Q Quarterly Earnings Call - PDF Free Download

Q3 2016 Quarterly Earnings Call Addressing the Widening Gap of Economic Inequality for Women and People of Color Presented by City Treasurer Kurt Summers N O V E M B E R 28, 2016 1 2 : 0 0 P M

BEFORE WE GET STARTED AUDIO Participants can hear the call through the computer or over the phone; you don t have to be on both to hear the presentation. You do need to be registered online to view the webcast. NEED HELP? If at any time during the call you need assistance, please call or e-mail: 312-593-5505 or city.treasurer@cityofchicago.org QUESTIONS Have a question? At any time during the presentation, type in your question by clicking Q&A There will be time alotted for Q&A at the end of the call.

WELCOME & PURPOSE OF CALL Transparency This is the 7th Quarterly Earnings Call since the Treasurer took office. It is open to the public, the City Council and anyone interested in understanding the state of Chicago s finances. Outreach & Advocacy During the Treasurer s 77 visits to Chicago s 77 neighborhoods, residents voiced their need to be regularly engaged in our outreach and advocacy efforts. This is an opportunity to learn about our CTO initatives and legislation. Best Practices As the primary investment manager for the City of Chicago, the Treasurer seeks to be held as accountable as any other investment management firm is to their investors. This call is shaped after some reporting done by the nation s largest investment managers and public companies. Action This Quarterly Earnings Call for the City of Chicago is only one step in financial reporting and performance tracking of the City s investment portfolio. The call will provide an overview of the national economy as well as Chicago's current fiscal landscape and balance sheet and outline the economic impact of investing in our communities. 3

Agenda 01 02 12:00-12:05 Introduction, Purpose of Call, Agenda 12:05 12:10 National Economy 06 07 12:25 12:30 Guest Speakers: Shari Runner from the Chicago Urban League and Jimmy Lee from GoodCity 12:30 12:35 Investment Funds Nationally and Locally 03 12:10-12:15 Chicago Economy 08 12:35 12:45 Community Catalyst Fund Overview 04 12:15 12:20 CTO Investment Portfolio Update 09 12:45 12:50 CTO Initiatives 12:20 12:25 Closing the Gap 05 10 12:50 1:00 Q&A 4

NATIONAL ECONOMY Unemployment (Adj.) GDP (% Change) Aug 2016 Sept 2016 Oct 2016 Q1 2016 Q2 2016 Q3 2016 (adv.) 4.9% 5% 4.9% 1.1% 1.4% 2.9% IMF Expected Growth Rates Previous 2016 Forecast Updated 2016 Forecast Previous 2017 Forecast Updated 2017 Forecast Global Economy 3.1% 3.1% 3.4% 3.4% U.S. Economy 2.2% 1.6% 2.5% 2.2% Advanced Economies 1.8% 1.6% 1.8% 1.8% Emerging/ Developing Economies 4.1% 4.2% 4.6% 4.6% Sources: Bureau of Labor Statistics, Bureau of Economic Analysis, International Monetary Fund 5

CHICAGO ECONOMY Unemployment Q2 2016 Q3 2016 Q/Q (%) National 5% 4.9% +0.1% Chicago 5.4% 5.2% -0.2% Sources: Bureau of Labor Statistics, World Business Chicago 7

CHICAGO ECONOMY Chicago Home Sales Oct 2015 Oct 2016 YOY (%) Residential 2,173 1,981-8.8% Chicago Median Home Sale Price Oct 2015 Oct 2016 YOY (%) Residential $240,000 $262,000 9.2% Sources: Illinois Association of Realtors 8

CHICAGO ECONOMY OVERVIEW Chicago s unique characteristics foster the foundation for continued economic growth across its diversified economic landscape Among Chicago s recent successes: Growing opportunities 0.84% YOY increase in private jobs as of September 2016 1.6% YOY increase in labor force 1.4% YOY increase in employed residents 1.6% YOY increase in wages Burgeoning innovation 11.6% YOY increase in number of new patents as of September 2016 Global Transit Hub 1.3% YOY increase in number of passengers served by O Hare and Midway as of September Source: World Business Chicago, PayScale 9

CHICAGO VC INVESTMENT STATUS Just under $200 million was invested into Chicago area companies in Q3 2016, comparable to Q3 last year. Source: World Business Chicago 10

CTO INVESTMENTS 3Q PORTFOLIO OVERVIEW Portfolio Characteristics Operations Operations Reserve Bond Proceeds Long-Term Reserves Total Total Par Value $ 2,100,383,431.12 $ 1,585,918,388.77 $ 2,040,640,494.13 $ 632,782,585.59 $ 6,359,724,899.61 Total Market Value $ 2,103,296,941.44 $ 1,633,677,744.95 $ 2,048,352,633.94 $ 673,532,555.09 $ 6,458,859,875.42 Asset Allocation (Par Value) Operations Operations Reserve Bond Proceeds Long-Term Reserves Total Corporate Bonds $ - $ 888,634,000.00 $ 242,660,000.00 $ 425,570,000.00 $ 1,556,864,000.00 Municipal Bonds $ 96,530,000.00 $ 467,685,000.00 $ 364,754,000.00 $ 196,660,000.00 $ 1,125,629,000.00 U.S. Agency Bonds $ 1,029,720,000.00 $ 97,200,000.00 $ 666,180,000.00 $ - $ 1,793,100,000.00 Treasury Notes $ - $ - $ 20,000,000.00 $ - $ 20,000,000.00 Commercial Paper $ 474,074,000.00 $ 9,800,000.00 $ 353,000,000.00 $ - $ 836,874,000.00 Certificates of Deposit $ 150,000,000.00 $ - $ - $ 150,000,000.00 Money Market Funds $ 50,781,186.43 $ 122,599,388.77 $ 394,046,494.13 $ 10,552,585.59 $ 577,979,654.92 Cash $ 299,278,244.69 $ - $ - $ - $ 299,278,244.69 Total $ 2,100,383,431.12 $ 1,585,918,388.77 $ 2,040,640,494.13 $ 632,782,585.59 $ 6,359,724,899.61 Chart Source: Chicago City Treasurer s Office 12

CTO INVESTMENTS Q3 PORTFOLIO OVERVIEW (CONTINUED) Asset Allocation (%) Operations Operations Reserve Bond Proceeds Long-Term Reserves Total Corporate Bonds 0.0% 56.0% 11.9% 67.3% 24.5% Municipal Bonds 4.6% 29.5% 17.9% 31.1% 17.7% U.S. Agency Bonds 49.0% 6.1% 32.6% 0.0% 28.2% Treasury Notes 0.0% 0.0% 1.0% 0.0% 0.3% Commercial Paper 22.6% 0.6% 17.3% 0.0% 13.2% Certificates of Deposit 7.1% 0.0% 0.0% 0.0% 2.4% Money Market Funds 2.4% 7.7% 19.3% 1.7% 9.1% Cash 14.2% 0.0% 0.0% 0.0% 4.7% Total 100.0% 100.0% 100.0% 100.0% 100.0% Earnings Summary (3Q YTD) Operations Operations Reserve Bond Proceeds Long-Term Reserves Total Realized Gain/Loss $ 1,128,457.41 $ 17,931,215.35 $ 603,511.05 $ 24,451,316.36 $ 44,114,500.17 Interest Income $ 6,683,059.74 $ 22,218,511.79 $ 13,742,189.02 $ 15,197,682.35 $ 57,841,442.90 Amortization $ 2,108,005.10 $ (2,069,629.29) $ 1,962,711.06 $ (696,656.47) $ 1,304,430.40 Total $ 9,919,522.25 $ 38,080,097.85 $ 16,308,411.13 $ 38,952,342.24 $ 103,260,373.47 Chart Source: Chicago City Treasurer s Office 13

THE WIDENING GAP OF ECONOMIC INEQUALITY Graph Source: U.S. Census Bureau, Current Population Survey, 1968 to 2016 Annual Social and Economic Supplements. U.S Bureau of Labor Statistics. 15

THE WIDENING GAP OF ECONOMIC INEQUALITY (CONT.) Chart Source: WBEZ, Economic Policy Institute, U.S. Census Bureau. 16

THE CHICAGO URBAN LEAGUE Entrepreneurship The Chicago Urban League Entrepreneurship (CUL EC) was founded in 2007 to help African-Americans launch, grow, and sustain businesses. Through personalized consulting, educational programs, and deal-making assistance, the CUL EC provides entrepreneurs with the tools and resources to maximize revenue growth, profitability, job creation, and innovation. Workforce Development INFORMATION ON LENDING #s IN The Chicago Urban League, CHICAGO through OR it NATIONALLY Workforce Development FOR programs, works to raise African American WOMEN employment AND POC COMPARED and income TO levels through job training and placement services, WP career exposure, career advancement, seminars, coaching and long-term retention strategies. Chart Source: Chicago City Treasurer s Office 18

GOODCITY INC S INVESTCHICAGO Last month, InvestChicago was launched to mobilize investments to female and minority entrepreneurs working to solve complex problems in the city we call home. Investing in these entrepreneurs results in economic growth across our city, catalyzing a flow of resources into neighborhoods. At a time when we look to bring prosperity to all 77 Chicago neighborhoods, this strategy aims at directly addressing INFORMATION local ON economic LENDING development #s IN by empowering longtime residents to become CHICAGO agents OR of NATIONALLY change in their FOR neighborhoods. WOMEN AND POC COMPARED TO WP Chart Source: Chicago City Treasurer s Office 19

NATIONAL INVESTMENT FUND MODELS Description Impact Focus Funding Governance CalPERS Invests California pension dollars into traditionally underserved markets. NYCRS Housing Investments Pension fund supports fair housing policies in NYC boroughs. JumpStart, Inc. Cleveland, OH Public-private partnership investing in small businesses and development projects. InvestMichigan! Privately-managed fund investing for statewide economic development. Focuses investments on targeted groups: low to moderate income geographies, companies owned or managed by minorities, women, or companies delivering goods to an ethnically diverse customer base. The New York City Retirement Systems invest in economically targeted investments (ETIs) in the 5 boroughs, not limited in geographies. Jumpstart Cleveland provides funding for small business and economic development projects in northeastern Ohio. The fund far outpaces industry standards for investing in minority and women-owned enterprises, launching a fund specifically for this market this year. Focused on economic development in Michigan, this fund makes investments of $2 - $9 million in companies with holdings of less than $200 million and a direct link to Michigan s economy (i.e. headquarters, substantial state employment, or planned expansion in-state). CalPERS invested in Niman Ranch, a natural meat distributor based in Oakland, California. The $400,000 seeded investment launched a company that employs 110 workers from low-income backgrounds with wages averaging $14 / hour and annual sales of $50 million. NYCRS has invested in multiple projects, including: home loans to those earning less than 200% of the area median income, seeding the development of over 30,000 multi-family and workforce housing units, and improvements on 38,000 affordable housing units. CardioInsight, a women and minority owned business, launched in 2005 to modernize the electrocardiogram (ECG) through an idea launched by students at Case Western Reserve University. The $600,000 investment helped the company launch and it was bought in June 2015 by Medtronic for more than $90 million. The fund has brought employment to 3,000 Michigan residents since launched in 2008. Seeded with $475 million in 2001. In total, CalPERS has invested $1.04 billion in the last 15 years, supporting 164,753 workers across 361 companies. Since the 1980s, NYCRS has invested 2% of portfolio in this fund. While projecting a 4-5% return, the 10-year gross returns to taxpayers were 6.34%. While the group has been around since 2004, the investments have been most significant as of late. In 2015, the $35 million investment yielded 6,294 jobs, $395 million in labor income, and an additional $46.8 million generated in state and local taxes as a result. Seeded in 2008 by Gov. Granholm with $300 million over the first three years, coming from state pension funds. Table Source: 21

COMPARISON OF LOCAL FUNDS Description Impact Focus Funding Governance Neighborhood Opportunity Fund Uses developer fees to make grants to neighborhood projects. Projects in 8 selected neighborhoods. Eligible costs are building acquisition / rehabilitation, small business training, public infrastructure costs, and hiring subsidies. One-time grants based on developers payment of downtown density fees. Estimated at $10M annually, with 80% to neighborhood projects. Allocated by Department of Planning and Development, with projects over $250,000 requiring City Council approval. Benefit Chicago Investment funding from foundations for eligible nonprofits and social enterprises. Chicago Infrastructure Trust Social impact bonds to fund infrastructure. Right-to-Thrive Zones Planned tax-free business districts with assistance in permitting and staffing. CDFI, NFPs, and social enterprises within the sixcounty Chicago region. Focused on infrastructure improvements throughout City. Currently designated for pilot in 8 commercial corridors in specific neighborhoods. Businesses launching in these corridors would be exempt from property, income, and sales taxes Foundations seeded $65 million to this renewable investment fund. Individual investors can also privately invest with this fund. Benefit Chicago aims to make a $100 million commitment overall. CIT has distributed $50 million to date. Funds are leveraged between private and public sources. Private dollars are repaid in the future based on resulting government savings. Funding relies on private investment. Proposed grant fund to support small businesses in Thrive Zones would pull funds from various districts, including TIF, planned manufacturing districts, and the small business improvement fund. Private governance by Calvert Foundation, MacArthur Foundation, and the Chicago Community Trust, with investments led by MacArthur Foundation. Community advisory committee appointed by all three foundations. CIT Board is comprised of 7 mayoral appointees, confirmed by the Council. Currently chaired by Treasurer Summers. Pending legislation. 22

CHICAGO COMMUNITY CATALYST FUND (CCCF) Description Impact Focus Funding Governance Chicago Community Catalyst Fund Invests renewable city dollars in neighborhood projects. Low to middle income communities in Chicago s 77 neighborhoods, specifically those meeting Community Reinvestment Act criteria. Long-term self-sustaining fund. Seeded with $100M for renewable use in neighborhood investments, with ability to grow fund overtime as Treasurer s Office exceeds investment targets and private investors join. Investment groups selected through RFP process overseen by Board of Directors, chaired by Treasurer, with CFO, Planning Commissioner and 4 mayoral appointments confirmed by Council. Advisory Board with 3 aldermen and 4 community members. Chart Source: Chicago City Treasurer s Office 24

CHICAGO COMMUNITY CATALYST FUND (CCCF) (CONT.) The Chicago Community Catalyst Fund: will be launched with a 3-year, $100 million commitment from the City of Chicago. Year 1: $35M Year 2: $35M Year 3: $30M is structured to protect against conflicts of interest. The Fund77 investment board members will comprised of investment experts. The advisory board structure ensures investments are made with local knowledge and partnership. will be subject to stringent oversight by City Council and Chicago s taxpayers. serves a new and distinct function in Chicago s development ecosystem. investments will match the diversity of Chicago. Chart Source: Chicago City Treasurer s Office 25

CHICAGO COMMUNITY CATALYST FUND (CCCF) (CONT.) $ + Outside $$ $ Chart Source: Chicago City Treasurer s Office 26

2016: INNOVATION & IMPLEMENTATION 5 DRIVING VALUE THROUGH ACTION TO CHICAGO S COMMUNITIES HOME BUYER ASSISTANCE PROGRAM MD ORDINANCE PREDATORY LENDING IMPACT A grant program for individuals who are buying a home or refinancing an existing mortgage within the City of Chicago IMPACT Amending city code to increase transparency for the City s banking partners Passed City Council on September 14 th, 2016 IMPACT To create protections for small businesses from online, alternative lenders. 28

Home Buyer Assistance Program WHO QUALIFIES? Anyone who meets the income and credit score requirements is eligible for the program. There are two categories of loans available, each with their own requirements: FHA, VA, USDA Loans: Regardless of family size, the borrower s annual income must be $87,400 or less. As set by FHA, VA, or USDA guidelines, participants will generally need a minimum credit score of 580 to qualify. Fannie Mae/Freddie Mac Loans: Regardless of family size, the borrower s annual income must be $133,000 or less. As set by Fannie Mae/Freddie Mac guidelines, participants will generally need a minimum credit score of 640 to qualify. DO I NEED TO BE A FIRST-TIME HOME BUYER? HOW MUCH GRANT MONEY COULD I RECEIVE? No Qualified borrowers may receive a grant for up to 7% of the total loan amount based on income. For example, for a total loan amount of $250,000, a borrower could receive a grant of no more than $17,500 to cover down payment and closing costs. WILL I BE REQUIRED TO USE MY OWN FUNDS? Qualified borrowers will be required to contribute the lesser of $1,000 or 1% of home purchase price at the closing. CAN THIS PROGRAM HELP ME REFINANCE MY HOME? Yes, as long as there is no cash back to the borrower. To learn more about the Home Buyer Assistance Program and a complete list of approved lenders, please visit www.cityofchicago.org/homebuyer or www.chicagoinfrastructure.org 29

Home Buyer Assistance Program- Approved Lenders For a complete list of approved lenders, please visit www.cityofchicago.org/homebuyer 30

MUNICIPAL DEPOSITORY ORDINANCE Amending the Municipal Depository Ordinance to require all banks, also known as Municipal Depositories, to disclose community lending information, mortgage lending information and overall bank health to the Treasurer. This change will allow the City to ensure that the banks can protect City funds and invest in every Chicago neighborhood. Passed September 14 th, 2016 31

PREDATORY LENDING- SB2865 Senate Bill 2865 requires alternative lenders to disclose their interest rates on commercial loans, limits certain types of fees and creates standards that protect small business owners from economic distress by requiring lenders to assess borrowers ability to repay. If passed, SB2865 would make Illinois the first state to regulate this very lucrative industry. 32

Q&A 34

DEBRIEF AND CLOSING Follow Us Join a Think Tank Feedback Share Twitter:@kurtasummers Facebook: /summerschicago Keep the conversation going in your neighborhood! bit.ly/77thinktanks Let us know what you thought about our call. Email us at city.treasurer@cityofchicago.org Invite friends and family to join our next call and stay engaged. VISIT US AT WWW.CHICAGOCITYTREASURER.COM 35

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DISCLAIMER PLEASE NOTE: This presentation has not been prepared to give information for making decisions on buying or selling securities and should not be relied upon by investors in making investment decisions. With respect to any bonds, notes, or other debt issued by the City of Chicago, please refer for information only to the City s disclosure documents and continuing disclosure filings for such bonds, notes, or other debt obligations. 37