2nd Quarter 2016 Earnings Call

Creating Relief for Taxpayers by

Increasing Revenue Projections
to $102M
Presented by
City Treasurer Kurt Summers

AUGUST 23, 2016 | 12:00 PM

 BEFORE WE GET STARTED…

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WELCOME & PURPOSE OF CALL
Status Quo
In the past, the Treasurer’s Office
has produced one annual and
publicly available financial report
which contained a simple
overview of the city’s investments
over the previous year.
Best Practices
As the primary investment
manager for the City of
Chicago, the Treasurer seeks to
be held as accountable as any
other investment management
firm is to their investors. This
call is shaped after some
reporting done by the nation’s
largest investment managers
and public companies.
Transparency &
Accountability
During the Treasurer’s 77 visits to
Chicago’s 77 neighborhoods, the
greatest recommendation by
residents across the City was that
their financial steward provide more
transparency and accountability.
Action
This Quarterly Earnings Call for
the City of Chicago is only one
step in financial reporting and
performance tracking of the City’s
investment portfolio. The call will
provide an overview of the
national economy as well as
Chicago's current fiscal landscape
and balance sheet and outline the
economic impact of investing in
our communities.
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Agenda 01 12:00 - 12:05
Introduction, Purpose of Call,
Agenda
05 12:20 – 12:25
CTO Investment Portfolio
Update

02 12:05 – 12:10 06 12:35 – 12:40

National Economy CTO 2016 – Innovation &
Implementation

07 12:40 – 12:45
03 12:10 - 12:15
Chicago Economy
Q&A

04 12:15 – 12:20
Safe & Responsible
Investment Best Practices

4
NATIONAL ECONOMY

Unemployment GDP (% Change)

Q4 2015 Q1 2016 Q2 2016 (adv.)

Apr. 2016 May 2016 June 2016

5.0% 4.7% 4.9% 1.4% 1.1% 1.2%

IMF Expected Growth Rates

Previous Updated Previous Updated

2016 Forecast 2016 Forecast 2017 Forecast 2017 Forecast

Global Economy 3.4% 3.1% 3.6% 3.4%

U.S. Economy 2.6% 2.2% 2.5% 2.5%

Advanced Economies 2.1% 1.8% 2.1% 1.8%

Emerging/ Developing
4.3% 4.1% 4.7% 4.6%
Economies

Source: Bureau of Labor Statistics, Bureau of Economic Analysis,

Institute for Supply Management, Organization for Economic Cooperation and Development, International 5
Monetary Fund, NASDAQ, United States Census Bureau
Agenda 01 12:00 - 12:05
Introduction, Purpose of Call,
Agenda
05 12:20 – 12:25
CTO Investment Portfolio
Update

02 12:05 – 12:10 06 12:35 – 12:40

National Economy CTO 2016 – Innovation &
Implementation

07 12:40 – 12:45
03 12:10 - 12:15
Chicago Economy
Q&A

04 12:15 – 12:20
Safe & Responsible
Investment Best Practices

6
CHICAGO ECONOMY OVERVIEW

Chicago’s unique characteristics foster the foundation for continued economic growth
across its diversified economic landscape

Among Chicago’s recent successes:

• Growing opportunities
 0.93% YOY increase in private jobs as of June 2016
 2.3% YOY increase in wages

• Burgeoning innovation
 14.8% YOY increase in number of new patents as of June 2016

• Global Transit Hub

 4.2% YOY increase in number of passengers served by O’Hare and Midway as of June 2016

Source: World Business Chicago, PayScale

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CHICAGO FOREIGN DIRECT INVESTMENT STATUS

Chicago leads on Foreign Direct Investments(FDI) according to 2016 IBM Global location
trend report.

• Current Rankings
 Chicago Rank has risen to seventh
 Only North American Metro area in the top 20. Saw more projects than the next
three North American Metro area cities: Montreal, Miami, and Atlanta.

• Quantity Foreign-based companies and number of dollars directed towards FDI

 Chicago is currently the home of more than 1,800 foreign-based companies, which
accounts for more than $100 billion foreign dollar investments.

• Prospective Expansion of FDI

 Continuing to expand FDI with catalyzing initiatives such as Gateway Cities
agreement with eight Chinese cities and Global Cities Economic Partnerships with
New Mexico.

Source: World Business Chicago

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CHICAGO ECONOMY

Unemployment
Q1 2016 Q2 2016 Q/Q (%)
National 5.0% 4.9% -0.1%
Chicago 6.6% 6.0% -0.6%

Chicago Home Sales Chicago Median Home Sale Price

June 2015 June 2016 YOY (%) June 2015 June 2016 YOY (%)

Residential 3,202 3,210 0.2% Residential $288,250 $300,000 4.1%

Chicago Office Vacancy (% Total)

Q2 2015 Q2 2016 YOY (%)

Office Space 13.1% 11.7% -1.4%

Sources: Bureau of Labor Statistics, World Business Chicago, Illinois Department of Employment Security,
Crain’s Business Chicago, Illinois Association of Realtors, National Association of Realtors, U.S. Census Bureau
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Agenda 01 12:00 - 12:05
Introduction, Purpose of Call,
Agenda
05 12:20 – 12:25
CTO Investment Portfolio
Update

02 12:05 – 12:10 06 12:35 – 12:40

National Economy CTO 2016 – Innovation &
Implementation

07 12:40 – 12:45
03 12:10 - 12:15
Chicago Economy
Q&A

04 12:15 – 12:20
Safe & Responsible
Investment Best Practices

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CTO PORTFOLIOS - BEFORE

Operations Bond Proceeds Long Term Reserves

Size: $2.5 - 3.1 Billion Size: $2.2 – 2.6 Billion Size: $620 Million

Purpose: Purpose: Purpose:

• Meet all current and short-term • Ensure compliance with • Generate additional revenue for
obligations of the City tax/debt issuance regulations Corporate Fund

Investment Metrics: Investment Metrics: Investment Metrics:

Yield to Maturity: 0.4% Yield to Maturity: 0.7% Yield to Maturity: 2.1%
Duration: 1.5 Duration: 2.0 Duration: 5.5
Rating: AAA Rating: AAA Rating: AA

Combined Operations and Bond Proceeds

Yield to Maturity: 0.5%
Duration: 1.7
Rating: AAA

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CTO PORTFOLIOS - AFTER

Operations Long Term

Operations Bond Proceeds
Reserves Reserves
Size: $1.5 Billion Size: $1.6 Billion Size: $1.9 Billion Size: $627 Million

Purpose: Purpose: Purpose: Purpose:

• Immediate Liquidity • Enhanced Liquidity • Strict & Efficient Proceed • Total Return & Asset
Management Growth
Investment Metrics: Investment Metrics:
Yield to Maturity: 0.55% Yield to Maturity: 2.0% Investment Metrics: Investment Metrics: Yield to
Duration: 0.69 Duration: 5.0 Yield to Maturity: 0.81% Maturity: 3.0%
Rating: AAA Rating: AA Duration: 1.0 Duration: 12.3
Rating: AAA Rating: AA-

Combined Operations, Operations Reserves &

Bond Proceeds
Yield to Maturity: 1.1%
Duration: 2.3
Rating: AAA

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TYPES OF RISK & RISK PROTECTION

A. Liquidity Risk
• Mitigating Liquidity Risk
Protection • Manage assets and cash inflows to satisfy all
current and future obligations
• Duration of assets is now directly tied to the
duration of outstanding liabilities
B. Interest Rate/Duration Risk
• Asset – Liability Management
Protection • Greater Insight into City’s Daily Cash Flows
• Ability to Hold to Maturity

C. Credit/Default Risk
• Portfolio Diversification
Protection • Diversified Holdings of Varying Maturities,
Credit Qualities, & Durations
• Overall Credit Quality Standard

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 OPERATIONS PORTFOLIO: ASSET – LIABILITY MANAGEMENT

GFOA Best Practice

Operations
“GFOA recommends that a government’s target for Too much cash
working capital should be no less than 45 days (1.5 Size: $2.5 - 3.1 Billion on hand
months) worth of annual operating expense.”
Purpose:
• Meet all current and short-term
FY 2016 Total Budgeted $7.84 Billion* obligations of the City
Appropriations 12 Months Investment Metrics:
Yield to Maturity: 0.4%
Duration: 1.5
x 1.5 Months Rating: AAA

GFOA Working Capital Target $ 979.8 Million

* Taking a conservative approach, this calculation uses gross appropriations not net expenditures.

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Agenda 01 12:00 - 12:05
Introduction, Purpose of Call,
Agenda
05 12:20 – 12:25
CTO Investment Portfolio
Update

02 12:05 – 12:10 06 12:35 – 12:40

National Economy CTO 2016 – Innovation &
Implementation

07 12:40 – 12:45
03 12:10 - 12:15
Chicago Economy
Q&A

04 12:15 – 12:20
Safe & Responsible
Investment Best Practices

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CTO INVESTMENTS – PORTFOLIO OVERVIEW

Chart Source: Chicago City Treasurer’s Office 16

CTO INVESTMENTS – PORTFOLIO OVERVIEW

Chart Source: Chicago City Treasurer’s Office 17

Agenda 01 12:00 - 12:05
Introduction, Purpose of Call,
Agenda
05 12:20 – 12:25
CTO Investment Portfolio
Update

02 12:05 – 12:10 06 12:35 – 12:40

National Economy CTO 2016 – Innovation &
Implementation

07 12:40 – 12:45
03 12:10 - 12:15
Chicago Economy
Q&A

04 12:15 – 12:20
Safe & Responsible
Investment Best Practices

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 5
2016: INNOVATION & IMPLEMENTATION

DRIVING VALUE THROUGH ACTION TO CHICAGO’S COMMUNITIES

HOME BUYER
ASSISTANCE MD ORDINANCE FUND77
PROGRAM

IMPACT IMPACT IMPACT

A grant program for Amending city code to An investment vehicle
individuals who are buying a increase transparency for the designed to drive investment
home or refinancing an City’s banking partners capital into all 77 of the City’s
existing mortgage within the neighborhoods
City of Chicago

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Home Buyer Assistance Program
WHO QUALIFIES? Anyone who meets the income and credit score requirements is eligible for
the program. There are two categories of loans available, each with their own
requirements:

FHA, VA, USDA Loans: Regardless of family size, the borrower’s annual
income must be $87,400 or less. As set by FHA, VA, or USDA guidelines,
participants will generally need a minimum credit score of 580 to qualify.

Fannie Mae/Freddie Mac Loans: Regardless of family size, the borrower’s

annual income must be $133,000 or less. As set by Fannie Mae/Freddie Mac
guidelines, participants will generally need a minimum credit score of 640 to
qualify.

DO I NEED TO BE A FIRST-TIME HOME BUYER? No

HOW MUCH GRANT MONEY COULD I RECEIVE? Qualified borrowers may receive a grant for up to 7% of the total loan amount
based on income. For example, for a total loan amount of $250,000, a
borrower could receive a grant of no more than $17,500 to cover down
payment and closing costs.

WILL I BE REQUIRED TO USE MY OWN FUNDS? Qualified borrowers will be required to contribute the lesser of $1,000 or 1%
of home purchase price at the closing.

CAN THIS PROGRAM HELP ME REFINANCE MY HOME? Yes, as long as there is no cash back to the borrower.

To learn more about the Home Buyer Assistance Program and a complete list of approved lenders, please visit
www.cityofchicago.org/homebuyer or www.chicagoinfrastructure.org

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Home Buyer Assistance Program

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MUNICIPAL DEPOSITORY ORDINANCE

Amending the Municipal Depository Ordinance to require all banks, also known
as Municipal Depositories, to disclose community lending information,
mortgage lending information and overall bank health to the Treasurer.

This change will allow the City to ensure that the banks can protect City funds
and invest in every Chicago neighborhood.

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INVESTMENT POLICY UPDATE

As part of the Treasurer’s focus of investing in Chicago while protecting City

assets, the change would allow the Treasurer to:

1. Diversify the portfolio while ensuring that the entire portfolio is above the
minimum credit rating as required by last year’s change.

2. The proposed changes also ensure that the Treasurer’s Office is only
allowed to invest in corporate bonds backed by corporations with more than
$1 billion in assets which doubles the current requirement.

3. The changes would also codify a training requirement for its entire
investment staff to further ensure that professionals managing the City’s
investment portfolio are trained in industry trends and best able to protect
the City’s finances while generating returns.

4. The changes would also allow for investments in the city of Chicago that
create economic development, improve the city’s physical infrastructure
while generating a return for the portfolio.

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FUND77

FUND77’s investment mission is simple: to provide capital for priority projects

in Chicago’s neighborhoods, to fund investment opportunities that create jobs,
develop affordable housing, create economic development and grow
neighborhoods.

By partnering with Community Development Financing Institutions, FUND77

will support businesses through loans, equity investments, and mezzanine and
debt financing.

FUND77 will also promote security for investors, return on investment, and
transparency for Chicago’s citizens.

Passage of Investment Policy changes on September 9th will trigger FUND 77

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Agenda 01 12:00 - 12:05
Introduction, Purpose of Call,
Agenda
05 12:20 – 12:25
CTO Investment Portfolio
Update

02 12:05 – 12:10 06 12:35 – 12:40

National Economy CTO 2016 – Innovation &
Implementation

07 12:40 – 12:45
03 12:10 - 12:15
Chicago Economy
Q&A

04 12:15 – 12:20
Industry Expert Highlight

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Q&A

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DEBRIEF AND CLOSING

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bit.ly/77ThinkTanks

VISIT US AT WWW.CHICAGOCITYTREASURER.COM

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Thank You For Joining

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DISCLAIMER

PLEASE NOTE:

This presentation 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 issued by the City of
Chicago, please refer for information only to the City’s disclosure documents
and continuing disclosure filings for such bonds, notes, or other debt
obligations.

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