POPULAR ANNUAL FINANCIAL REPORT. City of Chicago Office of the City Treasurer. Get Money saving tips at SaveSpendGrow.org

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1 2010 POPULAR ANNUAL FINANCIAL REPORT City of Chicago Office of the City Treasurer Get Money saving tips at SaveSpendGrow.org Office of the City Treasurer Stephanie D. Neely, Treasurer

2 OFFICE OF THE CITY TREASURER CITY OF CHICAGO STEPHANIE D. NEELY, TREASURER 121 North LaSalle Street Room 106 Chicago, Illinois Voice: Fax: Please contact us if you would like additional copies of this report or for general information about the Office The Popular Annual Financial Report is also available on our website at The Save it. Spend it. Grow it. campaign was named, developed and designed by JinJa Birkenbeuel at Birkdesign Inc., Birkdesign Inc. is a strategic-thinking branding, design and marketing agency that develops visual brand identity systems, print/web and interactive design, book and ebook design, corporate and investor communications, taglines and naming, and marketing and promotion campaigns. Birkdesign is the design communications team for extraordinary clients that are small and large, publicly-owned and privately held, artists, start-ups, not for profits, government agencies and individuals.

3 Dear Colleagues and Friends: Welcome to the 2010 Popular Annual Financial Report (PAFR). In February of 2011, I had the honor of being elected to my second full term as City Treasurer. I thank the people of Chicago for their continued support. My Office has prepared the 2010 PAFR to share our accomplishments, and provide a summary of the organization and responsibilities of the Office of the City Treasurer (the Office ). In the PAFR, you will find a summary of our investments as well as the initiatives that we ve undertaken during the year. Stephanie D. Neely Treasurer City of Chicago As our economy continues to recover from these difficult economic times, I ll continue to use the resources of this Office to introduce effective policies and programs that improve the quality of life for Chicago residents. The primary mission of this Office is to protect principal, maintain liquidity and provide the highest investment return for the City. We re happy to inform you that in 2010 we were successful in meeting those goals. Our investment portfolio returns continue to exceed our benchmarks and we continue to meet our diversity goals for the vendors that do business with the City of Chicago. Additionally, we ve continued to advance our mission by placing more affordable capital into the hands of small businesses, we ve sponsored seminars and workshops that support entrepreneurs, we continue to expand financial education programs for children and adults, and we ve increased access to a broad range of financial services for Chicago residents. More importantly, we ve conducted these programs with the utmost integrity and prudence. We ve received another clean departmental audit from our accounting firm in conjunction with our annual financial report. As we look ahead, this Office will redouble its efforts to serve Chicago s many communities. We look forward to partnering with elected officials, sister agencies, not-for-profits and the private sector in a comprehensive effort to financially empower all Chicagoans. As I begin my second term as Treasurer, I promise to continue to provide the clear vision and strong leadership required to navigate these difficult economic waters. Sincerely, Stephanie D. Neely Treasurer, City of Chicago

4 Table of Contents Mission Statement...1 Functions and Duties of the Office of the City Treasurer...2 Office Organization...3 Financial Section...5 Financial Summary...6 City Operating Funds...6 Trust Funds...7 Pension Funds...7 Board of Education Funds...8 Summary of Investment Policy...8 Investment Results...9 Economic and Community Development...10 Access to Banking...10 Small Business...10 Financial Education...13

5 Office of the City Treasurer City of Chicago 2010 Popular Annual Financial Report Mission Statement The primary mission of the Office of the City Treasurer is to manage the City s cash flow and investment portfolio while adhering to its stated investment objectives ensuring the safety of principal, maintaining adequate liquidity, maximizing investment returns and utilizing investments to promote economic development throughout the City.

6 Pay your piggy bank first. Set aside money for savings before you spend your paycheck. #1 Functions and Duties of the City Treasurer Portfolio Management The City Treasurer is the Chief Investment Officer for the City and is responsible for managing the City s $6.7 billion investment portfolio. This portfolio includes the City s operating and bond trust funds, short-term investments for three City pensions funds Municipal, Police and Fire and funds belonging to the Chicago Board of Education (the Board ). The City Treasurer manages the investment portfolio in-house, which saves taxpayers approximately $5 million annually. The City s formal investment policy authorizes the City Treasurer to invest available funds utilizing various investment vehicles to meet the stated objectives safety of principal, liquidity and return on investments. To ensure that investment portfolio earnings are competitive, the Treasurer uses the average 90-day U.S. Treasury Bill as a performance benchmark. In the $3.5 billion operating portfolio, the Office outperformed the benchmark by 1.56% in 2010, which amounted to approximately $44.3 million in additional earnings. Financial Reporting The City Treasurer is responsible for maintaining all records and accounts associated with the City s operating funds as well as the escrow accounts held with various trustee banks. In this regard, the City Treasurer functions as the City s banker. Economic Development The Municipal Code of Chicago authorizes the City Treasurer to engage in economic development efforts in the community. The Office focuses its economic development efforts on banking, small business and financial education through policy innovation, community engagement, and advocacy. Pensions The Office is the custodian and manager of short-term investments for three City of Chicago pension funds Municipal, Police, and Fire as well as for the Chicago Teachers Pension Fund. #2 Take a different route. Avoid streets with tempting shops. Ex-Officio Treasurer for the Board of Education As custodian for the Board of Education, the City Treasurer maintains financial records and is the custodian of the Board s cash and investment portfolios. 2

7 Office of the City Treasurer City of Chicago 2010 Popular Annual Financial Report #3 Office Organization Eat before you grocery shop. Hunger leads to impulse buys. The Office is at the center of the City s financial management system. The Chicago Department of Revenue collects taxes, fees and fines. The Office invests these monies and the Comptroller s Department handles the disbursement process. This separation of the City s financial systems serves as a check and balance thereby protecting tax payer money. The Office is comprised of three divisions: Financial Reporting The Financial Reporting Division is responsible for the daily accounting and financial reporting functions. This division records daily cash receipts, establishes bank accounts, reconciles bank statements, manages banking relationships, and establishes any necessary internal controls. Portfolio Management The Portfolio Management Division is responsible for investing all funds under the control of the City Treasurer, while ensuring the City s daily cash flow demands are met. Additionally, the Portfolio Management Division is responsible for information technology in the Office. Economic Development The Economic Development Division is responsible for promoting economic growth and financial education throughout Chicago s neighborhoods. This division is also responsible for office administration. Organizational Chart City Treasurer Assistant to the City Treasurer Chief of Staff Deputy City Treasurer Chief of Policy Assistant City Treasurer Assistant City Treasurer Assistant City Treasurer Assistant to the City Treasurer Director of Accounting Portfolio Manager Assistant City Treasurer Auditor Portfolio Manager Assistant Director of Finance Director of Public Affairs Accountant Accountant Accountant Executive Secretary Accountant Staff Assistant #4 Hide your credit cards. Put them in a safe place so you won t be tempted.

8 Create a rainy-day fund. Save at least $500 for emergencies. #5 4

9 Office of the City Treasurer City of Chicago 2010 Popular Annual Financial Report Financial Section 2010 Accomplishments and Initiatives During 2010, the City Treasurer continued making progress in implementing technology and best practices in the core areas of cash management, portfolio management and financial reporting. These improvements will serve to strengthen controls over financial operations. Technology and Communications Integrated technology and e-solutions to improve business processes as well as generate cost savings Adopted best-in-class business practices that assure the Office of the City Treasurer operates in a responsible, prudent and innovative manner The City Treasurer also made millions in city funds available for economic development and small business loans through its Small Business Development Loan Program. With these achievements, the citizens of Chicago can continue to rely on the Office not only to efficiently manage every tax dollar, but also to leverage available funds to promote much-needed economic development in Chicago s neighborhoods. Cash Management Consolidated, closed or eliminated accounts or services that led to approximately $50,000 in cost savings Strategically managed banking relationships to receive optimal bank pricing for services required to meet the City s banking needs Portfolio Management Minority-owned, women-owned and veteran-owned firms conducted 61.3% of the City s investment brokerage activity Enhanced focus on safety and liquidity of City funds during economic downturn Saved $5 million by conducting all trades in house Financial Reporting Received a clean departmental audit opinion again in 2010 #6 Continued to improve the financial reporting process by strengthening the internal control environment and implementing best practices in critical functional area Go low-flow. This shower head can reduce your water bill up to 60%.

10 Pay cash. It s a lot harder to overspend. #7 Financial Summary The cash and investments under management of the City Treasurer are organized into four categories listed as follows: CITY OPERATING FUNDS TRUST (BOND) FUNDS PENSION FUNDS (SHORT-TERM FUNDS) BOARD OF EDUCATION FUNDS n City Operating Funds... $3,500,838,705 n Trust Funds... 2,332,308,266 n Pension Funds... 38,253,340 n Board of Education Funds ,490,438 Total...$ 6,723,890,749 City Operating Funds Operating funds consist of funds in excess of current daily operating needs that are invested in highly liquid instruments to ensure that daily cash requirements are met. The funds consist of individual and pooled accounts. The individual accounts are established within specific funds to meet contractual agreements and legal obligations. Income derived is credited directly to these funds and such funds do not share in the earnings from the pooled accounts. The portfolio composition of City Operating Funds as of December 31, 2010 was as follows: #8 Hang out with savers. Friends who save will help you save. n Cash and Cash Equivalents...$ 132,951,950 n Certificates of Deposit... 40,000,296 n U.S. Government Agencies... 2,185,737,205 n Corporate Bonds... 96,251,869 n Money Markets... 1,045,897,385 Total... $ 3,500,838,705 6

11 Office of the City Treasurer City of Chicago 2010 Popular Annual Financial Report Trust Funds Certain proceeds from City bond issues are managed and invested by the City Treasurer. These funds are placed in trust accounts with independent bank trustees that act as thirdparty custodians until the funds are fully expended. The composition of the Trust Funds as of December 31, 2010 consisted of the following: #9 Add another blanket. Lower your thermostat at night to save on heating costs. n Cash and Cash Equivalents...$ 17,465,657 n U.S. Government Agencies... 1,641,209,364 n Money Markets ,633,245 Total...$2,332,308,266 Pension Funds The City Treasurer is also entrusted with managing short-term cash for the following employee Pension Funds: MUNICIPAL EMPLOYEES ANNUITY AND BENEFIT FUND OF CHICAGO POLICEMEN S ANNUITY AND BENEFIT FUND OF CHICAGO FIREMEN S ANNUITY AND BENEFIT FUND OF CHICAGO The short-term cash portfolio for these funds as of December 31, 2010 consisted of the following: n Cash and Cash Equivalents... $ 1,653,340 n Money Markets... $ 36,600,000 Total... $ 38,253,340 #10 Know what you owe. Add up your total debt and post the amount on your refrigerator.

12 Put air in the tires. Good gas mileage depends on having the right tire pressure. #11 Board of Education Funds In accordance with the Illinois School Code, the City Treasurer acts as ex-officio Treasurer for the Board and is the custodian of the Board s cash and investments, including the Public School Teachers Pension and Retirement Fund s short-term cash. The portfolio composition as of December 31, 2010 for the Board is summarized as follows: Summary of Investment Policy The funds managed by the City Treasurer are governed in accordance with the Municipal Code of the City of Chicago, the Illinois Public Funds Act and prudent money management principles. The objectives of the investment policy, in order of importance, are as follows: 1. Safeguard the principal of the funds under control of the City Treasurer 2. Meet daily liquidity needs 3. Achieve an investment return on the funds within the guidelines of prudent risk management and portfolio diversification 4. Utilize the City s investments in promoting economic development and initiatives for community reinvestment n Ca s h a n d Ca s h Eq u i va l e n t s...$ 1,873,631 n Co m m e r c i a l Pa p e r ,955,267 n Mo n e y Mark e t s...700,661,540 To ta l... $ 852,490,438 The City Council periodically reviews and approves the investment policy based upon recommendations of the City Treasurer. The policy focuses on risk management by providing specific types of authorized investment securities; establishing duration and diversification requirements for investments; and establishing performance benchmarks and reporting requirements. #12 Track your spending. Keep a list so you know where your money s going. 8

13 Office of the City Treasurer City of Chicago 2010 Popular Annual Financial Report Investment Results The City Treasurer s investment portfolio is compared to the 90-day Treasury Bill as a benchmark for portfolio performance. As of December 31, 2010, the operating funds totaled $3.5 billion and had an annual rate of return of 1.69%, exceeding the average 90-day benchmark of 1.56% by 0.13%. The portfolio composition of the operating funds as of December 31, 2010 is summarized as follows: A graph of the operating fund versus the benchmark is exhibited below (includes actual monthly returns and final annual average performance) Investment Type Amount Allocation Cash & Equivalent $132,951, % CD s 40,000, % Corp Bonds 96,251, % FHLB 309,283, % FHLB Disco 242,973, % FNMA 476,729, % FNMA Disco 328,359, % FHLMC 420,674, % FHLMC Disco 96,244, % Agency 111,497, % US Treasury Bill 199,974, % Money Market 1,045,897, % Total $3,500,838, % Portfolio Performance 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Portfolio Performance Average of Portfolio 90-day T-Bill Average 90-day T-bill #13 Do I need it or just want it? Think it over before you buy.

14 Buy a bundle. Call vendors and renegotiate your contract. #14 Economic and Community Development Initiatives The Office has several programs designed to further the economic development goals in the City. We focus on three main areas for these efforts: banking accessibility, small business and financial education. Access to Banking Bank On Chicago Approximately 14% of Chicago residents are unbanked. Nationally, customers pay more than $13 billion a year in fees to alternative service providers. Research has indicated that 63% of individuals who are unbanked never had an account, while another 22% had an account but chose to close it. The Office convened a Bank On Chicago steering committee to create a reliable and safe financial product that individuals can trust. The Bank On Chicago program launched in July Small Business Small Business Development Program The City s micro-loan program was launched by the Office in the fall of Micro-loans help to stimulate growth in the local economy and create more jobs per dollar than larger small business loans. In 2010 the micro-loan program made over half-a-million dollars in small business loans. Five new community lenders were selected to receive funds to make loans between $2,000 and $50,000. Current partners include ACCION Chicago, the Chicago Community Loan Fund, the North Side Credit Union, the South Side Credit Union, the International Bank of Chicago and the JVS/Duman Microenterprise Center. Entrepreneurs work on their small business elevator pitches with help from experts at the 2010 Small Business Expo. #15 Try store brands. They can save you money. The winners and finalist of the City Treasurer s 2010 Small Business Plan Competition. 10

15 Office of the City Treasurer City of Chicago 2010 Popular Annual Financial Report Small Business Expo The City Treasurer s Small Business Expo is designed to provide information and assistance to current and aspiring small business owners. This annual event brings local government, lending institutions and technical advisors together to provide information and direction that is vital to the success of a small business. Existing and prospective business owners can attend free workshops and network with other business professionals. In 2010, the Expo hosted over 3,000 participants. Business Plan Competition The Office held a sixth successful Business Plan Writing Competition in The annual competition assists all contestants in developing a business plan, a key to a successful business. Winners received cash prizes and were provided access to valuable consulting services. The mission of the Economic Development Division within the Office is to support financial empowerment for Chicago residents and spur economic vitality for small businesses. Small Business Expo participants received information on starting and growing their business. #16 Research big purchases before you buy. Reliable beats cheap but always breaking down.

16 Eat those leftovers. Experiment with new recipes. #17 #18 Shopping? Look down. Cheaper brands are stocked on lower shelves. Over 3,000 people and 135 vendors participated in the 2010 Small Business Expo. A panel of small business experts offer advice to aspiring entrepreneurs. 12

17 Office of the City Treasurer City of Chicago 2010 Popular Annual Financial Report The City Treasurer is working with financial institutions to promote financial education. students who receive a course in personal finance are more likely to budget and save and they are less likely to max out their credit cards. Financial Education Wealth Fitness for Adults The Office has been providing free financial education classes in partnership with the City Colleges of Chicago for over ten years. In 2010, these programs have expanded to include classes offered at the Chicago Public Libraries and through the Illinois Coalition for Immigration and Refugee Rights. Classes are offered on a range of topics with a special focus on beginning budgeting, credit and banking. Treasurer Neely addresses an audience of high school students participating in the Young Illinois Saves program #19 The City Treasurer s Financial Education Initiative for Students and Their Families Teaching children about the importance of saving and making smart money decisions can never start too early. The City Treasurer s Financial Education program provides Chicago Public School Students with a basic financial literacy education. The City Treasurer partnered with organizations such as Money Savvy Generation, to reach 196,000 Chicago Public School students with a Financial Education lesson last year alone. More than 195 schools took part in this program. Trade your toys with friends. You ll have twice as many! #20 Make money a family issue Tell your kids about your savings goals.

18 #22 Clean out your storage space. Save the rent and hold a garage sale for your stuff. #21 The City Treasurer along with 11th Ward Alderman Balcer present a check to the Wounded Warrior Project. During Chicago s 2010 Annual Money Smart Week Teacher-librarian (Mrs. Beatrice Hainey) presents the Treasurer with a bank made of popsicle sticks. Budget for what you love. Including things you enjoy will make it easier to stick with your budget. 14

19 Office of the City Treasurer City of Chicago 2010 Popular Annual Financial Report Youth Savings Initiative The goal of the Youth Saving Initiative is to help students begin saving with their very first job. We work with the City s youth employers to increase the number of local youth employees who actively use their savings accounts. If we can teach our children about the importance of developing a lifelong savings habit, the impact will be tremendous. These efforts are achieved through the collaboration with the Young Illinois Saves organization. Money Smart Week The City Treasurer participated in the Federal Reserve Bank of Chicago s 10th Annual Money Smart Week ( MSW ). MSW brings together financial institutions, non-profit organizations, government, and many others to provide over 300 financial education programs across the City. The Treasurer also partnered with Harold Washington College to offer the 2010 Financial Fitness Fair. Beware of payday loans. Learn how much they really cost in added fees. #23 Librarians from around the City participated in the City Treasurer s Financial Education Program for students and their families. #24 Late fees waste your money. Pay bills on time.

20 OFFICE OF THE CITY TREASURER CITY OF CHICAGO STEPHANIE D. NEELY, TREASURER 121 North LaSalle Street Room 106 Chicago, Illinois Voice: Fax: