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Tuesday, October 24, 2017

Chairwoman Austin, Vice Chairman Ervin, members of the Committee, and members of the City

Thank you for the opportunity to come before you today. Each year, I look forward to this
hearing to reflect on our progress this past year and to outline the steps we are taking to build
on that momentum in the years to come.

Its important that we look at this years budget as the foundation we are building for our
future; in that respect, we still have work to do. Just last week, S&P issued a report stating
clearly that, although the City has stabilized its near-term budget positionmore action is
needed to put Chicago on a path to fiscal sustainability because of the high and rising fixed
cost of our pensions and other liabilities. During yesterdays budget hearing, this theme was
echoed by our Chief Financial Officer.

It is with this in mind that, as City Treasurer and as a trustee of four of our local pension funds, I
have sought to use every tool in my limited toolbox to help us find structural and sustainable
solutions by improving the efficiency and effectiveness of every aspect of our Citys operations,
from cash management to trading and investments to economic development.

Generating Structural Savings for Taxpayers

I want to begin by talking about how we have been able to generate more structural savings
for taxpayers than ever before, not only by increasing returns but also by cutting costs.

First, we are continuing to decrease our offices historical reliance on the corporate fund,
which constitutes taxes and fees paid by Chicagos residents. When I first took office, we relied
on the corporate fund for about 95% of our operating budget. In each budget since, weve
significantly cut our structural reliance on the corporate fund. That means less money required
of Chicagos taxpayers.

And second, we have drastically reduced our use of instantaneous wire transfers and are,
instead, relying on Automated Clearing House (ACH) transfers. These transfers reduce the cost
of moving City funds by a factor of 15 and save more money for taxpayers every day. To be
sure, these wires are only around $10 each, but over the course of a year, we perform
thousands of them. And to us just like to the taxpayers every dollar counts. We simply cant
afford to ignore ways to save, no matter how big or how small.

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Prioritizing Fiscal Stewardship

More broadly, by prioritizing fiscal stewardship, weve been able to maximize returns,
minimize risk, and enhance transparency for the City of Chicago.

First, as many of you know, we generated $125 million in investment portfolio earnings in
2016$75 million more than the office generated in 2014. Weve been able to achieve these
returns by implementing sustainable new strategies to guide our cash management and
investment decisions. As you may remember, when I first came into office, we identified that
$3 billion of the Citys operating portfolio had been sitting static. We looked to the Government
Finance Officers Association for national best practices, and we found that the standard for
large cities was to have 45 days of working capital on-handbut we had 4 to 5 months. This
meant we were sitting on billions of uninvested dollars, and our taxpayers and our businesses
were losing out. So we changed the status quo investment structure, moving $1.5 billion from
sitting under the municipal mattress to working for us in the markets, and weve consistently
earned higher returns than ever before.

Weve continued to build on those strategies this year, in part by renegotiating the agreements
for the interest rates paid by municipal depositories. By pushing for higher interest rates, we
have netted interest rates up to 0.7%, significantly higher than previous agreements with banks
that tended to fall below 0.5%.

Overall, while I am cautious to never predict the markets, I believe that we will demonstrate
strong returns at this years end, just as we did last year. Further, based on the changes weve
implemented, the City will be able to demonstrate strong returns for many years to come.

Second, and just as important, we have generated those higher returns while permanently
increasing the protection of our capital. As many of you remember, two years ago, with the
support of Chairman Burke and the members of this body, we formally changed the municipal
code to adopt a minimum credit rating of AA for our investment portfolio for the first time in
the Citys history. Further, we have consistently created a more diversified mix of holdings,
including agencies, municipal bonds, corporate debt, and other instruments; currently, no asset
class represents more than 30% of our portfolio, which provides more security and a better
risk-adjusted return.

And third, we have implemented these new strategies while increasing transparency to the
City Council and to Chicagos taxpayers. When I took on this role, I heard the constant demand
from our residents, bondholders, and other stakeholders for increased transparency. Thats
why we created the Quarterly Earnings Call, a first-in-the-nation initiative that not only allows
us to fulfill our obligations to report our earnings to City Councilbut also gives us a platform
to update taxpayers, ratings agencies, and investors on our financial performance.

Alongside all of this progress, I also want to underscore our consistent commitment to ensuring
that our broker-dealers, who are executing billions of dollars of trades on behalf of our office,

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represent the full diversity of our City. So far this year, 62.7% of our trades by volume have
been executed by Minority, Women, and Disadvantaged Business Enterprise (MWDBE) broker-
dealers, an increase from last year.

Long-Term Local Economic Impact

As you can tell, I take my fiduciary responsibility very seriously. But I also take very seriously my
mission to help drive the long-term growth of our local economy, which in turn improves our
Citys future fiscal health. The steps we are taking to enhance our local economic impact fall
into three categories: expanding access to capital, investing for long-term impact, and building
out financial education opportunities.

First, we are expanding access to capital in neighborhoods that have too often been left out of
the economic equation. Unfortunately, much of the traditional financing sources still view
investments in low- and moderate-income neighborhoods, like the one I grew up in,
Bronzeville, with skepticism. Through the Chicago Community Catalyst Fund, were doing our
part to change that, and I want to recognize the leadership from many of the folks in this room
in helping bring the Catalyst Fund from dream to reality.

As you all know, just last month, City Council approved an ordinance finalizing the structure and
financial commitment of the Catalyst Fund. And just two weeks ago, we announced the
appointments to the Catalyst Fund board of directors, a group of experienced and civic-minded
executives with whom Ive worked with and personally known for years. This initiative will
secure long-term access to capital where its needed most. Its not a Band-Aid solution. Its not
a grant or a hand out. Its an investment in people and their neighborhoods that will have a
lasting impact on Chicagos economy. Its a tangible solution for our communities, and were
excited for the Catalyst Fund to start providing capital as soon as possible to foster job creation
and help residents reverse the tide of decades of disinvestment.

Second, we are taking our comprehensive investment strategy one step further, looking across
the board to find ways to use our balance sheet not only to support our bottom line but also to
grow our local economy. Now more than ever, we are striving to invest for long-term impact.

Thats why, last month, I announced a $20 million deposit into Illinois Service Federal Savings
and Loan Association, the only remaining black-owned bank in a city that helped create the
modern commercial bank. Moving forward, were going to do everything we can to support
community banks like Illinois Service Federal, which are designed with the explicit purpose of
keeping local dollars circulating and creating prosperity within local communities.

In the coming year, as part of our efforts to invest for long-term impact on behalf of our
residents, my office will take a very hard look at updating the Citys investment policy to
incorporate environmental, social, and governance (ESG) concerns into investment decisions. I
want to thank Alderman Arena, and other members of the City Council, who have been thought
leaders on this issue, while protecting our fiduciary responsibility to the taxpayers.

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We live in a changing world, and we need to invest in companies that change with it, companies
that are prioritizing environmental concerns like greenhouse gas emissions, social concerns like
workers rights and equal pay, and governance concerns like diversity on corporate boards and
in C-suite positions. I believe investing in companies reflective of our values is not just the right
thing to do; it will also drive better risk-adjusted returns in the long-run.

And third, we are bringing financial education resources to Chicagos neighborhoods, giving
our residents the tools to empower themselves, their families, and their communities. This past
April, I announced a new partnership with Operation HOPE, a national non-profit specializing in
financial education for youth and adults. This partnership, Chicago Uplift 2020, will help
residents increase their credit scores, become homeowners, and start their businesses.

We have also partnered with the Mayors Office for People with Disabilities to convene the
Financial Advisory Council for the Empowerment of people with Disabilities (F.A.C.E.D.). This
council consists of a broad range of stakeholders dedicated to breaking down barriers for the
disability community regarding access to financial education and banking services. This is the
first such council in the nation. I was honored to be part of our inaugural meeting last week and
want to thank Commissioner Tamley for her leadership in bringing this concept to fruition.


As I hope you can see, we are doing everything we can to bring efficient, effective governance
to our City. Each year, we find new and sustainable ways to cut costs, raise revenue, enhance
transparency, increase accountability, and address some of our Citys most challenging social
and economic problems.

Today, I have outlined just some of the permanent steps that my office is taking to continue
making progress on our path to fiscal stability and economic prosperity. But while we have
indeed made great strides, we still have a lot of work left to do to provide our City, and each of
its 77 neighborhoods, with the full stability we all seek.

With your continued support, including your approval of the budget that we have submitted for
FY 2018, I am confident that we will build on our achievements to date and continue to bring
these long-term solutions to address to our Citys most pressing challenges and most promising

Thank you for your time, and I am happy to take any questions.

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