A flood of federal relief helped cushion the pandemic’s impact on Chicago’s balance sheet last year, but the city's unfunded pension liabilities are an exception.
That pension tab went up by $1.1. billion in 2020. The city's fiscal year coincides with the calendar year.
The city’s collective net pension liabilities for its four pension funds rose to $32.96 billion from $31.8 billion in 2019, which was up from $30.1 billion in 2018 and $28 billion in 2017 as rising contributions and positive investment returns fail to keep pace with costs and actuarial changes, according to the city's
The numbers underline the frail condition of the city’s pension system, which weighs heavily on the city’s ratings and is a primary driver of its one speculative grade rating, from Moody’s Investors Service. But there was good news in the reports too as the city dodged a bullet many feared loomed last year becuase of fears that the pandemic would damage investment returns.
“The fund experienced a net gain on investment activity in calendar year 2020 of $271.5 million, or 12.29%, which compares to the net gain on investment of $370 million, or 16.31% in 2019,” reads the
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Police and fire assume a 6.75% rate of return, the municipal fund assumes a 7% rate, and the laborers's fund 7.25%.
“I think the biggest challenge we face is pensions…so we have to continue to really force the conversation” with the state and labor, Mayor Lori Lightfoot
The city has not offered any new formal fixes beyond meeting its legal commitment to shift pension contributions to an actuarial basis.
Chicago already began making actuarially based contributions to the two public safety funds last year, that put them on a track to a 90% funded ratio in 2055, and will hit that mark in 2023 with the other two funds. Material improvements in the funded ratios don’t occur until late in the funding schedule. For example, the police fund warns its funded ratio is not projected to reach 50% for another 23 years.
“Given the low funded ratio, the fund is still at risk of potential insolvency if an economic recession or investment market downturn were to occur in the near term,” the municipal fund’s annual report reads. “We strongly recommend an actuarial funding method that targets 100% funding where payments at least cover interest on the unfunded actuarial liability and a portion of the principal balance.”
The municipal fund accounted for $13.7 billion of the nearly $33 billion tab, the laborers’ fund $1.59 billion, the police $12.05 billion, and firefighters $5.6 billion. Muni, police, and laborers all saw their net liabilities rise while the firefighters held steady.
The funded ratios of three funds saw slight improvement but all remain weak.
The funded ratios ranged from a low of 18.97% for firefighters to a high of 44.42% for the laborers fund with the municipal fund at 22.96% and police at 22.21%. Police, fire and laborers’ saw modest improvements in the funded ratios after the actuarially based contribution took effect last year for police and fire. Municipal dropped slightly.
The city’s $1.68 billion of contributions last year fell far short of the recommended annual determined contribution or ADC that collectively totaled about $2.8 billion. The actuarially based payment for police and fire that took effect last year still fell short of the ADC as the formulas slightly differ. The city made a actuarially based $740 million payment for police and $368 million for fire with the ADC for both at $1.04 billion and $467 million, respectively.
Audited financials
The city’s net position for governmental activities, which provides a broader picture of the city’s assets and liabilities improved slightly to a deficit of $30.33 billion from a negative $30.68 billion in 2019, according to its annual comprehensive financial report. It was a negative $30.13 billion in 2018.
“The ACFR confirms the expected results of the city’s finances as has been previously discussed during the 2020 budget. Fund balance increased by $12 million year on year to $197 million. Additionally, total debt decreased by $211 million between 2019 and 2020 and $258 million over the last two years. This was due to improved cash flow management which reduced the city’s reliance on lines of credit and saved at least $22m annually on debt service costs," Chicago Chief Financial Officer Jennie Huang Bennett said of the results.
“Revenues increased due to a significant amount of grants awarded during 2020 in response to the COVID-19 pandemic for health, public safety, housing and rental assistance and small business assistance,” the city’s annual report says. “Expenditures decreased in the areas of general government, public safety and transportation as the city went through a shutdown during the months of mid-March to June, and as expenditures were being managed as revenues were trending lower due to the economic impact from the COVID-19 pandemic.”
The city closed its $4.5 billion corporate fund last year with $405 million less in budgeted revenues due to COVID but corporate fund expenses were also down a similar amount.
“The operating shortfall caused by the COVID-19 pandemic was addressed through a combination of expenditure reductions, delayed programs, and prioritizing pandemic response efforts that are reimbursable through federal assistance” as well as short-term borrowing, the report reads.
The City received more than $1.46 billion in federal aid last year to manage the pandemic’s costs. That helped reduce what was higher costs outside the general fund. That aid doesn’t include the $1.9 billion the city is receiving from the American Rescue Plan Act this year.
The general fund balance ended at $359.5 million, up $23.6 million, with $196.7 million of that providing a cushion heading into this year as the unassigned portion. The total balance equals 9.8% of total general fund expenses. The balance has been on the rise, a positive for its credit profile, after hitting a low of $33 million in 2012.
The city closed out 2020 with $26.7 billion of total debt, down from $26.9 billion in 2019. General obligation debt accounted for $7.25 billion of the total down about $650 million from 2019 as the city refunded GO debt using its higher rated Sales Tax Securitization Corporation structure. STSC bonds made up $3.66 billion of the total debt up about $1 billion with revenue bonds.
The city’s GO ratings held steady at BBB-minus from Fitch Ratings, A from Kroll Bond Rating Agency, Ba1 from Moody’s Investors Service and BBB-plus from S&P Global Ratings.
The balance sheet for the city’s airports provided a stark picture of the pandemic’s impact. Chicago Midway International Airport’s total operating revenues in 2020 decreased by $39.8 million or 17.5% as traffic shut down during the pandemic.
Chicago O’Hare International Airport’s total operating revenues for 2020 dropped by $347.9 million or 27.8% as the city lowered terminal rents and landing fees and hotel revenues and concessions sunk. Federal support has kept the airports’ balance sheets afloat.
The city adopted the new name of annual comprehensive financial report, or ACFR, that’s recommended by the Government Finance Officers Association and that the Governmental Accounting Standards Board has proposed to change. The previous acronym when pronounced out loud is considered a racial slur to Black South Africans. Deloitte & Touche LLP provided the opinion on the city’s audit.
