitting the streets every month from July 2017 through mid-2019. The proposed 2018 budget also includes a $27.4 million investment in police reform initiatives Such as enhanced training, reform implementation, officer wellness, and community policing As part of this investment in police reform, the Administration right-sized certain civilian vacancies within CPD and reprioritized these existing vacancies to support the Office of Reform Management and community policing activities. In total, we were able to repurpose $3.4 million in existing, civilian vacancies within CPD. This proposed budget also includes the necessary funding to support the replacement of the twenty year old 11 system, ensuring the City becomes compliant with the State-mandated Page 2 0f6Next Generation 911 program by 2020, The new system will be funded over ten years, and will allow for more types of data to be exchanged across the 911 system, such as videos, pictures and text. The new 911 system will also improve coordination between the Chicago Police Department and Chicago Fire Department as data can more easily be shared and accessed between to the two departments during emergencies. The investment will also allow residents to voluntarily sign up for Smart911. Smart911 is a secure application that will allow residents to provide first responders with voluntary information regarding health conditions or number of family members in a home, so firefighters and police officers are aware in cases of fires and other emergencies, The necessary modernization of the City’s 911 system is proposed to be funded with a $1.10 increase in the 911 surcharge for a total charge of $5.00. With this increase, the City will be able to pay for the improvements to bring our 911 system into compliance with the State mandate, fully fund the City’s 911 operations with this dedicated surcharge, and free up approximately $19.0 million in corporate fund revenue to support other city services. ‘As the Mayor has said repeatedly, public safety is not the responsibility of the police and first responders alone, which is why since 2011, the City of Chicago has increased investments in youth programming more than threefold. The proposed 2018 budget includes an additional $5 million in neighborhood economic development and investments in youth, These additional investments include: * $2 million for additional afterschool programs, including Safe Passage © $1 million for summer jobs * $1million for Becoming a Man / Working on Womanhood * $500,000 to Thrive for youth job fairs and opportunity centers © $250,000 to support Tech Bootcamp a Chicago-Cook County Workforce Partnership * $200,000 for Year of Creative Youth * $150,000 for Chicago Public Libraries YouMedia Program and other early learning programs ‘* $200,000 for smoking cessation education and programming A total of $76,7 million in youth investments from afterschool programs to One Summer Chicago and skills development for out-of-work, out-of-school youth is included in the proposed 2018 budget, up from $21 million in 2011. Along with increasing investments in youth programming and public safety, Mayor Emanuel is proposing to increase funding for neighborhood services. Included in the proposed 2018 budget is an additional $500,000 for garbage carts along with five additional rodent abatement Page 3 of 6Crews, bringing the total to 30 rodent abatement crews working in neighborhoods throughout Chicago. Reforms, Savings, and Sustainable Revenue Growth When Mayor Emanuel appointed me as the Director of the Office of Budget and Management, he made clear that with the previous six budgets and continuing with this budget, we must ‘dentify all available savings and efficiencies first. To that end, the Administration and City Council have identified approximately $650 million in savings, reforms and efficiencies over the Past seven budgets. Asa result ofthe significant cost cutting and reform efforts put in place in previous budgets, this year our operating budget shortfalls at its lowest point in a decade, and with the proposed 2018 budget, we have identified $19.35 million in additional corporate fund savings and. reforms. This includes $5.5 million in combined savings in healthcare and workers ‘compensation tompared to initial projections, $3.4 million in vacancy reprioritization within CPD, and $10.27 million in non-personnel expense management reforms. The non-personnel savings include energy savings, savings from the elimination of duplicative graphics functions across departments, and ‘zero based budgeting’. Along with building on the savings and efficiencies in 2018 and prior years, the City has worked each year to increase sustainable revenue sources and take advantage of economic growth from our diverse set of revenues. The 2018 budgeted revenues reflect an increase in many of the City’s economically-sensitive revenue sources, which is consistent with the modest, but steady expansion of the national and local economies in recent years. Utility taxes, such as cable television, electricity taxes, and telecommunication taxes, are expected to total $435.7 million in 2018, which is $13.9 million higher than 2017 year-end estimates. This is due to a variety of factors including an expectation that winter weather returns to more normal patterns and business expansion is driving growth in telecommunication taxes. Transaction taxes, such as real property transfer tax and personal property lease tax, are budgeted at $422.6 million in 2018, which is in line with 2017 year-end revenue estimates. Page 4 of 6Sales and use tax revenue accounts for just over 17 percent of total budgeted corporate fund revenues in 2018. The budgeted revenue from the City’s Home Rule, Local Share, and restaurant sales and use taxes is $653.4 million in 2018. This is below 2017 year-end estimates due to the implementation of the 2.0 percent administrative fee applied by the State of Illinois, on the City’s portion of State collected Home Rules Sales tax and additional revenue required to pay debt service on bonds to be issued by the newly created Corporation, Recreation Taxes are expected to generate $268.9 million in 2018, up from the 2017 year-end estimate of $249.2 million. This increase is driven by the proposed change to eliminate the bifurcated amusement tax structure to provide tax relief to neighborhood venues providing cultural amusements, while leveling the tax playing field for larger, more mainstream venues. Transportation taxes include taxes on parking, vehicle fuel purchases, and ground transportation for hire. The proposed 2018 budget includes $293.5 million in transportation taxes, which is a nearly 9.0 percent increase over 2017 year-end estimates of $269.5 million. This revenue growth is primarily driven by the growing use of rideshare vehicles by Chicagoans. The proposed 2018 budget includes $128.5 million in business tax revenue. The 2017 year-end revenue estimate is $137.0 million, Business tax revenue in 2018 is expected to be down slightly relative to 2017 year-end estimates, due to the resolution of the decade-long litigation related to payment of the City’s hotel tax by internet hotel booking websites in 2017. in May 2017, the City received a net settlement payment of over $12 million, which was already accounted for as part of our 2017 budget ‘The proposed 2018 budget includes $252.5 million in income tax revenue, which is in line 2017 year-end revenue estimates. Personal Property Replacement Tax ("PPRT”) revenue in 2018 is budgeted at $134.2 million, which is $26.2 million below 2017 year-end estimates. PPRT revenue continues to be impacted by the State of Illinois diverting PPRT revenue from municipalities due to the State’s previous overpayments between April 2014 and March 2016. Additionally, the State continues to divert additional PPRT revenue from municipalities to offset State revenue reductions for community colleges. In 2012, Mayor Emanuel instituted a policy of reviewing each Tax Increment Financing (“TIF”) district on an annual basis and declaring unneeded funds as surplus. Along with an annual TIF surplus, the Mayor froze new spending in seven downtown TIFs in 2015 and has also announced a plan to surplus additional TIF increment generated from the higher property tax rate due to the recent property tax levy increases for police and fire pensions. These policies taken together are generating a total of $166.9 million in TIF surplus in 2018, providing $88 Page 5 of 6million to Chicago Public Schools, $40 million to the City of Chicago, and the remaining amount ‘eturned to other taxing districts based on their share of the aggregate levy The proposed 2018 budget also includes $94 million in corporate fund debt service savings, Since 2016, the City has made corporate revenue available to make debt service Payments, and because the bonds issued through the newly established Corporation are expected to achieve debt service savings, the proposed 2018 budget includes these savings Lastly, the City continues to improve debt collection and provide more opportunities for Scofflaws to pay what they owe. Through new data-driven strategies and other improved enforcement strategies, the City anticipates collecting over $10 million in additional revenue in 2018. Conclusion The proposed 2018 budget builds on the reforms Mayor Emanuel and the City Council have made over the past six years to restore the City’s financial health. Thank you for your time, and | look forward to working with this Committee and members of the City Council as we continue our progress toward a more financially secure Chicago. Page 6 of 6STATEMENT FROM CHIEF FINANCIAL OFFICER CAROLE BROWN ON 2018 BUDGET PROPOSAL TO THE CITY COUNCIL COMMITTEE ON BUDGET AND GOVERNMENT OPERATIONS Monday, October 23, 2017 Chairman Austin, Vice Chairman Ervin, members of the Committee on Budget and Government Operations, and members of the City Council. Thank you for the opportunity to present the financial strategies included as part of Mayor Rahm Emanuel’s proposed 2018 budget. As the Chief Financial Officer, my primary responsibility is to direct the City’s overall financial policy and provide day-to-day oversight of the City’s debt portfolio. My office also oversees our public-private partnerships, which includes agreements for the Chicago Parking Meters, Millennium Parking Garages, and the Skyway. In addition, my office manages the Municipal Marketing program comprising of the Chicago Digital Network and various advertising opportunities on city assets, such as Divyy bike stations, street furniture, and bus shelters. The Office of the CFO has spent the past two years working with Mayor Emanuel and the City Council to address the challenges that threatened the City’s long term financial stability. Financial Road Map In April 2015, Mayor Emanuel outlined five actions that would be implemented as part of the City budget each year to address the unsustainable financial practices of the past and mitigate risk for taxpayers. ‘As you know, these five actions included: ‘© Converting all of the City’s taxpayer-backed variable-rate debt portfolio to fixed-rate; ‘+ Terminating all taxpayer-backed interest rate swaps to end the risk associated with taxpayers; ‘* Continuing to increase operating budget funding for working capital and other short- term obligations; ‘© Adding to the City’s long-term reserve funds in each and every budget, and ‘Ending the practice of “scoop and toss” by 2019 We have made measurable steps to implement each of these reforms. Variable Rate Debt and Swap By the end of 2016, the City had converted its entire tax-back variable-rate debt portfolio to stable, fixed-rate debt, reducing taxpayer risk and helping to secure the City’s financial stability. Page 1of4Additionally, we terminated all corresponding swaps, ending taxpayer risk associated this financial practice. Scoop and Toss This October, Mayor Emanuel and the City Council approved an ordinance to create a revenue Securitization structure for the City, which is expected to achieve higher credit ratings and reduce debt service costs for taxpayers. The revenue securitization creates a separate Corporation for the sole purpose of issuing debt. The City intends to pledge State collected sales tax revenue on the City’s behalf to the new Corporation to repay debt issued by the Corporation for the benefit of the City. Beginning later this year and continuing over the next year with three additional transactions, the Corporation expects to refund $2.3 billion of general obligation debt and $515 million of existing sales tax bonds for present value savings in debt service costs. These transactions will be structured with accelerated savings and will provide budgetary benefit in 2018. We also expect to maintain level debt service over the life of the Corporation bonds to mitigate any negative impact on the City’s corporate fund. Since 2016, the City has made corporate fund revenue available to pay debt service. Because we expect to athieve present value savings in debt service upon execution of all four tranches, the proposed 2018 budget includes $94 million representing corporate fund debt service ‘savings. Further, that portion of the corporate fund contribution for general obligation debt service not needed for current debt service will be applied to future years’ debt service. After the completion of the final tranche of sales tax securitization debt, the City will have eliminated the need to use scoop and toss one year ahead of plan. Moving Operating Expense off Long-Term Borrowing Over the past five budgets, the City imposed greater fiscal discipline including by phasing-out the use of long-term debt to pay for certain working capital expenses. Previously, the City used long-term debt to pay for certain working capital expenses such as library books, garbage carts and other similar expenses. In 2018, the City will move another $5.3 million in working capital off long-term debt onto the City’s operating budget. Through strategic budget planning since 2012, the City has paid for more than $219 million in working capital from the operating budget, instead of resorting to long-term borrowing. Consistent with the Mayor's plan, the City hhas ended the practice of issuing long-term bonds to fund routine settlements and judgements. Page 2 of 4Long Term Reserves The City continues to add to the City’s long-term reserve funds each year. This budget includes the addition of $5 million. The City’s policy is to maintain sufficient unrestricted fund balances to mitigate current and future risks, emergencies, or unanticipated budget shortfalls. As part of its financial and budget practices, the City establishes and maintains three sources of the unrestricted budgetary fund balances, referred to collectively as Budget Stabilization Fund or fund balance: (i) Asset Lease and Concession Reserves, (ii) Operating Liquidity Fund, and (iii) Unassigned Fund Balance. Rather than raid the City’s reserve funds or sell City assets, Mayor Emanuel has added to the City’s reserves each year and established additional measures to stabilize the City’s budget. Since 2012, the City has added $40 million into its asset lease and concession reserves fund with another $15 million to its operating liquidity fund. In 2018, the City will deposit another $5 to its operating liquidity fund. miilior Surplus revenues identified throughout the annual financial audit process makes up the unassigned fund balance. The City’s unassigned fund balance has increased from $33.8 million in 2013 to $153.7 million in 2016. The growth has been due in part to the improving economy, enhancements in revenue systems, including debt collection and investment strategies, and ‘ongoing savings and efficiencies. As part of its budget stabilization policy, the City will adhere to the GFOA recommendation that governments maintain an unrestricted budgetary fund balance in their general fund of no less than two months of operating expenses. Further, the City does not appropriate more than one percent of the value of the annual corporate budget from the prior year’s audited unassigned fund balance in the current year’s budget. Pension Funding In recent years, the City achieved pension reform that ensures that each of our four pension funds will remain solvent without sacrificing services or forcing unsustainable contribution increases. In 2015, this Council took the first step towards addressing the City’s pension crisis by approving a four year property tax increase to fund for our police and fire pension funds. The City took this same approach to put the Laborers’ and Municipal pension funds on a path solvency last summer. This July, the improvements to the Municipal and Laborers’ funds were codified by the General Assembly through P.A. 100-0023. This legislation increased the required contribution for Page 3 of 4employees hired after July 6, 2017, to 11.5 percent of their salary and moved the City’s employer contributions to actuarially required contributions after a five year ramp period, The 2018 proposed budget includes a total of $1.19 billion in employer contributions to the City’s four furs, an increase of $157.5 million from 2017. The 2018 contribution will be funded with $805.5 milion in revenue from property tax collections, $104 million from the Corporate fund, $64.1 million from the water and sewer tax, and $116.8 million from the City’s enterprise and special revenue funds. Conclusion Through the hard work of Mayor Emanuel and City Council, Chicago is on a path to long-term financial stability. Chicago has proven itis possible to confront big financial challenges and to balance the baoks, while simultaneously investing in our City’s future. The deficit is the smallest it has been in over a decade. The Pensions are finally right-side up, rather than upside down. The City’s credit outlook is stable, and our financial future is brighter. | would like to take a minute to recognize this Council for your work in securing Chicago's fiscal future and the 2018 budget will continue to build upon this effort. Thank you and | look forward to our discussion today. Page 4of 4STATEMENT FROM COMPTROLLER ERIN KEANE ON 2018 BUDGET PROPOSAL TO THE CITY COUNCIL COMMITTEE ON BUDGET AND GOVERNMENT OPERATIONS Monday, October 23, 2017 Good morning, Chairman Austin, Vice-Chairman Ervin, members of the Committee, and members of City Council. Thank you for the opportunity to appear before you today and to participate in these budget hearings. The Department of Finance is responsible for managing a diverse range of operations, including: Accounts Payable, Accounts Receivable, Debt Collection, Utility Billing and Customer Service, Tax Enforcement, Employee Healthcare, Payroll, Accounting and Financial Reporting, Parking Tickets and Booting. The department has a dedicated and hardworking staff that strives to make sure that we not only meet, but exceed our obligations, while recognizing that there is always room for improvement. REFORMS FOR DEBT COLLECTION AND PAYMENT OPTIONS ‘As we discussed last year, | continue to work on balancing the City’s need to collect outstanding debt with our need to provide residents with ample notice on what they owe, long before the debt grows due to penalties or accrued interest. Additionally, we've worked to improve our payment plan options to make paying for City services or paying City debt as easy as possible. Since that hearing, we've worked to address those concerns through additional early noticing ‘options through email alerts, implemented changes in payment plans to make it easier to sign up, and implemented a new payment portal for utility bills. In 2017, we began to increase parking enforcement where it is needed, improve tax compliance through certain tax discovery projects, and close loopholes. We will expand this work in 2018 and expect to generate an additional $10.8 million during 2018. SUCCESSFUL 2017 INITIATIVES CONTINUING AND EXPANDING IN 2018 Loophole Closing Page 1 of SBeginning July 1, 2017, we increased ground transportation tax enforcement measures on non- Chicago taxis and liveries. In order to increase compliance, we are utilizing license plate recognition technology to charge the ground transportation tax day rate ($3.50) for each day the suburban taxi or livery departs from a City airport with a passenger. This activity has always been subject to the ground transportation tax, but enforcement was challenging because the vehicles were! not licensed by the City. To close this loophole, we worked with a third party vendor to install the technology at the City’s airports. The new enforcement software provides registration and account information on suburban taxi and livery companies, then automates Payments of the ground transportation tax per day for each suburban taxi and livery vehicle that departs from O'Hare or Midway Airports with a passenger. As a result of this initiative, we expect ground transportation tax collections to increase by approximately $1 million per year. Tox Discovery Projects A priority of our tax division is to enforce the City’s tax code in a fair and equitable way to ensure that businesses can operate on a level playing field. When we determine that areas of the tax code may not be followed by certain types of businesses due to recent code changes or Confusion around the application of a tax, we will launch a voluntary tax disclosure program. The tax Chicago taxes without penalty. Businesses pay their owed back taxes, current taxes and interest, but n9 penalty is assessed. This method of increasing compliance is less invasive and less expensive for both the business and the City, and helps to encourage ongoing compliance with the tax code. lisclosure program encourages entities to voluntarily come into compliance with City of Recently, our Tax Division identified a high rate of non-compliance within the construction industry regarding the City’s Use Tax. While most large contractors are registered and remitting the Use Tax, a Significant number of small to mid-size contractors are not because they were unaware of their obligations to pay. Therefore, the Department will offer a limited-time, voluntary disclgsure program in 2018 to increase compliance within the industry. By posting information on our website and working with trade associations and in partnership with the Department of Buildings, we aim to give contractors information and an opportunity to comply. The Department has also identified a high rate of non-compliance in the valet parking industry, specifically regarding the parking garage tax, through intentional and deliberate failures to remit their collected taxes. We are exploring technology-based solutions to ensure a greater level of compliance in 2018 as well as introducing an ordinance to require monthly parking garage tax filings by this industry. Through tax discovery, we estimate generating over $3.5 million in new revenue in 2018. Page 2 of Sagencies to improve debt collection and apply similar measures that currently cover City employees. This will include debt checks on employees pre- and post-employment to encourage compliance. The Department. Projects approximately $500,000 in revenue would be realized thraugh a more formalized policy CONTINUED HEALTHCARE SAVINGS The Department of Finance is not solely about collecting revenue, writing parking tickets, and enforcing outstanding debt. Under Mayor Emanuel, the Department has taken many important steps to achieve healthcare savings without sacrificing quality healthcare coverage for employees. Through ongoing healthcare reforms, we have been able to keep citywide healthcare costs relatively stable since 2011, even while healthcare costs for both public and private entities continue to significantly rise. 'n 2017, the Department continued to see healthcare cost savings in important categories like Prescription drug coverage. Through initiatives that offer generic drug alternatives for employees, the City is able to avoid significant cost increases year-over-year. 2017 was also the fifth year of the Chicago Lives Healthy wellness program. Chicago Lives Healthy maintains an 84 percent participation rate for eligible employees, and helps provide support for preventing long-term healthcare costs. The wellness program was changed in 2017 to direct additional assistance to those that at a greater risk for ongoing healthcare concerns, including heart disease, diabetes and stroke. Central to keeping our healthcare costs stable is our work with Labor Management Cooperation Committee or LMCC. In previous years, we have been able to achieve significant savings through our work together. And this year, based on our work with the LMC, the City received a $95,000 grant to improve healthcare related programs and education. A related study showed that targeted communication from the LMCC improves employee participation in initiatives like telemedicine or maternity management. Through this grant, the City will adopt similar strategies to increase Participation among employees. Page 4 of SINTERNAL CONTROLS A key area of focus within the Department since 2011 has been improving our financial reporting to ensure proper internal financial controls and improve financial transparency. In 2017, the Department of Finance released the 2016 Comprehensive Annual Financial Report or CAFR, which] details the significant progress the Mayor and the City have made in improving Financial reporting and accountability. For the fifth straight year in a row, the independent auditors did not find any material deficiencies in the City’s annual CAFR. CONCLUSION With the support of City Council and cooperation from other city departments, we have taken many steps to enforce revenue collections for the City. We have taken steps to improve debt collection, make more informed decisions around deployment of field personnel, and provide additional benefit options to employees to improve their health. Thank you for allowing me to present today. Page 5 of S