Chicago's invitation to investors coming soon
Chicago Mayor Lori Lightfoot intends to continue the annual practice of hosting an investors’ conference for market participants that was launched by her predecessor Rahm Emanuel’s finance team early in his first term.
The Lightfoot administration. which took office May 20, plans to hold the conference in late summer or early fall. That’s the same timing as in recent years and it comes after release of city financial documents including the annual financial analysis that is published at the end of July, according to finance department spokeswoman Kristen Cabanban. Additional details weren't yet available.
“It’s been a positive initiative to have these continuing meetings with investors because it communicates to them that the city realizes the importance of being transparent and keeping up communications” on the city’s fiscal condition, said Richard Ciccarone, president of Merritt Research Services LLC. “By continuing it, the mayor is showing that she’s committed” to maintaining investor relations that helps the city's market access.
Emanuel’s first CFO, Lois Scott, launched the effort in October 2011. The city typically conducts tours with presentations made by the CFO, mayor, and the city’s sister agencies. The presentations were opened to the press last year. Before that the press could only cover the mayor’s address.
The market has been tracking any city developments closely, given that Lightfoot had no public fiscal track record as a first-time elected officeholder. The city must come up with hundreds of millions more in revenue just to cover rising pension expenses on its $28 billion net liability as payments move toward an actuarial level by 2022.
The City Council at its meeting Wednesday — Lightfoot’s second as mayor — approved her pick of Susie Park to serve as budget director. Park has held various fiscal and budgetary posts with the city, the police department, and Cook County. Lightfoot’s choice of former Chicago Public Schools chief financial officer Jennie Huang Bennett is an appointment that does not require council approval.
The city has yet to put a number on the size of the expected deficit in the 2020 budget. Emanuel’s administration said the city needed to come up with more than $700 million to cover expenses not accounted for this year, including rising debt service, police and firefighter pension funds contributions, and public safety raises.
But that’s separate from the structural deficit that last summer was estimated at $250 million. Lightfoot, who has said the overall number is higher than $700 million, repeated Wednesday that tax increases would be needed.
"The budget process is just starting in earnest now," Lightfoot said in response to questions after the council meeting. "We have a lot of hard choices that we are going to have to make regarding city finances and there's no question that we are going to have to come to the taxpayers and ask for additional revenue.
“What that ask is, I think, remains an open question because we are still trying to get our arms around how big” of a deficit looms next year “and what can we do to winnow it down" to show taxpayers that the city is trying to operate more efficiently, she said.
Those efforts include reforms to the workers’ compensation program announced Thursday and plans to install a risk management control team with the goal of keeping settlement and judgment expenses in check.
"When we are ready it is certainly is my intention to make a specific address to the public about where we are, what the path forward is, and what the solutions are. But we are not there yet,” Lightfoot said.
Ciccarone called her renewed pledge to rein in expenses a good sign, in contrast to the state, where Gov. J.B. Pritzker relied almost entirely on “a revenue feast” to erase red ink with minimal spending cuts.
Release of the annual financial analysis will lay out the city’s projected gaps over the next several years based on varying economic outcomes, pension costs, debt, and the status of other key areas of city operations. The mayor will then propose the next year’s budget in October followed by hearings and a council vote in November. The city operates on a $10.7 billion budget.
The city will get an infusion of revenue for a Chicago-based casino approved by the state earlier this month and new infrastructure spending, as well as taxes related to the legalization of recreational marijuana. Those revenues won’t help balance next year’s books.
The steps Lightfoot settles on stand to influence the city’s low bond ratings and high borrowing rates. Lightfoot inherited one junk-bond rating, though Moody’s Investors Service last summer did revise its outlook on the Ba1 rating to stable from negative. Kroll Bond Rating Agency last year raised the city’s rating two levels to A. S&P Global Ratings rates the city BBB-plus and stable, while Fitch Ratings rates it BBB-minus and stable.
Chicago’s spreads have narrowed of late with the 10-year trading recently at a 150 basis point spread to the Municipal Market Data’s top benchmark, said MMD-Refinitiv municipal market strategist Daniel Berger. That's an improvement from the 160 bp spread last month, though it's largely due to demand for higher yielding paper. Chicago’s fiscal progress over the last two years did help cut its spreads down to about 170 bps on a GO sale earlier this year, compared to its last sale in 2017, which saw spreads of 330 bps.