April 3, 2013
On February 20, 2012 Mayor Emanuel released the City of Chicago’s first quarterly budget report in order “to ensure more transparency and honesty in the City’s budgeting process.” The reports track the City’s revenues and expenditures as they align with the budget. They also include updates on major initiatives implemented through the budget process.
Recently the City released the budget report for the fourth quarter of 2012 which presents the most up-to-date financial numbers available. The report is not an audited financial statement and as such the numbers are subject to change until the City releases its Comprehensive Annual Financial Report later this year. This blog presents highlights from the report.
Corporate Fund — the City's General Operating Fund
Corporate Fund revenues – which do not include proceeds and transfers in or prior year fund balance – are estimated to reach $2.9 billion by fiscal year-end, up $69.0 million or 2.4% from the approved FY2012 budget. The increase is largely due to better than expected returns on economically sensitive revenues including transaction taxes, sales and use taxes, income and personal property replacement taxes (PPRT). The City attributes much of these increases to the local economy’s continuing recovery from the recession, including a strong commercial real estate market and an increase in home sales. The City explains that income tax collections are up from FY2011 levels due to falling unemployment and growing corporate profits. The City also expects to receive 13 monthly income tax distributions from the State for the year – all of 2012’s payments plus a delayed 2011 payment received in early 2012.
Non-tax revenues in the Corporate Fund are down from budget estimates, including revenues received from licenses and permits and fines, forfeitures and penalties. Also below budget estimates is a revenue category that includes expected TIF surplus, intergovernmental reimbursements and reimbursements from the City’s enterprise and special revenue funds. Although revenue from fines, forfeitures and penalties are down from budget estimates, these revenues are up 8.0% from FY2011 due to increased debt collection efforts.
Overall Corporate Fund expenditures are $40.6 million, or 1.3%, below budget estimates. The total budget of nearly $3.1 billion is comprised mostly of $2.2 billion in salaries and wages, which is estimated to be $31.2 million, or 1.4%, over budget by year-end. According to the City, this is largely due to an increase in police hours throughout 2012. Expenditures on healthcare benefits are $46.5 million, or 11.9%, below budget estimates. The City attributes the savings to aggressive negotiations with providers and pursuing one-time reimbursements owed to the City.
Progress on FY2012 Budget Estimates
According to the City, reimbursement revenue is down because the City chose not to seek budgeted reimbursement from the Chicago Public Schools for non-teacher pension contributions. The City currently makes pension contribution payments to the Municipal pension fund for non-teachers who work for CPS. In FY2011 approximately 52.3% of active Municipal Fund members were CPS employees. The City’s approved FY2012 budget included $32.5 million in additional revenues from the pension reimbursement from CPS.
Other non-tax revenues are down because the City postponed its municipal marketing program until FY2013. The FY2012 budget anticipated $25.0 million in additional revenue from new advertising opportunities on City property including snow plows, garbage trucks, trash and recycling cans and building sides.
Expenditures on Claims and Judgements Against the City
In FY2012 the City budgeted approximately $27.5 million in the Corporate Fund for the payment of tort and non-tort judgments and claims against the City. According to the quarterly report, the City spent the entire Corporate Fund budget for claims and judgments prior to the end of the year and noted that each year the City uses both Corporate Fund resources and bond proceeds to pay for these kinds of expenses.
In the Civic Federation’s analysis of the FY2013 budget, the Federation expressed concern with the City’s use of some of the proceeds of $308.0 million in taxable bonds it sold in May 2012 to pay for a $78.4 million tort settlement related to the City’s hiring of firefighters. The Federation is concerned that the City is borrowing to pay for what is essentially an operating cost. Rather than adequately budgeting for known tort claims from ongoing lawsuits and making these payments from a budgetary reserve or from recurring revenues, the City borrowed money to pay for the settlement, compounding the cost of its actions for the taxpayers.
According to media reports, the City has already spent its entire FY2013 Corporate Fund budget of $26.2 million for claims and judgments against the City and plans to use bond proceeds to cover future settlements. Large settlements in FY2013 include a $22.5 million settlement arising from police misconduct.
 Proceeds and transfers in include some recurring revenue sources such as interest earned on the City’s asset lease reserve funds, but also include non-recurring revenue sources such as proceeds from financial transactions. Prior year fund balance is the surplus from the prior fiscal year and is not a recurring revenue.
 According to the report, the State had not distributed income tax payments for the 4th quarter as of the date of the report. The City anticipates receiving $50.7 million in income tax payments and $126.6 million in PPRT revenue, which will be put toward 2012 pension payments, with additional PPRT revenue directed to the Corporate Fund.
 The FY2012 budget included a 1.0% increase in the City’s home rule hotel tax rate, from 3.5% to 4.5%, which increased the composite hotel tax rate from 15.4% to 16.4%.