City of Chicago 2023 Budget

CITY OF CHICAGO

2023 BUDGET FORECAS

MAYOR LORI E. LIGHTFOOT

2023 BUDGET FORECAST

LETTER FROM THE MAYOR

Dear Fellow Chicagoans,

It is my honor to present the City of Chicago’s 2023 Budget Forecast — a financial outlook of the City’s revenues, expenditures, and overall fiscal stability. The news is good; our economy is stable as a result of practical financial strategies we implemented over the past few years. Those actions have enabled us to reach major milestones in both our COVID-19 journey and path toward structural balance. In this Forecast, we will share how those successes resulted in a stable outlook and why we feel confident to tackle any new financial challenges with optimism.

Last year, in our historic 2022 Budget, we closed a $733 million shortfall without any new taxes, no reduction in City services, and no layoffs. Further, amidst a global pandemic, we cleared decades of deferred liabilities and now pay an actuarially calculated pension for all four of our pension funds for the first time in the City’s history. Chicago is on the true path to financial recovery and financial stability.

However, we do face challenges. Continued high inflation nationwide poses risks to our City’s economic growth. Through cost savings and improved revenue, we can ensure our financial stability by maintaining fiscal reserves to hedge against any future risks. While revenue is expected to continue to grow in 2023, several factors—including the costs of increasing personnel, pension liabilities, and contracts—will leave us with a 2023 Corporate Fund gap of $127.9 million. This is, without a doubt, a notable recovery given the large budget gaps of the last three years.

As many of us know, the future of Chicago’s economy relies on healthy government finances. Chicago has just experienced its greatest economic growth in 30 years, and we have successfully built on this momentum. Thanks to hard work over the years, we are on solid financial footing and our economic outlook continues to grow brighter and brighter each day. Together, I look forward to continuing our journey toward realizing an even better future for our city.

Sincerely,

Mayor Lori E. Lightfoot

2023 BUDGET FORECAST

CONTENTS

Disclaimer and Advice to Readers…………………………………………………………………..5 Executive Summary …………………………………………………………………………………………. 7 Financial Forecast …………………………………………………………………………………………….11

Introduction …………………………………………………………………………………………………11 Methodology ………………………………………………………………………………………………11 General Economic Considerations ……………………………………………………………11 General Expense Conditions…………………………………………………………………….13 2022 Corporate Fund Year-End Estimates………………………………………………14

2022 Year-End Revenues ………………………………………………………………….14

2022 Year-End Expenditures…………………………………………………………… 15 2023 Corporate Fund Projections ………………………………………………………….. 16 2023 Projected Corporate Fund Revenues……………………………………..17 2023 Projected Corporate Fund Expenditures………………………………. 18 2024-2025 Corporate Fund Outlook …………………………………………………….. 19 Outlook for Special Revenue Funds……………………………………………………….. 21 Outlook for Enterprise Funds …………………………………………………………………. 22 Pension………………………………………………………………………………………………………23 Debt……………………………………………………………………………………………………………24 Appendices……………………………………………………………………………………………………. 28 Historic Revenue and Expense Review…………………………………………………. 28 Corporate Fund ……………………………………………………………………………….. 28 Special Revenue Funds…………………………………………………………………….37 Enterprise Funds ………………………………………………………………………………..41 Debt Detail ………………………………………………………………………………………………..44 Asset Lease and Concession Reserves ………………………………………………… 45 Capital Investments ………………………………………………………………………………… 46 Tax Increment Financing ………………………………………………………………………….47 Property Tax………………………………………………………………………………………………48 Glossary …………………………………………………………………………………………………… 50

2023 BUDGET FORECAST

DISCLAIMER AND ADVICE TO READERS

The City of Chicago (“City”) is pleased to present this Budget Forecast. The purpose of this document is to provide general information about the history and future of major components of the City’s overall finances and City budget. Information presented is as of the date of publication or, if such information is dated, as of its date.

Throughout this document, specific items of revenues and/or expenditures are grouped together with other items of revenue and/or expenditure for purposes of presentation. The manner in which such items are grouped and labeled is consistent with the groups and labels in the City’s annual appropriation ordinance and not in the City’s audited Annual Comprehensive Financial Report (“ACFR”). Therefore, the manner of grouping and labeling herein may not match the manner in which such revenues and/or expenditures are grouped and labeled in the ACFR.

This discussion includes forward-looking statements based on current beliefs and expectations about future events. Those events are uncertain and do not take into account events that may alter actual outcomes; their outcome may differ from current expectations which may in turn significantly affect expected results.

Where information is presented that has come from sources other than the City, the City presents that information only for convenience of the reader. Specifically, the projections set forth in the pension section rely on information produced by the Retirement Funds’ independent actuaries (unless specifically noted) 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. The City does not verify any of that information.

Where the tables present aggregate information, such combined information results solely from the application of arithmetic to the data presented from the source information and may not conform to the requirements for the presentation of such information by the Governmental Accounting Standards Board.

Readers 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 or actuaries 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 achievability, and such parties (other than the City) assume no responsibility for, and disclaim any association with, the prospective financial information.

The discussion of City revenues and debt does not include debt and associated revenues which are not reported in the City’s Annual Comprehensive Financial Reports nor in the City’s annual budget. These debt and associated revenues consist of (i) conduit debt (debt issued by the City to finance privately owned projects and repayable solely from loan repayments from the project owners) as well as revenues received from such project owners and used to repay the conduit debt; and (ii) special assessment bonds and the special assessments on specified properties in the City which are the sole source of repayment for such bonds.

This Budget Forecast has not been prepared to give information for making decisions on buying or selling securities and should not be relied upon by investors in making investment decisions. With respect to any bonds, notes, or other debt obligations of the City, please refer to information in the City’s ordinances and notifications of sale and the related disclosure documents, if any, or continuing disclosure filings, if any, for such bonds, notes, or other debt obligations.

The information is provided “as is” without warranty of any kind. Neither the City nor any of its agencies nor any of its officers or employees shall be held liable for any use of the information described and/or contained in this document.

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2023 BUDGET FORECAST

EXECUTIVE SUMMARY

The Budget Forecast is required by Executive Order 2019-3 to provide the City of Chicago’s residents with an analysis that identifies the opportunities and challenges of the upcoming budget year. This is achieved through a data-driven review of the current and future financial health of the City’s revenues and expenditures to provide the framework for the development of the City’s Annual Budget.

The 2023 Budget Forecast discusses the City’s 2022 year-end estimates, 2023 preliminary revenue and expense projections, and three revenue and expense scenarios with a base outlook, a negative outlook, and a positive outlook for 2024 and 2025. These projections are based on historical revenue and expenditure data, current economic trends and conditions, and other known factors that are anticipated to have an impact on the City’s finances.

National and global events continue to impact Chicago’s economy as it recovers from the COVID-19 pandemic. These include Russia’s invasion of Ukraine, the Federal Reserve’s tightening of monetary policy, the anticipated end of COVID-19 economic relief programs, as well as public health measures introduced to curb the spread of any emerging coronavirus variants and threat of new disease.

Economic growth through the first half of 2022 has been uneven. Some industries, particularly those related to tourism, show accelerating signs of recovery starting with the second quarter of the year, while others see slower than anticipated growth. Continued high inflation poses a significant risk to economic growth as rising prices weaken consumer purchasing power, reversing wage gains.

The City currently projects the Corporate Fund to end 2022 with budgeted revenue exceeding expenses by $134.0 million due to improving revenue projections and cost savings. Of these additional resources, $130.0 million will be allocated to the Assigned Fund Balance Reserve, resulting in a net year-end estimate of revenue exceeding expenses by $4.0 million. Due to cyclical expansions in economic activity, in years with revenue collections exceeding the budget the City maintains fund balance reserves to mitigate future risks and preserve financial stability. Given the current year-end estimates for certain revenues, coupled with expected expenditure savings, the City is assigning excess resources to the Assigned Fund Balance Reserve. The Assigned Fund Balance Reserve represents one-time resources reserved for expected one-time expenditures in future years. These include additional pension liabilities and expenses associated with labor contracts currently under negotiation.

Based on current revenue and expenditure projections of existing operations, the City estimates a 2023 Corporate Fund gap of $127.9 million. This gap is driven by several factors, including increasing personnel, pension and contractual costs. The 2023 projection for these expenses assumes salary and wages will grow based on required and estimated contractual wage and prevailing rate increases. Personnel expenditures are expected to grow by more than $100.8 million in 2023, totaling $3,183.9 million.

The 2023 budget marks the fourth year for the City’s Police and Fire Pensions, and the second year for the Municipal and Laborers Pension Funds that contributions will reflect a statutorily required actuarially-calculated contribution. Increases based on these required contributions, as well as a decline in contributions from other sources, will result in a $149.3 million increase to the Corporate Fund, totaling $478.5 million in Corporate Fund subsidy.

Historically, the City’s pension contributions have been made primarily from the proceeds of an annual property tax levy for each fund. With the 2021 budget, the City passed an annual property tax CPI increase to account for growing pension obligations. For 2023, the City is anticipating a 2.5 percent CPI increase. This is based on the five-year CPI average, which is lower than the actual 7.0 percent CPI as well as the 5.0 percent cap set forth in the City’s Municipal Code. This will result in an additional $42.7 million in property taxes that will support pension obligations. Additionally, $40 million was received from casino proceeds for pension obligations for 2023. Together, these revenues will result in reducing the Corporate Fund subsidy by $82.7 million, totaling $395.8 million. This is an increase of $66.6 million from 2022.

Contractual services costs are expected to increase by $53.9 million from the 2022 budget. This is driven by inflationary impacts to contract costs, as well as planned contractual increases for new and expanded information technology services.

While revenue is expected to continue growth in 2023, the projection for 2024 includes a contraction, with total revenues declining by 2.4 percent over 2023 estimates, recovering slightly in 2025 by 1.5 percent. The City continues to consider the long-term outlook when ensuring each budget includes structural solutions to offset future revenue and expenditure changes.

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FINANCIAL FORECAST

INTRODUCTION

This section discusses the City’s 2022 year-end estimates, 2023 preliminary revenue and expense projections, and three revenue and expense scenarios for the years 2024 and 2025 – with a base outlook, a negative outlook, and a positive outlook. These projections are based on historical revenue and expenditure data, current economic and expense trends and conditions, and other known factors that are anticipated to have an impact on the City’s finances. The purpose of this analysis is to ensure that the 2023 budget is formulated within the context of the City’s current financial state, and with an informed view of future conditions and the long-term fiscal impact of today’s decisions.

The forecast focuses primarily on the Corporate Fund, which not only accounts for many basic services provided by the City, but also has historically experienced the largest disparity between revenues and expenditures. Projections for the City’s major Special Revenue and Enterprise Funds are included at the end of this section.

METHODOLOGY

The preliminary revenue and expense projections for 2023 reflect the City’s budget deficit, which is any anticipated budget imbalance between existing revenues and expenses for that budget year.

Prior to 2019, the budget deficit methodology did not define long-term liabilities for future years as structural budget imbalances. Beginning with the 2020 Budget Forecast, the methodology for projecting the budget deficit includes known long-term liabilities such as pensions and debt service. The Mayor’s Budget Recommendations are presented each fall with revenues and expenditures balanced.

Future years’ budget deficits included in this document are projections for the City’s Corporate Fund based on various economic scenarios founded on anticipated revenues and expenditures. These figures assume that no substantive changes are made to City operations, or revenue sources.

GENERAL ECONOMIC CONSIDERATIONS

National and global events continue to impact Chicago’s economy as it recovers from the COVID-19 pandemic. These include Russia’s invasion of Ukraine, the Federal Reserve’s tightening of monetary policy, supply chain delays, and the anticipated end of COVID-19 economic relief programs, as well as public health measures introduced to curb the spread of any emerging coronavirus variants and threat of new disease. This economic forecast is based on

information available to the City at the time of its release.

Since the start of the COVID-19 pandemic in March of 2020, the City has been committed to providing residents and businesses with the necessary health and financial resources needed to address the public health crisis and its resulting impact on the economy. The City expended substantial resources to ensure a robust response and recovery from the pandemic — redirecting existing resources to address the impact of the pandemic, and utilizing federal funding made available to the City.

Chicago has one of the most robust and diverse economies. This diversity typically provides financial stability for mature industries such as financial services, manufacturing, education, healthcare, and transportation and warehousing, which enables the City to provide support for growing and emerging businesses in sectors like technology, tourism, biotech, and life sciences. The COVID-19 pandemic impacted a wide range of sectors, with the economic disruption created by the pandemic placing a significant strain on the City’s local economy. This resulted in a reduction in overall consumer activity and a contraction in the labor market.

Economic growth through the first half of 2022 has been uneven. Some industries, particularly those related to tourism, show accelerating signs of recovery starting with the second quarter of the year, while other revenues, such as Parking Garage Tax, see slower than anticipated growth.

The economic forecast, and as with any forecast, can never fully anticipate the impact of future events, and is based on information available to the City at the time of this release. The most significant of these uncertainties is the escalation of the Russo-Ukrainian War, the emergence of variants of the coronavirus, as well as other threats to public health, including the current spread of the Monkeypox virus.

Forecast scenarios range from assuming a continued positive recovery to pre-pandemic levels with no significant restrictions in travel and other activities, to assuming the continuing spread of COVID-19 variants resulting in climbing case rates into late 2022. These assumptions are further discussed in the 2023 Corporate Fund projection as well as the 2024 and 2025 Corporate Fund Outlook sections.

Economy

Inflation, as measured by the Consumer Price Index

2023 BUDGET FORECAST

FINANCIAL FORECAST

11

Tourism

With more than 55 million visitors annually, tourism has historically played a large role in Chicago’s economy. Travel and tourism related industries saw unprecedented losses with the cancellation of all major conferences, and a near halt to leisure and business travel throughout 2020.

Chicago reopened without capacity limits and social distancing requirements in mid-June 2021, although the city’s theaters did not reopen until October 2021. An international travel ban remained in place until mid- November, and the country endured surges of the Delta and Omicron variants. Domestic leisure travelers drove tourism recovery in 2021. Tourism and travel to Chicago as a destination is expected to continue to experience growth in 2022, with international travel expected to increase as pre-flight COVID-19 testing requirements were lifted in June 2022.

According to Choose Chicago, McCormick Place is expected to host 183 events in 2022, attracting 1.5 million visitors, including recent conventions such as the National Restaurant Association and American Society of Clinical Oncologists. Lollapalooza returned to Grant Park for a second year, and the festival organizer, C3, committed to hosting the festival in the city for another decade.

The return of both leisure and business travel is expected to contribute to a strengthening recovery for the hotel and tourism-related industries.

GENERAL EXPENSE CONDITIONS

Personnel-related expenditures, including salaries and wages, pensions, healthcare, overtime pay, workers’ compensation, and unemployment compensation, account for roughly 80 percent of total Corporate Fund expenditures in recent years and is one of the largest drivers of expense growth.

Over the past 10 years, the City’s workforce has decreased from 36,617 budgeted Full Time Equivalents (“FTEs”) in 2011 to 34,767 budgeted FTEs in 2021. While the number of FTEs has decreased, the City’s overall personnel-related costs are significantly higher than they were ten years ago due to contractual and prevailing wage increases, increases to healthcare costs, and growing pension costs.

The increase in personnel expenses is primarily due to salary increases resulting from contractual obligations under collective bargaining agreements (“CBA”). Approximately 90 percent of total City employees are

covered by a CBA. As the overall number of City positions has decreased over the last 10 years, the relative proportion of union positions has increased. The City has CBAs with more than 40 different unions. The CBAs with most of these unions generally include cost of living increases, as well as step increases based on years of service, resulting in higher personnel costs year-over-year.

While personnel-related expenses are anticipated to have the largest impact on future expenditures within the City’s budget, non-personnel expenses, such as fuel and other commodities, equipment, information technology, and professional services, may be adversely impacted by the global economy and tariffs. As it relates to energy procurement, the City utilizes price hedging to take advantage of favorable market pricing without sacrificing budget certainty.

These broader expenditure factors are accounted for in the following projections. The 2022 year-end projections and the base outlook for 2023-2025 present what is currently viewed as the most likely scenario. The positive and negative outlooks for 2024 and 2025 provide insight into how changes in employment, salary and wages, benefits, and other related factors could affect the City’s finances over the next several years.

2023 BUDGET FORECAST

FINANCIAL FORECAST

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2022 CORPORATE FUND YEAR-END ESTIMATES

Real Property Transfer Tax is also performing better than expected, with the year-end estimate $30.6 million over budget. This increase is due to certain recent large sales as well as an overall increase in real estate activity, however, increases are not expected to continue beyond 2023.

Recreation taxes are expected to end the year $21.3 million above budgeted amounts due to the resurgence in events. This increase is primarily driven by Amusement Tax, which is expected to end the year $18.9 million over budget at $214.2 million.

Utility taxes are projected to end 2022 $3.9 million, or 1.0 percent, above budget as a result of higher than budgeted revenue from Natural Gas Occupation Tax due to high gas prices.

Business taxes are estimated to end 2022 at budget. While Hotel Tax performed poorly through the first quarter of this year, rebounding tourism and travel activity is expected to help this revenue source meet budgeted expectations by year end.

Transportation taxes are expected to end the year under budget by $31.0 million at $305.1 million. This decrease is driven by the continued impact of the pandemic on rideshare and taxi services, a slow return of workers to offices, as well as higher fuel prices encouraging changes in consumer behavior. Ground Transportation Tax is anticipated to end the year $16.0 million below budget at $128.2 million. Parking Garage Tax is set to end the year $8.0 million below budget at $119.0 million, and Vehicle Fuel Tax is expected to end the year at $58.0 million, $7.0 million below budget.

Local non-tax revenue is anticipated to end 2022 below budget by 5.4 percent, or $81.2 million. This is largely driven by a decrease in fines, forfeitures and penalties revenue due to higher compliance by motorists, as well as lower than budgeted revenue in the Other Revenue category.

Proceeds and transfers in are projected to increase by $28.5 million, or 2.7 percent, due to an increase in sales tax revenue that flows through the Sales Tax Securitization Corporation. Intergovernmental revenue is expected to end 2022 $84.7 million over budget due to higher-than- expected growth in both the State Income Tax and the Personal Property Replacement Tax. These increases are expected to continue into 2023 before falling in the out years.

Revenues Expenditures

Additional Reserves

Subtotal

$4,899.9M $4,984.4M $4,899.9M $4,850.4M $0.0M $134.0M

$130.0M

$4.0M

2023 BUDGET FORECAST

FINANCIAL FORECAST

2022 BUDGET AS AMENDED

2022 YEAR‐END ESTIMATES

Assigned Fund Balance Reserve

Total

The City currently projects the Corporate Fund to end 2022 with budgeted revenue exceeding expenses by $134.0 million due to improving revenue projections and expected cost savings. Of these additional resources, $130.0 million is planned for the Assigned Fund Balance Reserve, discussed further below, resulting in a net year- end estimate of revenue exceeding expenses by $4.0 million.

The estimates provided here reflect the current projections for the 2022 year-end revenues and expenditures as of time of publishing. Note that fluctuations in the pandemic response or other economic conditions could further impact the City’s finances, whether positive or negative.

2022 YEAR-END REVENUES

At the time the 2022 budget was formulated, economic conditions and emergence of new coronavirus variants pointed to a slower return to pre-pandemic activity. 2022 year-end estimates expect revenue to end the year ahead of budget by $84.5 million. This increase is driven by both better-than-expected performance of amusement taxes as in-person events and festivals returned to the city this year, as well as strong collections for the Personal Property Replacement Tax, discussed below.

Local tax revenues are projected above budget by 3.0 percent, or $52.4 million, to $1,819.9 million.

Transaction taxes are expected to exceed 2022 budgeted amounts by 9.8 percent, or $56.8 million, driven primarily by larger than expected growth in Lease of Personal Property Tax and Real Property Transfer Tax. As part of the 2021 budget, the City increased the Personal Property Lease Tax applied to non-possessory computer leases of cloud software and cloud infrastructure by 1.75 percent. In 2022, the City anticipated this rate increase would lead to a $71.9 million rise in collection over the prior year. Revenue is still exceeding those expectations, with year-end estimates $26.2 million over budget.

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2022 YEAR-END EXPENDITURES

The 2022 Corporate Fund expenditures are currently projected to end the year below budget by $49.5 million at $4,850.4 million. These estimates are based on year- to-date spending as of publication, incorporating payroll trends, market pricing for commodities, and known changes or events that have or are anticipated to occur during the remainder of 2022.

The 2022 year-end projection for personnel services are expected to end 2022 under budget by $49.6 million, driven by attrition. These savings are partially offset by higher than expected expenses in certain areas such as overtime.

Anticipated settlements and judgments, which are included in the financial costs category, are expected to end the year at budget. The City has historically utilized a mix of Corporate Fund and Enterprise Fund resources as well as bond proceeds to pay for expenses incurred in connection with settlements and judgments against the City. Over the past several years, the City has been increasing the Corporate Fund budget for expenses incurred in connection with settlements and judgments. Contractual services are also expected to come in at budget for 2022.

ASSIGNED FUND BALANCE RESERVE

Due to cyclical expansions in economic activity, in years with revenue collections in excess of budget, the City works to maintain fund balance reserves to mitigate future risks and preserve financial stability. Given the current year-end estimates for certain revenues, coupled with expected expenditure savings, the City is assigning excess resources totaling $130 million to the Assigned Fund Balance Reserve. Assigned Fund Balance Reserve represents one-time resources reserved for expected one-time expenditures in future years. These include additional pension liabilities as well as for one-time costs associated with labor contracts currently under negotiation.

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FINANCIAL FORECAST

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2023 CORPORATE FUND PROJECTIONS

2023 Projected

reflect the gap in the City’s operating budget related to existing expenses and revenues. As in previous years, revenue and expense adjustments to close the gap are developed by the City, in consultation with elected officials and the general public, and will be presented in the Mayor’s 2023 Budget Recommendations submitted to the City Council.

Surplus / (Deficit)

($127.9M)

2023 BUDGET FORECAST

FINANCIAL FORECAST

Revenues
Expenditures $5,128.1M

$5,000.2M

The difference between revenues and expenditures anticipated by the City in the preliminary Corporate Fund budget estimate is the budget deficit, commonly referred to as the “gap.” Based on current revenue and expenditure projections of existing operations, the City estimates a 2022 Corporate Fund gap of $127.9 million.

The following is an outline of the City’s operating revenue and expenditure projections for 2023. These expenditure and revenue projections assume no substantive changes to City operations in 2023. Cost saving initiatives are not incorporated into these estimates as the 2023 projections

INCOME STATEMENT – CORPORATE FUND

Revenues

Local Tax Revenue
Proceeds and Transfers In
Intergovernmental Revenue
Local Non‐Tax Revenue
Prior Year Assigned and Unassigned Available Resources

2022 BUDGET AS AMENDED

2022 YEAR‐END ESTIMATES

2023 PROJECTED

2024 PROJECTED

2025 PROJECTED

Total Revenue

Financial Costs
Pension Costs
Permanent Improvements Personnel Services
Specific Items and Projects Transfers and Reimbursements Travel

Total Expenses

SUBTOTAL Additional Reserves

Assigned Fund Balance Reserve

GAP (REVENUES LESS EXPENDITURES)

Expenditures

Commodities and Materials Contingencies
Contractual Services Equipment

$0.0M

$0.0M

$134.0M

$130.0M

$4.0

($127.9M)

($127.9M)

($473.8M)

($553.7M)

(Table may not sum due to rounding)

($473.8M) ($553.7M)

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2023 PROJECTED CORPORATE FUND REVENUES

Corporate Fund revenues in 2023 are projected to increase from 2022 budgeted amounts by 2.0 percent, or $100.3 million, to $5,000.2 million.

The increase in local tax revenue is driven primarily by the anticipated continued recovery from the COVID-19 impact on the City’s economy. Local tax revenue is projected to increase by 8.6 percent or $152.8 million from the 2022 budget. Areas that were slower to recover in 2022 are expected to accelerate recovery in 2023.

Recreation taxes, driven by the expected return of Amusement Tax, are projected to grow $36.3 million, or 13.2 percent, over the 2022 budget. Business taxes, primarily comprised of Hotel Tax, are expected to grow $18.2 million, or 16.2 percent, in 2023 from the 2022 budget. Transportation taxes, which were the slowest to recover in 2021 and 2022, are expected to remain near 2022 budget levels with an estimated $333.2 million in 2023.

Intergovernmental revenue is expected to increase by $113.2 million, or 21.1 percent from the 2022 budget to $649.4 million, as some of the growth in Income Tax and Personal Property Replacement Tax that occurred in 2022 is structural. Income Tax is projected to increase

2.9 percent from the 2022 budget. Personal Property Replacement Tax is projected to increase 62.5 percent or $102.3 million from the 2022 budget.

Non-tax revenues are expected to decrease by $131.1 million from the 2022 budget, or 8.8 percent, totaling $1,364.8 million. This change is mostly due to an anticipated decrease to Other Revenue and Fines, Forfeitures and Penalties. The decline in Other Revenue is partially due to one-time sweeps of aging revenue accounts. Fines, Forfeitures and Penalties revenue decrease is due to changes to fine issuance as compliance with safety related initiatives improves.

Proceeds and Transfers are projected to fall from the 2022 budget by $183.1 million, or 17.5 percent, to $865.8 million. This decrease is due to a reduction in revenue replacement funds applied from the American Rescue Plan (“ARP”). For 2023, $152.4 million in revenue replacement for essential government services from ARP Local Fiscal Recovery Fund resources are planned, compared to $385 million utilized in 2022.

Prior year assigned and unassigned available resources are expected to increase $148.6 million from the 2022 budget due to additional resources from 2021 carried over.

2023 BUDGET FORECAST

FINANCIAL FORECAST

2023 PROJECTED REVENUE – CORPORATE FUND: $5,000.2M

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2023 PROJECTED CORPORATE FUND EXPENDITURES

The 2023 expenditures are forecast to grow by approximately $228.2 million over 2022 budget levels to $5,128.1 million. These projections are based on the 2022 budget and 2021 actuals, adjusted for anticipated growth trends and known changes to existing expenses such as normal increases in contractual services, commodities and materials costs, and contractual salary increases and cost of living adjustments.

This increase in 2023 is driven by several factors, including personnel, pension and contractual services, as described in the sections below.

Personnel

One contributor to the projected expense increases for 2023 are personnel costs, primarily wages and other related expenses. The 2023 projection for these expenses assumes salary and wages will grow based on required contractual wage and prevailing rate increases. Personnel expenditures are expected to grow by more than $100.8 million in 2023 from the 2022 budget, totaling $3,183.9 million.

Pension

As is discussed further in the Pension section, the 2023 budget marks the second year that all four pension fund contributions will reflect a statutorily required actuarially-

calculated contribution. Increases based on these required contributions, as well as a decline in contributions from other sources, will result in a $149.3 million increase to the Corporate Fund, totaling $478.5 million in Corporate Fund subsidy.

Historically, the City’s pension contributions have been made primarily from the proceeds of an annual property tax levy for each fund. With the 2021 budget, the City passed an annual property tax CPI increase to account for growing pension obligations. For 2023, the City is anticipating a 2.5 percent CPI increase. This is based on the five-year CPI average, which is lower than the actual 7.0 percent CPI as well as the 5.0 percent cap set forth in the City’s Municipal Code. This will result in an additional $42.7 million in property taxes that will support pension obligations. Additionally, $40 million was received from casino proceeds for pension obligations for 2023. Together, these revenues will result in reducing the Corporate Fund subsidy by $82.7 million, totaling $395.8 million. This is an increase of $66.6 million from 2022.

Contractual Services

Contractual services are expected to increase by $53.9 million from the 2022 budget. This is driven by expected inflationary impacts to contract costs, as well as planned contractual increases for elections and new and expanded information technology services.

2023 BUDGET FORECAST

FINANCIAL FORECAST

2023 PROJECTED EXPENDITURES – CORPORATE FUND: $5,128.1M

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2024 – 2025 CORPORATE FUND OUTLOOK

The following three scenarios project budget gaps for the years 2024 and 2025 for the City’s Corporate Fund based on different revenue and expenditure outlooks. While the City shows an increase in the gap for 2024 and 2025, these numbers assume that no substantive changes will be made to City operations, revenue or the cost of City services as part of the 2023 budget that would impact future budgets. Forecasts of the recovery from the economic contraction vary and are influenced by assumptions about inflation and its impact on consumer confidence. The City incorporated assumptions about rapidly rising inflation and its effects on the economy in the scenarios about the future economic conditions.

The majority of the projected expenditure increases in 2024 and 2025 are related to personnel and pension. The personnel assumptions account for required contractual salary and prevailing rate increases for current collective bargaining agreements as well as certain estimated salary and wage growth for collective bargaining agreements currently under negotiation.

The projected revenue forecasts vary based on the assumptions outlined below. All three scenarios anticipate varying economic growth assumptions over the period of the forecast. The projected gap in each of the scenarios highlights expenditure growth relative to revenue growth.

Base Outlook

The base outlook projects Corporate Fund revenue to continue to recover through 2023 but experiencing a contraction in 2024, with total revenues declining by 2.4 percent over the 2023 estimates to $4,880.2 million. This scenario assumes growth will resume in 2025, with 1.5 percent increase in revenue at $4,953.6 million.

Corporate Fund expenditures are projected to outpace revenue growth during this period, due to growth in wages and other personnel-related costs, as well as increasing pension obligations. In 2024, the projected expenditures reach $5,354.0 million, and in 2025, expenditures are projected to increase to $5,507.3 million.

Most non-personnel expenditures are assumed to grow at historical average rates. Salaries and wages, along with healthcare, make up the largest portion of the City’s operating budget. The projections are based on the assumption that the number of City employees will remain stable and that the costs associated with these positions will experience growth in line with long-term, historical trends.

Under this outlook, there would be budget shortfalls of $473.8 million in 2024 and $553.7 million in 2025.

Negative Outlook

The negative outlook represents a scenario in which City finances are affected by unfavorable economic conditions. This scenario includes projections of negative growth in economically sensitive revenues, with the assumption that current economic uncertainties will lead way to a sharp decline in revenue in 2024, but assumes muted growth in 2025. Expenditures in this scenario grow at a significantly higher rate. Under this outlook, total Corporate Fund revenues are projected to be $4,523.9 million and $4,595.8 million in 2024 and 2025, respectively.

The negative outlook assumes a rapid increase in spending over the next three years. With an overall growth rate of 5.9 percent in 2024, and 4.8 percent in 2025, City spending would continue to outpace revenues. Most expenditure categories are assumed to grow at historically high rates, with personnel being the most significant driver. Under this outlook, there would be budget shortfalls of $951.3 million in 2024 and $1,141.4 million in 2025.

Positive Outlook

The positive outlook assumes a more optimistic outlook, with economic conditions improving significantly as concerns over the pandemic and rising inflation fade, and consumer spending drives revenue collections.

The positive outlook projects a contraction in 2024 and growth in 2025. Total Corporate Fund revenues in 2024 are expected to be $4,985.3 million in 2024 and $5,089.9 million in 2025.

In this positive scenario, the City would have greater control over expenditures. In particular, the personnel-related costs would grow at a rate lower than the base outlook, resulting in an overall total of $5,291.3 million in 2024 and $5,355.6 million in 2025. The projected budget deficit would be $306.1 million in 2024 and $265.7 million in 2025.

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FINANCIAL FORECAST

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FINANCIAL FORECAST

OUTLOOK FOR CORPORATE FUND: 2023 – 2025

GAP HISTORY – CORPORATE FUND

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OUTLOOK FOR SPECIAL REVENUE FUNDS

The City’s current 911 surcharge of $5 per month for wireless and landline connections allows the City to fully fund the City’s 911 operations as well as invest in a new 911 system using surcharge funds. The 2022 year-end estimate for revenues from this surcharge is $143.0 million, 10.0 percent below budgeted expectations. Revenues are expected to remain stable in 2022 and 2023, with a significant decrease expected in 2024 and 2025 due to the current sunset of the State authorization of the $5 per month rate for the 911 surcharge.

Motor Fuel Tax Fund revenues are projected to end 2022 at $101.4 million, 10.5 percent below budget. Revenue from Chicago Riverwalk concessions and tour boat operations as well as Motor Fuel Tax have been pledged to pay debt service on both outstanding Motor Fuel Tax bonds and a loan issued by the U.S. Department of Transportation under the Transportation Infrastructure Finance Innovation Act (“TIFIA”). The City used proceeds from the TIFIA loan to fund expansion of the Chicago Riverwalk.

The slow-down in travel and tourism that impacted Hotel Tax and tourism-related revenues starting in March 2020 continued through the first quarter of 2022. Chicago’s festivals and events returned to an in-person format for the second summer in a row and continued to attract visitors to

the City. The Special Events and Municipal Hotel Operators’ Occupation Tax Fund is expected to end the year at $31.4 million, under budget by $13.2 million. The City anticipates slow activity in the first quarter will provide a slight drag to the year-end total revenue. The outlook for growth in tourism, convention, and business travel over the three-year forecast period reflects a return to pre-pandemic levels by 2024 and growth through 2025.

The City anticipates revenue from the sale of vehicle stickers and other revenues in the Vehicle Tax Fund to end the year 2022 at $201.3 million, 12.8 percent below budgeted expectations due to lower than budgeted vehicle sticker sales and transfers into the fund.

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FINANCIAL FORECAST

OUTLOOK FOR SPECIAL REVENUE FUNDS: 2022 – 2025

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OUTLOOK FOR ENTERPRISE FUNDS

Water and Sewer Funds

Revenues to the Water and Sewer Funds are expected to come in over budget in 2022, then slightly increase over the next three years. These three-year projections account for collection loss and current trends in water usage, as well as anticipated CPI increases in water rates.

The year-end estimate for 2022 Water Fund revenue is $806.5 million and $396.1 million for Sewer Fund revenue. Water and Sewer Fund revenues are expected to increase in 2023 before leveling off due to reduced usage and conservation efforts.

Aviation Funds

Estimates for the O’Hare and Midway International Airport Funds anticipate that revenue is set at a level necessary to pay debt service and support the operations of the airports. The year-end estimate for 2022 Midway Fund revenue is $349.7 million and $1,601.0 million for O’Hare Fund revenue.

In 2023, revenue will slightly increase from 2022 budgeted levels by approximately 1.0 percent for both O’Hare Airport and Midway Airport. The City projects continued incremental growth in 2024 and 2025 as the airports move forward with large scale capital projects and other improvements necessary to accommodate increasing tourism and business travel.

2023 BUDGET FORECAST

FINANCIAL FORECAST

OUTLOOK FOR ENTERPRISE FUNDS: 2022 – 2025

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DEBT

The following graphs provide a historical and three-year outlook for the City’s long-term debt.

Long-Term Debt

Long-term debt is used to finance infrastructure projects in City neighborhoods including street and alley construction and improvements, lighting, sidewalk replacement, curb and gutter repairs and replacement, and transportation improvements, including street resurfacing, bridge rehabilitation and traffic safety improvements.

• General Obligation Debt is backed by the full faith and credit of the City. The City has three types of General Obligation Bonds (“G.O. Bonds”) outstanding: 1) Tax Levy Bonds for which an annual property tax levy has been established to make payments; 2) Alternate Revenue Bonds for which an annual property tax levy has been established but is annually abated if certain other revenues are available that year to make payments; and 3) Pledge Bonds for which an annual property tax levy has not been established and payments are appropriated from other sources of revenue other than property taxes. General obligation debt service payments declined in 2021 as a result of the issuance of the GO 2021AB Bonds and the STSC 2021AB Bonds. The refunding transactions generated $232 million of savings for the 2021 budget without increasing debt service in any future year.
• Motor Fuel Tax revenue bonds were issued to pay for eligible transportation projects. Additionally, Motor Fuel Tax revenues were pledged to pay an outstanding Transportation Infrastructure Finance Innovation Act (“TIFIA”) loan from the U.S. Department of Transportation to complete the Chicago Riverwalk along the main branch of the Chicago River. Additional City revenues generated by the operations of the Chicago Riverwalk are also pledged to the repayment of the TIFIA loan and Motor Fuel Tax revenue bonds. The TIFIA loan and Motor Fuel Tax revenue bonds are no longer outstanding.
• Tax Increment Allocation bonds are limited obligations of the City payable solely from available incremental tax revenues collected from the related project redevelopment area and are issued to fund or reimburse redevelopment and infrastructure projects in Tax Increment Financing (“TIF”) districts.
• Water and Wastewater bonds are secured by revenues of the Water and Sewer Systems, respectively, and are primarily issued to fund capital projects for such systems. Additionally, the City periodically applies for and receives funding from the Illinois Environmental Protection Agency State Revolving Loan Funds Program.
• O’Hare and Midway bonds are issued to fund capital improvements and are backed by general revenues generated at the respective facility. Additionally, the City has issued bonds to fund capital improvements

at O’Hare secured by Passenger Facility Charges and Customer Facility Charges (CFC) collected at O’Hare. CFC revenues are also pledged to the repayment of an outstanding TIFIA loan to complete the airport transit system extension at the new O’Hare multi-modal facility.

• Sales Tax revenues were purchased by the Sales Tax Securitization Corporation (“STSC”) after it was organized by the City in 2017 for the limited purpose of purchasing certain Sales Tax revenues and issuing bonds, notes, or other obligations for the benefit of the City. Bonds issued by the STSC beginning in 2017 were applied by the City to refund all of the outstanding City of Chicago Sales Tax revenue bonds as well as certain outstanding G.O. Bonds for debt service savings. In exchange, the STSC was given all of the City’s right, title, and interest in Sales Tax revenues collected by the State.

Short-Term Debt

In addition to the long-term debt discussed above, the City issues certain types of short-term debt to address various operating, liquidity, and capital needs.

• General Obligation Short-Term Borrowing Programhas historically been used by the City for working capital in anticipation of receipt of other revenue to fund capital projects, debt refinancing or restructuring, and to pay noncapital expenditures, such as settlements and judgments or retroactive payment of employment salaries and wages. The City currently has two facilities in place under the General Obligation Short-Term Borrowing program for capital purpose. Both lines of credit have agreements in place up to $225 million ($450 million total). Each line of credit has an outstanding balance of $107.5 million ($215 million total).
• WaterandSewerSystemsCommercialPaperNotesand Line of Credit Notes can be authorized for the purposes of financing or refinancing capital improvements to the Water and Sewer Systems or providing funds to meet the cash flow needs of the respective system; there are no programs currently in place and there are no notes currently outstanding.
• Chicago O’Hare International Airport Commercial Paper Notes and Credit Agreement Notes can be used by the airport for working capital in anticipation of receipt of other revenue, to fund capital projects, and for debt refinancing or restructuring; There are currently two Credit Agreement Notes facilities in place at O’Hare for capital projects: (1) a line of credit facility for up to $500 million ($495 million outstanding); and (2) a line of credit facility for up to $100 million ($73 million outstanding).
• Chicago Midway Airport Commercial Paper Notes are available to support cashflow needs at Midway to fund capital projects, and for debt refinancing or restructuring. Midway currently has a Commercial Paper Notes program in place for up to $100 million. There are $20 million in notes currently outstanding.

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FINANCIAL FORECAST

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2023 BUDGET FORECAST

FINANCIAL FORECAST

OUTSTANDING LONG-TERM DEBT

LONG-TERM DEBT SERVICE PAYMENTS

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APPENDICES

HISTORIC REVENUE AND EXPENSE REVIEW

This section provides a 10-year trend analysis of the revenues and expenditures in the City’s Local Funds, beginning with the Corporate Fund.

Corporate Fund Revenue

The information here is based primarily on the City’s Annual Comprehensive Financial Report (“ACFR”), but will vary from what is printed in the ACFR under General Funds since that includes many funds and this Forecast concerns itself with the Corporate Fund.

Corporate Fund revenues are divided into five broad categories including local tax revenue, intergovernmental tax revenue, local non-tax revenue, proceeds and transfers, and prior year available and unassigned available resources.

Local tax revenue consists of taxes collected by the City, including utility, transportation, transaction, recreation, and business taxes. In 2021, local tax revenue made up approximately 33.2 percent of total Corporate Fund revenues. Beginning with the 2020 budget, the City added collections from the City’s 3.0 percent excise tax as well as a distributive share of State cannabis tax revenues.

Intergovernmental tax revenue totaled 14.4 percent of Corporate Fund revenues in 2021 and includes the City’s share of State Income Tax, Personal Property Replacement Tax, and Municipal Auto Rental Tax. Prior to 2018 and the creation of the Sales Tax Securitization Corporation (“STSC”), the City’s share of state-collected Sales Tax was included in this revenue category.

Local non-tax revenue consists of licenses, permits, services, fees and fines, proceeds from land and materials, sales and leases, and transfers to the Corporate Fund from the City’s Special Revenue and Enterprise Funds for services provided. Local non-tax revenue totaled 24.7 percent of Corporate Fund revenues in 2021.

Proceeds and transfers consist of amounts transferred into the Corporate Fund from outside sources. In 2021, this revenue source totaled 27.8 percent of Corporate Fund revenues.

The City’s revenue from most state and local sales taxes appear in the budget as a transfer as a result of the creation of the STSC. This revenue securitization structure was developed because of legislation passed by the Illinois General Assembly, allowing all home rule municipalities to create a special purpose corporation organized for

the sole purpose of issuing bonds paid for from revenues collected by the State. In December 2017, the City entered into a sale agreement (“Agreement”) with the STSC. Under the Agreement, the City sold to the STSC the City’s rights to receive Sales Tax revenues collected by the State. In return, the City received the proceeds of bonds issued by the STSC as well as a residual certificate. Sales Tax revenues received by the STSC are paid first to cover the STSC’s operating expenses and debt service on the STSC’s bonds. All remaining Sales Tax revenues are then paid to the City as the holder of the residual certificate.

Prior year available resources is the result of savings and sustainable revenue growth, along with spending controls and other efficiencies, resulting in healthy growth of the Corporate Fund balance, referred to as prior year assigned and unassigned available resources. In 2021, the City budgeted $111.0 million of prior year available resources; however, this resource was not required.

Corporate Fund Expenditures

Corporate Fund expenditures are reported as a major governmental fund within the general fund in the City’s basic financial statements. Corporate Fund expenditures totaled $4.9 billion in 2021. This report breaks down these expenditures into the three broad categories of personnel, non-personnel, and other.

Personnel expenditures represent the majority of City expenses and include employee pay, benefits, workers’ compensation, and the City’s Corporate Fund pension allocation. In 2021, these expenses represented approximately 69.3 percent of the City’s Corporate Fund expenditures.

Non-personnel expenditures represented 15.3 percent of the City’s Corporate Fund in 2021. This includes contractual services, refunds, rebates, legal costs, utilities, commodities, delegate agencies, employee travel, and contingent expenses.

Non-personnel expenditures also include the City’s payments of settlements and judgments. The City historically has used a mix of Corporate Fund and Enterprise Fund resources, as well as bond proceeds, to pay for expenses incurred in connection with settlements and judgments against the City. In 2021, the City’s Corporate Fund expenditures for settlements and judgments which is included in the Refunds, Rebates, and Legal Costs category, totaled $153.8 million – an increase compared to 2020.

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APPENDICES

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2023 BUDGET FORECAST

APPENDICES

Other expenditures totaled $755.0 million in 2021, or approximately 15.3 percent of the total Corporate Fund budget. These expenses include operating transfers to other funds, cash match for grants, financing costs, and indirect costs.

The City maintains a segregated fund to support the maintenance and operations of the Chicago Public Library (“CPL”) system. Revenue to this fund is primarily generated from a dedicated property tax levy; however, the Corporate Fund has historically subsidized the difference between property tax revenues and library expenditures. In 2021, no subsidy was needed.

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