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THIRD QUARTER

EARNINGS CALL &


2016 BUDGET UPDATE

Presented by
City Treasurer Kurt Summers
November 3, 2015 | 12:00 PM
BEFORE WE GET STARTED…

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WELCOME & PURPOSE OF CALL

Status Quo Transparency &


In the past, the Treasurer’s Office Accountability
has produced one annual and During the Treasurer’s 77 visits to
publicly available financial report Chicago’s 77 neighborhoods, the
which contained a simple greatest recommendation by
overview of the city’s investments residents across the City was that
over the previous year. their financial steward provide more
transparency and accountability.

Best Practices Action


As the primary investment This third-ever Quarterly Earnings
manager for the City of Call for the City of Chicago is only
Chicago, the Treasurer seeks to one step in financial reporting and
be held as accountable as any performance tracking of the City’s
other investment management investment portfolio. The call will
firm is to their investors. This provide an overview of the
call is shaped after some national economy as well as
reporting done by the nation’s Chicago's current fiscal landscape
largest investment managers and balance sheet.
and public companies.

3
Agenda 01 12:00 - 12:05
Introduction, Purpose of Call,
Agenda
06 12:25 – 12:30
CTO Driving Value

02 12:05 – 12:10
National Economy
07 12:30 – 12:35
CTO Investment Portfolios
Update
03 12:15-–12:15
12:10
Chicago
12:20
NationalEconomy
Economy

08 12:35 – 12:40
04 12:15 – 12:20
Municipal Bond – Market
CTO Programs

Update

05 12:20 – 12:25
City Budget
09 12:40 – 12:45
Q&A

4
NATIONAL ECONOMY

Unemployment IMF Expected 2015 Growth Rates


Jul 2015 Aug 2015 Sep 2015 Prev. Updated Previous Updated
5.3% 5.1% 5.1% 2015 2015 2016 2016
Forecast Forecast Forecast Forecast
GDP
Global
3.3% 3.1% 3.8% 3.6%
Q1 2015 Q2 2015 Q3 2015* Economy
U.S. Economy 2.5% 2.6% 3.0% 2.8%
2.2% 3.9% 1.5%
Advanced
2.1% 2.0% 2.4% 2.2%
Manufacturing Index PMI Economies
Emerging/
Jul 2015 Aug 2015 Sep 2015
Developing 4.2% 4.0% 4.7% 4.5%
52.7% 51.1% 50.2% Economies

*Advanced Estimate
US Inflation Data: Consumer Price Index & Producer Price Index
Currency : Weighted U.S Dollar vs. Major Currencies

160 5.0
150 4.0
140 3.0
130
Dollar Value

2.0
120
110 1.0
100 0.0
90 -1.0
80 -2.0
70
Mar-11
May-11

Mar-12
May-12

Mar-13
May-13

Mar-14
May-14

Mar-15
May-15
Nov-10
Jan-11

Nov-11
Jan-12

Nov-12
Jan-13

Nov-13
Jan-14

Nov-14
Jan-15
Jul-11
Sep-11

Jul-12
Sep-12

Jul-13
Sep-13

Jul-14
Sep-14

Jul-15
Sep-15
60
May-11
Apr-09

Apr-14
Dec-10

Mar-12
Jun-08

Oct-11

Aug-12

Jun-13
Jan-08

Nov-08

Jan-13

Nov-13
Sep-09
Feb-10
Jul-10

Sep-14
Feb-15
Jul-15

Consumer Price Ind (Seasonally Adjusted)


U.S Dollar Value Long Term Average Producer Price Index: Final Demand Goods

Source: Bureau of Labor Statistics, Bureau of Economic Analysis, Institute for Supply 5
Management, The Federal Reserve, International Monetary Fund
Agenda 01 12:00 - 12:05
Introduction, Purpose of Call,
Agenda
06 12:25 – 12:30
CTO Driving Value

02 12:05 – 12:10
National Economy
07 12:30 – 12:35
CTO Investment Portfolios
Update
03 12:10 - 12:15
Chicago Economy

08 12:35 – 12:40
04 12:15 – 12:20
Municipal Bond – Market
CTO Programs

Update

05 12:20 – 12:25
City Budget
09 12:40 – 12:45
Q&A

6
CHICAGO ECONOMY

Unemployment
Q2 Q3 YOY (%)
National 5.3% 5.1% -0.8%
Chicago 6.3% 5.6% -1.3%

Manufacturing Output Indexes Chicago Home Sales


(% Change) Sep 2014 Sep 2015 YOY (%)
1 Year
1 Month Ago 3 Months Ago Residential 2,242 2,358 5.2%
Ago
Chicago Fed Midwest
Manufacturing Index 0.4% 2.1% 5.7.% Chicago Median Home Sale Price
(CFMMI)
Sep 2014 Sep 2015 YOY (%)
US Industrial
Production-
0.3% 1.1% 3.6% Residential $249,000 $250,000 0.4%
Manufacturing
(IPMFG)

Sources: Bureau of Labor Statistics, World Business Chicago, Illinois Department of Employment Security

7
CHICAGO ECONOMY OVERVIEW

Chicago’s strong, diversified economy continues to grow across sectors, demonstrating


that the City remains a global economic powerhouse

Among Chicago’s recent successes:

• Increased Foreign Direct Investment


 1.8K Foreign-based

• Increased tourism
 84.8% Hotel Average Occupancy Rate (as of August 2015)
• Major business expansions
 ConAgra Foods moves HQ to Chicago from Omaha – 700 jobs in Chicago
 Echo Global Logistics will more than double workforce in Chicago to more than
1,600 employees

Source: World Business Chicago


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Agenda 01 12:00 - 12:05
Introduction, Purpose of Call,
Agenda
06 12:25 – 12:30
CTO Driving Value

02 12:05 – 12:10
National Economy
07 12:30 – 12:35
CTO Investment Portfolios
Update
03 12:10 - 12:15
Chicago Economy

08 12:35 – 12:40
04 12:15 – 12:20
Municipal Bond – Market
CTO Programs

Update

05 12:20 – 12:25
City Budget
09 12:40 – 12:45
Q&A

9
MUNICIPAL BOND – MARKET UPDATE
YEAR-OVER-YEAR REAL CHANGE IN MAJOR STATE-LOCAL TAXES
PERCENT CHANGE OF FOUR-QUARTER MOVING AVERAGES

First Quarter YOY Growth


2015 (%)

Personal
7.1%
Income Tax

Corporate
3.3%
Income Tax

Sales Tax 5.2%

Motor Fuels Tax 4.4%

Source: U.S. Census Bureau, Quarterly Summary of State & Local Government Tax Revenue and
Bureau of Economic Analysis (GDP), 10
The Nelson A. Rockefeller Institute of Government, September 2015
MUNICIPAL BOND – MARKET UPDATE

Source: Bloomberg Data 10/26/2015


Municipal Market Advisors AAA General Obligation 11
Consensus 10 Year
Agenda 01 12:00 - 12:05
Introduction, Purpose of Call,
Agenda
06 12:25 – 12:30
CTO Driving Value

02 12:05 - 12:10
National Economy
07 12:30 – 12:35
CTO Investment Portfolios
Update

03 12:10 - 12:15
Chicago Economy

08 12:35 - 12:40
04 12:15 – 12:20
Municipal Bond – Market
CTO Programs

Update

05 12:20-12:25
City Budget
09 12:40 - 12:45
Q&A

12
HISTORIC AND PROJECTED PENSION CONTRIBUTIONS1

Source: City of Chicago: Annual Financial Analysis 2015


1 All projections are provided by the pension funds and are based on actuarial assumptions regarding future conditions, which are subject

to numerous legislative, economic, and other factors; while reported projections are the best estimates available at this time, these should
be viewed as approximate. The historic contributions presented in this chart differ slightly from amounts presented in prior years’ Annual 13
Financial Analysis as a result of differences in the accounting documentation of these contributions.
ADDRESSING THE CHALLENGES AHEAD

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$0

($64.5)
($100)
($94.1)

($200)

($220.4) ($217.7)
($232.6)
($300)
($297.3)
($338.7)
($400)
($369.0)
($420.0)
($500)

($519.7)
($600)

($635.7)
($700) ($654.7)
YEARLY OPERATING BUDGET SHORTFALL
Source: City of Chicago Office of Budget and Management 14
CLOSING THE GAP
$232.6M STRUCTURAL DEFICIT + $100M DEBT SERVICE REFORM
Cutting Spending and Reforming Government $118.2M

Non-personnel savings and reforms $61.1M

Personnel savings and reforms $57.1M

Improved Fiscal Management $57.9M

Sweeping aging revenue accounts and grant funds $20.2M

Proper allocation of personnel and non-personnel costs to non-corporate funds $9.5M

TIF reform – surplus $22.0M

Investment reforms $6.2M

Improved debt collection $23.4M

Growth in Economically Sensitive and Other Revenues $7.8M

Revenue Enhancements $125.3M

TOTAL $332.6M

Source: City of Chicago Office of Budget and Management


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PENSION REFORM

2015 Revised
Fund 2015 Budget 2016 Proposed
Budget

LABF/MEABF $266.7 $266.7 $306.3

PABF/FABF $290.4 $619.0 $672.0

Total Pension
$557.1 $885.7 $978.3
Contribution

Source: City of Chicago Office of Budget and Management 16


2016 APPROVED BUDGET

• Property Tax Increase of $543M

– Phased in over four years; solely committed to pension obligations for first
responders

• Mayor Rahm Emanuel Introduced a Homeowners’ Exemption Bill in Springfield to


increase the current exemption from $7,000 to $14,000. Should the bill pass homes that
are valued at $250,000 may not see the phase in & may see a decrease in their bill.

• $170M in savings and reforms

Source: City of Chicago Office of the Mayor, Office of Budget & Management
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Agenda 01 12:00 - 12:05
Introduction, Purpose of Call,
Agenda
06 12:25 – 12:30
CTO Driving Value

02 12:05 – 12:10
National Economy
07 12:30 – 12:35
CTO Investment Portfolios
Update

03 12:10 - 12:15
Chicago Economy

08 12:35 – 12:40
04 12:15 – 12:20
Municipal Bond – Market
CTO Programs

Update

05 12:20 – 12:25
City Budget
09 12:40 – 12:45
Q&A

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BEGINNING THE TRANSFORMATION
DRIVING VALUE
DIVERSIFIED
PORTFOLIO

MODIFIED
INCREASED INVESTMENT
ACCOUNTABILITY
POLICY

Chicago’s
Fiscal
Health
ADJUSTED IMPROVED
DURATION COORDINATION

RESPONSIBLE
BENCHMARK

19
BEGINNING THE TRANSFORMATION

THE BENEFITS
$90

$80 $77.7M
$70
INTEREST INCOME (IN MILLIONS)

$60

$50

$40
$39.7M

$30

$20

$10

$-

STATUS QUO INTEREST PROJECTED


INCOME INTEREST INCOME 20
CTO TRANSFORMATION: SELF-SUPPORTED, LOWERING TAX BURDEN

$77.7M
EARNING MORE
$32.8M FOR THE TAXPAYER…

PROJECTED 2015 INTEREST INCOME PROJECTED 2016

…AT LESS COST TO THE TAXPAYER.


$2.4M

$1.7M 30% DECREASE IN


TAXPAYER DOLLARS

2015 BUDGET TAXPAYER FUNDS 2016 BUDGET 21


CTO TRANSFORMATION

PUTTING THE COST AND BENEFIT WHERE THEY BELONG – AVIATION


AUM (AS OF 09/30/2015)

CURRENT

EXPENSE TO AVIATION

FUTURE

EXPENSE TO AVIATION

22
Agenda 01 12:00 - 12:05
Introduction, Purpose of Call,
Agenda
06 12:25 – 12:30
CTO Driving Value

02 12:05 – 12:10
National Economy

07 12:30 – 12:35
CTO Investment Portfolios
Update
03 12:10 - 12:15
Chicago Economy

08 12:35 – 12:40
04 12:15 – 12:20
Municipal Bond – Market
CTO Programs

Update

05 12:20 – 12:25
City Budget
09 12:40 – 12:45
Q&A

23
CTO INVESTMENTS – PORTFOLIO ALLOCATION AS OF 9/30/15

Investment Amount Q3 2015 Q3 2014


Certificate of
Deposit $ 2,002,960.00 0.03% 0.23%
Commercial
Certificate of Commercial Paper $ 644,783,511.39 10.56% 5.58%
Deposit Paper Corporate
0.03% 10.56% Bonds $ 838,417,518.11 13.73% 5.16%
Cash
14.10% Corporate Money Market $ 396,060,805.09 6.49% 10.60%
Bonds Municipal
13.73% Bonds $ 501,108,482.20 8.21% 7.82%

Treasuries $ 93,431,854.00 1.53% 0.00%


Money Market U.S. Agency
6.49% Bonds $ 2,770,326,296.30 45.36% 66.19%

Cash $ 860,923,564.60 14.10% 4.42%


Municipal
Bonds Total $ 6,107,054,991.69 100% 100%
U.S. Agency
8.21%
45.36%
Treasuries
1.53%

2015 Q1 Q2 Q3

CTO Investment
Purchases $ 1,302,340,622.50 $ 2,189,004,884.58 $ 2,034,234,251.92

Chart Source: Chicago City Treasurer’s Office 24


CTO INVESTMENTS – PORTFOLIO STATISTICS

PORTFOLIO STATISTICS MATURITY SCHEDULE IN MILLIONS

Q2 Q3 10+ years
5 - 10 years
Average Coupon 0.90% 1.06%
3 - 5 years
Yield to Maturity 0.90% 1.09% 2 - 3 years
1 - 2 years
Yield to Call 0.91% 1.09%
9 - 12 months
WAM 1.90 2.30
6 - 9 months
Effective Duration 1.54 1.48 3 - 6 months
0 - 3 months
Average Rating AA+ AA+
Money Market
CTO Effective Yield 0.90% 1.09%
Cash
Weighted BAML
Corporate & Municipal $0 $500 $1,000 $1,500
Index Effective Yield - 0.98%
Weighted BAML
Corporate & Municipal
Index Effective Duration - 1.83

Chart Source: Chicago City Treasurer’s Office 25


Agenda 01 12:00 - 12:05
Introduction, Purpose of Call,
Agenda
06 12:25 – 12:30
CTO Driving Value

02 12:05 – 12:10
National Economy

07 12:30 – 12:35
CTO Investment Portfolios
03 12:10 - 12:15
Chicago Economy
Update

08 12:35 – 12:40
04 12:15 – 12:20
Municipal Bond – Market
CTO Programs

Update

05 12:20 – 12:25
City Budget
09 12:40 – 12:45
Q&A

26
5
BEGINNING THE TRANSFORMATION : FIRST TEN MONTHS

DRIVING VALUE

PENSION FEE HOLDING BANKS CTO REFORM CHICAGO


EARNINGS
SAVINGS PLAN ACCOUNTABLE ADVANTAGE CALL INVESTMENT INFRASTRUCTURE
POLICY TRUST

IMPACT IMPACT IMPACT IMPACT IMPACT IMPACT


Save more than Drive community More resources Create Potential Citywide Lighting
$25-$50 million a investment for public transparency for additional Project
year, services the City’s earnings of
$1 billion over investment $10.1 million in
the lifetime of portfolio 2016
the plans

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SUMMARY

DRIVING VALUE TO CITY’S FISCAL HEALTH

CHICAGO CITY TREASURER’S OFFICE

• PROVIDE TAXPAYERS WITH GREATER TRANSPARENCY AND EFFICIENCY

• ENSURE A RESPONSIBLE APPROACH TO INVESTING TAXPAYER DOLLARS TO MAXIMIZE RETURNS


AND LOWER THE TAX BURDEN

• ENHANCE INVESTMENTS AND DRIVE VALUE FOR TAXPAYERS IN EACH OF CHICAGO’S 77


NEIGHBORHOODS

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Agenda 01 12:00 - 12:05
Introduction, Purpose of Call,
Agenda
06 12:25 – 12:30
CTO Driving Value

02 12:05 – 12:10
National Economy
07 12:30 – 12:35
CTO Investment Portfolios
Update

03 12:10 - 12:15
Chicago Economy

08 12:35 – 12:40
CTO Programs

04 12:15 – 12:20
Municipal Bond – Market
Update

09 12:40 – 12:45
05 12:20 – 12:25
City Budget
Q&A

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Q&A

30
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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.

33
DISCLAIMER

The opinions and analyses expressed in this presentation are based on RMB
Capital Management, LLC's ("RMB Capital") research and professional
experience, and are expressed as of the date of this presentation. Certain
information expressed represents an assessment at a specific point in time
and is not intended to be a forecast or guarantee of future performance, nor
is it intended to speak to any future time periods. RMB Capital makes no
warranty or representation, express or implied, nor does RMB Capital accept
any liability, with respect to the information and data set forth herein, and
RMB Capital specifically disclaims any duty to update any of the information
and data contained in this presentation. The information and data in this
presentation does not constitute legal, tax, accounting, investment or other
professional advice. Past performance is not indicative of future
performance and there is a possibility of a loss.

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