INVESTING IN OUR CHICAGO: QUARTERLY EARNINGS CALL

INVESTING IN OUR CHICAGO: QUARTERLY EARNINGS CALL Presented by City Treasurer Kurt Summers May 1, 2015 12:00 PM

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 773-710-3506 or email city.treasurer@cityofchicago.org. QUESTIONS Have a question? At any time during the presentation, type in your question by clicking Messages. There will be time alotted for Q&A at the end of the call.

WELCOME & PURPOSE OF CALL Status Quo In the past, the Treasurer s Office has produced one annual and publicly available financial report which contained a simple overview of the city s investments over the previous year. Transparency & Accountability During the Treasurer s 77 visits to Chicago s 77 neighborhoods, the greatest recommendation by residents across the City was that their financial steward provide more transparency and accountability. 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 first-ever Quarterly Earnings Call for the City of Chicago is only a first step in financial reporting and performance tracking of the City s investment portfolio. The call will provide overviews of the global and national economies as well as Chicago's current fiscal landscape and balance sheet. A quarterly scorecard on the Treasurer s progress will also be published online at chicagocitytreasurer.com 3

Agenda 01 :00 - :05 Introduction, Purpose of Call, Agenda 05 :14 - :19 Chicago Economy 02 :05 - :08 Global Economy 06 :19 - :24 City of Chicago Finances 03 :08 - :11 National Economy 07 :24 - :29 CTO Investments Update 04 :11 - :14 Fixed Income Market 08 09 :29 - :40 Q&A :41 - :45 Debrief and Closing 4

GLOBAL ECONOMY Real GDP Country/Region 12/14 3/15 United States 2.4% 3.0% China 7.3% 7.0% Japan -.08% NA Spain 2.0% 2.6% Germany 1.4% NA Brazil -0.25% NA Mexico 2.6% NA Eurozone 0.9% NA CPI Country/Region 12/14 3/15 United States.08% -.01% China 1.5% 1.4% Japan 2.4% 2.2% Spain -1.0% -.07% Germany 0.2% 0,3% Brazil 6.41% 8.13% Mexico 4.08% 3.14% Eurozone -0.2% -0.1% GDP (Gross Domestic Product) is a measure of economic growth CPI (Consumer Price Index) is a measure of price inflation Chart Source: Bloomberg, The Federal Reserve 5

GLOBAL ECONOMY Name of Interest Rate Country/Region Current Rate Previous Rate Change American interest rate Federal Reserve United States 0.250 % 1.000 % 12-16-2008 British Interest Rate BoE Great Britain 0.500 % 1.000 % 03-05-2009 Canadian Interest Rate BOC Canada 0.750 % 1.000 % 01-21-2015 European Interest Rate ECB Europe 0.050 % 0.150 % 09-04-2014 Indian Interest Rate RBI India 7.500 % 7.750 % 03-04-2015 Japanese Interest Rate BoJ Japan 0.100 % 0.100 % 10-05-2010 Mexican Interest Rate Banxico Mexico 3.000 % 3.500 % 06-06-2014 Russian Interest Rate CBR Russia 14.000 % 15.000 % 03-13-2015 Saudi Arabian Interest Rate Saudi Arabia 2.000 % 2.500 % 01-19-2009 Swedish Interest Rate Riksbank Sweden -0.250 % -0.100 % 03-18-2015 Chart source: global-rates.com 6

NATIONAL ECONOMY Inclement weather stunted economic growth in early 2015 Economic growth and employment is projected to reaccelerate over the rest of 2015 Inflation is projected to stabilize, after slowing over 2014 with the plunge in energy prices Source: Federal Reserve 8

NATIONAL ECONOMY: UNEMPLOYMENT Job growth has shifted lower in early 2015, down from late 2014 Unemployment held steady at 5.5% in March Slowed job growth in early 2015 is consistent with a temporary softening in real GDP growth in the first quarter, to near 1% at an annual rate Source: Department of Labor, Bureau of Labor and Statistics 9

NATIONAL ECONOMY: UNEMPLOYMENT Content Source: Department of Labor, Bureau of Labor and Statistics 10

NATIONAL ECONOMY: UNEMPLOYMENT OUTLOOK Employment Growth (% change) US 2013 US 2014 Chicago 2013 Chicago 2014 1.7 1.9 1.5 0.8 Unemployment Rate 7.4 6.2 9.0 7.5 Median Household Income (Ths. $) Houses Prices (% Change) Single Family Permits (% Change) Multifamily Permits (% change) 52.3 53.1 62.0 63.3 9.6 6.4 8.4 6.5 15.7 2.1 28.3 4.6 25.1 16.7 18.0 101.6 Table sources: Bureau of Census; Bureau of Labor Statistics; Bureau of Economic Analysis; National Association of Realtors; National Association of Home Builders; FHFA; Moody's Analytics 11

NATIONAL ECONOMY: UNEMPLOYMENT OUTLOOK Table sources: Bureau of Census; Bureau of Labor Statistics; Bureau of Economic Analysis; National Association of Realtors; National Association of Home Builders; FHFA; Moody's Analytics 12

NATIONAL ECONOMY: INTEREST RATE OUTLOOK Baseline forecast is for the initial Federal funds target rate hike to come at the Federal Open Market Committee s (FOMC) September meeting FOMC tightening is projected to be very gradual Source: Federal Open Market Committee 13

FIXED INCOME MARKET: OUTLOOK Why is this important, as investors and as issuers? Given moderate growth inflation and strength of the dollar, we expect stability in fixed income markets, notwithstanding any Federal funds rate action Highly rated, short term municipal bonds continued to underperform their benchmark The FOMC is likely leaning toward a rate increase later in 2015 as early as September Source: Chicago City Treasurer s Office 15

FIXED INCOME MARKET TREASURY CURVE Chart Source: Bloomberg Finance L.P. 16

FIXED INCOME MARKET: OVERVIEW What we can expect in 2015 is: - ECB - Latin America - Rest of the World As Greece s economic struggles persist, the ECB has lowered borrowing costs and Euro bonds have surged The euro s value is falling and the US economy as dollar is strengthening, another reason Fed may hold off on raising interest rates In the U.S., we see a stable and consistent environment fixed income market unless there is Federal action. Source: Chicago City Treasurer s Office 17

CHICAGO ECONOMY: UNEMPLOYMENT Unemployment Rate December 2014 Month/Month Year/Year National 5.6% -0.2-1.1 Chicago 6.1% -0.2-2.6 Na5onal vs. Chicago Unemployment Rate The number of unemployed residents in the City fell by an estimated 20.2% over Q1-14, while the number of employed residents increased by 1.0%. Unempolyment Rate 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 Jan- 08 Oct- 08 Jul- 09 Apr- 10 Jan- 11 Oct- 11 Jul- 12 Apr- 13 Jan- 14 Oct- 14 Na8onal City of Chicago *Numbers not seasonally adjusted Chart Sources: Department of Numbers, Bureau of Labor Statistics 19

CHICAGO ECONOMY: PRIVATE SECTOR EMPLOYMENT Private Sector Employment added on average 18,700 in Q1 Educational and Health Services (+8,200) Professional and Business Services (+5,900) Retail (+4,000) Source: Bureau of Labor Statistics 20

CITY OF CHICAGO: CORPORATE FUND REVENUES Corporate Fund - Revenue $ MILLIONS 2014 Budget 2014 Year- End Es5mate 2015 Proposed Budget Tax Revenue U8lity Taxes and Fees $450.3 $475.2 $451.8 Transac8on Taxes 284.6 297.5 326.4 Transporta8on Taxes 183.7 183.6 188.0 Recrea8on Taxes 182.6 186.3 205.0 Business Taxes 102.5 100.0 119.9 Sales and Use Taxes 596.8 609.4 647.9 Income Tax & PPRT 293.7 282.8 420.0 Other Intergovernmental 5.6 5.8 5.7 Total Tax Revenue $2,099.7 $2,140.6 $2,355.9 Non- Tax Revenue Licenses and Permits $131.7 $120.0 $136.9 Fines, Forfeitures and Penal8es 414.7 348.0 369.5 Charges for Services 124.5 131.9 132.3 Municipal Parking 6.7 6.5 6.4 Leases, Rentals and Sales 22.1 18.0 30.2 Reimbursement, Interest & Other 378.9 379.5 470.1 Total Non - Tax Revenue $1,078.5 $1,003.9 $1,145.4 Proceeds and Transfers In $58.6 $57.3 $32.8 Total Revenue to Corporate Fund $3,236.8 $3,201.8 $3,534.1 Addi8onal Savings/Unassigned Balance $53.4 $53.4 - - Total Corporate Fund Resources $3,290.2 $3,255.3 $3,534.1 Chart Source: Chicago Office of Budget Management 22

CITY OF CHICAGO: EXPENDITURES BY TYPE Proposed Budget $ MILLIONS All Local Funds Corporate Fund 2014 Budget 2015 Proposed 2014-2015 Change 2014 Budget 2015 Proposed 2014-2015 Change Personnel Expenses (other than Benefits and Pension) $2,875.2 $3,012.1 $136.9 $2,293.6 $2,400.6 $107.00 Employee Benefits 475.3 459.0 (16.3) 387.1 373.5 (13.6) Pension Contribu8ons 478.3 557.1 78.8-140.2 140.2 Contractual Services 747.8 758.2 10.4 319.2 317.6 (1.6) Commodi8es and Materials 269.5 272.4 2.9 76.9 66.3 (10.6) Debt Service 1,711.3 1,748.2 36.90 8.4 18.3 9.9 Other 845.2 1,179.7 334.50 205.0 217.6 6.6 Deduct Reimbursement Between Funds (316.0) (552.2) (236.2) - - - Deduct Proceeds of Debt (95.0) (95.3) (0.3) - - - Total $6,991.6 $7,339.2 $347.60 $3,290.2 $3,534.1 $243.9 Chart Sources: Chicago Office of Budget Management 23

CITY OF CHICAGO 2013 Comprehensive Annual Financial Report In Millions of USD FY 2013 Assets Current Assets 5,563.1 Restricted Assets 3,976.0 Noncurrent Assets 540.2 Total Capital Assets 21,205.9 Total Assets 31,285.1 Liabilities Current Liabilities 6,035.9 Long Term Liabilities 30,620.4 Total Liabilities 36,656.2 Net Assets Total Net Assets -5,371.1 Total Liabilities & Net Assets 31,285.1 Chart Source: City of Chicago CAFR 2013 24

CITY OF CHICAGO DEBT OVERVIEW UNAUDITED $9,000,000,000 $8,000,000,000 $7,000,000,000 $6,000,000,000 $5,000,000,000 $4,000,000,000 $3,000,000,000 $2,000,000,000 $1,000,000,000 City of Chicago Principal Outstanding $- General Obligation Bonds Waste Water Revenue Bonds Water Revenue Bonds Sales Tax Revenue Bonds Motor Fuel Tax Revenue Bonds O'Hare Revenue Bonds Midway Airport Revenue Bonds TIF Revenue Bonds September 2014 March 2015 *amounts unaudited Chart Sources: Chicago Department of Finance 25

CTO INVESTMENTS: PORTFOLIO ALLOCATION AS OF 3/31/15 CD 0.10% Commercial Paper 4.79% Cash 15.16% U. S. Agency 62.67% Corporate Bonds 6.12% Money Market 3.65% Municipal Bonds 7.53% Investment Amount Percentage Cer8ficate of Deposit $ 5,209,528 0.09% Commercial Paper $ 291,085,001 4.79% Corporate Bonds $ 371,863,841 6.12% FARMER MAC $ 79,071,973 1.30% FFCB $ 168,123,657 2.77% FHLB $ 1,193,702,243 19.64% FHLMC $ 1,146,127,242 18.86% FNMA $ 1,221,117,679 20.09% Money Market $ 221,847,488 3.65% Municipal Bonds $ 457,502,504 7.53% U.S. Agency $ 3,808,142,794 Bonds 62.7% Cash $ 921,192,000 15.2% Chart Source: Chicago City Treasurer s Office 27

CTO INVESTMENTS: DISTRIBUTION OF PURCHASES City Treasurer's Office Q1 2015 Purchases What informs the CTO s investment decisions? Par amount Total Cost Q1 2015 % Q1 2014 % Corporate Bonds 17,600,000.00 $17,522,138.00 1.35% 0.42% Commercial Paper 798,192,000.00 $798,052,945.81 61.28% 47.33% US Agencies 475,902,250.00 $475,765,538.69 36.53% 44.80% Municipal Bonds 11,000,000.00 $11,000,000.00 0.84% 1.75% Treasury Bills - - 0.00% 2.37% CD's - - 0.00% 3.33% $ 1,302,694,250.00 $ 1,302,340,622.50 100.00% 100.00% U.S. Agency allocation is driven by our investment policies that emphasize safety, liquidity and return Municipal and Corporate bonds provide additional yield and diversification while taking a limited amount of credit risk Commercial Paper allocations are used for short term investment needs Cash and Money Market balances are used for operational needs and the City abates fees by maintaining bank deposits Chart Source: Chicago City Treasurer s Office 28

BENCHMARKING CTO PERFORMANCE Historically, the 90 US Treasury bill quarterly average has been used to measure performance Our custom blended benchmark establishes target investment exposure and serves as a better performance measurement Our benchmark reflects the mix of assets, duration and credit risk reflected in the portfolio Outperformanceà 1.54% greater than the custom benchmark Chart Source: Chicago City Treasurer s Office 29

CTO INVESTMENTS: BENCHMARK COMPONENTS Portfolio Statistics Average Coupon 1.00% CTO Custom Benchmark Components Yield to Maturity 1.04% Yield to Call 1.05% WAM 2.43 Effective Duration 2.08 Average Rating AA+ 23.0% 7.0% 7.0% BAML 1-5 Year US Taxable Municipal Securities Index BAML 1-10 Year AAA-A US Corporate Index BAML 1-5 Year US Agency Index Total Return Q1-15 2.26% CTO Custom Benchmark Q1-15 0.79% 63.0% BAML US 3-Month Treasury Bill Index Chart Source: Chicago City Treasurer s Office 30

CTO INVESTMENTS: MATURITY & RETURNS MATURITY SCHEDULE IN MILLIONS Q1 2015 RETURN 10-20 Years 5-10 Years 3-5 years 2-3 years 1-2 Years 9-12 months 6-9 months 3-6 months Percent Return 2.50% 2.00% 1.50% 1.00% 0.50% 0-3 months Money Market Cash $0 $500 $1,000 $1,500 $2,000 Millions 0.00% Treasurer's Office Total Return CTO Custom Benchmark US 90 Day Treasury Bill Series1 2.26% 0.79% 0.02% Chart Source: Chicago City Treasurer s Office 31

CTO ADVANTAGE Under the CTO Advantage Program, or shared services partnership, the Treasurer s Office portfolio managers oversee sister agency portfolios with the goal of a higher return on investments The collaboration allows sister agencies to focus their assets and attention on their core mission while taking advantage of the Treasurer s Office economy of scale to enhance services and ultimately save taxpayer dollars Advantages to customized shared services: ü Investment policy consultation and review ü Leveraged custody relationship ü Leveraged Money Market Portal ü Municipal Depository Banks ü Fixed-Income Investments 32

CTO ADVANTAGE: Chicago City Park District (CPD) The CPD/CTO IGA allows CTO to manage the day-to-day operations of the Park District s management portfolio and the Park District to maintain ultimate decision-making power over their investments. CPD has achieved greater net return on investments when compared to 3 rd party alternatives. Savings: Over $100,000 in management fees annually. CPD has achieved greater net return on investments when compared to prior in-house management. Savings: Over $250,000 total annually in 1-2 full time employees 33

CTO Advantage CTO recommended changes to the Park District s investment policy which resulted in increased commercial paper flexibility and additional earnings. On April 14 th, 2015, The Board of Commissioners of the Public Building Commission (PBC) and Chicago City Treasurer Kurt Summers announced an intergovernmental agreement (IGA) was approved that will allow the Office of the City Treasurer to provide financial management services with a goal of boosting PBC's return on investment for its bond portfolio. 34

Q&A 36

Agenda 01 :00 - :05 Introduction, Purpose of Call, Agenda 05 :14 - :19 Chicago Economy 02 :05 - :08 Global Economy 06 :19 - :24 City of Chicago Balance Sheet 03 :08 - :11 National Economy 07 :24 - :29 CTO Investments Update 04 :11 - :14 Fixed Income Market 08 09 :29 - :40 Q&A :41 - :45 Debrief and Closing 37

DEBRIEF & CLOSING Thank you JP Morgan Chase PNC Financial Services Group World Business Chicago MICROSOFT Follow Us Join a Think Tank Feedback Share Twitter: @kurtasummers Facebook: /summerschicago www.chicagocitytreasurer.com Keep the conversation going in your neighborhood! Let us know what you thought about our first call. Email us at city.treasurer@cityofchicago.org Share with your neighbors what you learned today. Invite friends and family to join our next call and stay engaged. 38

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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, please refer for information only to the City s disclosure documents and continuing disclosure filings for such bonds, notes or other debt obligations.