Status of Chicago Asset Lease Proceeds
February 23, 2011 - 12:21pm
The long-term lease of assets by the City of Chicago is one of the most significant financial undertakings by the City in recent years. These groundbreaking transactions have received national attention and been examined by other governments interested in new models of public private partnerships. Recognizing the importance of these actions, the Civic Federation continues to examine these complex transactions and use of the proceeds.
The Civic Federation’s Financial Challenges for the New Mayor report examined the actual and budgeted expenditures of the Skyway and parking meter asset lease proceeds. The report included information on the distribution of proceeds to support the Corporate Fund and on remaining balances. By the end of FY2011 the City will have utilized 72.7% of the Skyway proceeds for operating expenses and debt retirement, leaving a balance of $500.0 million. It will also have utilized 93.4% of the parking meter proceeds for operations, leaving a balance of $76.0 million. The report built on the previous research that was outlined in the Civic Federation’s City of Chicago FY2011 Proposed Budget: Analysis and Recommendations. That analysis included data on the actual and budgeted expenditures for the Skyway and parking meter transactions and found that of the proceeds and interest that have been used or budgeted, 60.9% have gone for general operations, 32.1% for debt retirement and 7.0% for human infrastructure.
Building on that previous research, the Civic Federation has developed a more comprehensive accounting of all of the asset lease proceeds. This examination includes not just the Skyway and parking meter proceeds, but also the City’s share of the proceeds from leasing the downtown public parking system. The downtown parking system consists of four underground parking garages. Previously, the Civic Federation examined budgeted expenditures and remaining reserves separately, consistent with standard budget analysis methods. The new analysis differs in that it examines budgeted expenditures and remaining balances together to provide a comprehensive overview of the lease proceeds. For simplicity, we took the original allocation of proceeds minus projected remaining balances at the end of FY2011 to determine the current allocation of proceeds. We did not include revenues generated through interest in the analysis. The chart below outlines the new comprehensive accounting of the City’s asset lease proceeds.
The Civic Federation is generally supportive of utilizing long-term asset lease proceeds to maintain long-term reserve funds, retire debt, address long-term liabilities such as pensions or invest in capital resources. The Civic Federation has concerns when proceeds are used for operations except under extraordinary circumstances as outlined by an established policy.
The downtown public parking garage system proceeds appear to have been allocated appropriately with all of the funds used to retire debt or for expenses associated with the transaction. The Skyway allocation has a more mixed record: 46.7% of principal has been used to retire debt and 26.0% of principal has been used for operating expenses. The remaining 27.3% of principal is in a long-term reserve account. The Civic Federation is concerned that without a clear policy in place for the use of reserve funds, the City may tap into the long-term reserve for operations. The City had originally allocated 34.7% of the parking meter proceeds for a long-term reserve, but only 4.7% of principal is projected to remain in that reserve at the end of FY2011. The remainder of the parking meter funds have either been used or allocated for operating expenses.
Examining the three transactions together reveals that almost half (49.2% or $1.57 billion) of all the proceeds have been expended, budgeted or allocated for operating expenses. The next largest category of use is retiring debt and closing costs at 33.5% or $1.1 billion. Only 17.3% or $554.0 million remains in long-term reserves.
For more information on the original distribution and actual and budgeted expenditures from asset lease proceeds please see previous blog posts on the underground parking garages and the Skyway and parking meters.
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