Treasurer Summers Proposes Office Transformation to Decrease Reliance on Taxpayer Dollars

Projects $77.6 Million in Total Revenue for 2016, Increase of Nearly $30 Million from 2015

A copy of the Treasurer’s testimony can be found here..

Before the Chicago City Council’s Committee on the Budget and Government Operations, Chicago City Treasurer Kurt Summers today proposed a 2016 budget that decreases reliance on taxpayer dollars by nearly 30 percent, from $2.36 million to $1.66 million. Upon his appointment, Treasurer Summers made a commitment to transform the Treasurer’s Office to better serve all residents in every corner of Chicago. With changes to the City’s current investment strategy, the office projects to earn $77.6 million in total revenue for 2016. To fulfill the mandate of the administration and continue to serve as a responsible fiscal steward, Treasurer Summers proposes modernizing operations to generate more revenue and help lower what taxpayers are charged to fund the Treasurer’s Office.

“Best practices in the financial world are constantly evolving and the Treasurer’s Office has fallen behind,” Treasurer Summers said. “At a time when righting our fiscal ship is the City’s top priority, we’ve found an opportunity to transform operations to decrease risk while increasing income to the City’s bottom line. Working with the Mayor’s Office and City Council, we can ensure the Treasurer’s Office serves all taxpayers by driving value to every neighborhood across Chicago.”

The Treasurer’s administration has evaluated past practices and identified a number of challenges threatening the stewardship of taxpayer dollars and Chicago’s fiscal health. Some of those challenges include a 33+ year-old treasury system, the lack of a regulatory compliance function, no daily market analysis or reconciliation and a misaligned cost/benefit to taxpayers.

With minimal resources in place, the Treasurer has begun taking first steps in the office’s transformation by diversifying the City’s portfolio, adjusting duration, adopting a minimum credit quality, a responsible benchmark and increasing accountability. The Treasurer’s Office estimates that these changes will result in a projected $10.1 million of additional income over the next year, with an overall projection of $77.6 million in total investment income for 2016. This is an increase of $30-$40 million from previous years.

The Treasurer has also implemented national best practices in managing the City’s cash on hand.

Over the past ten months, in reviewing the Government Finance Officers Association (GFOA) model for working capital, Treasurer Summers has identified a way to responsibly invest nearly $3 billion of the City’s cash on hand that was previously sitting in a single portfolio, inefficiently invested. As a result, the City’s portfolio missed opportunities to generate market returns. By reallocating the investment of working capital, the office will be able to increase operating returns from $14 million to as much as $30 million. In other words, the cost of doing nothing with that cash was $16 million.

Because of this shift in strategy, overall the Treasurer’s Office projects to earn an additional $30-$40 million across all corporate and enterprise funds in 2016 to help support the City’s operations and other important investments.

To continue increasing returns and provide value to all taxpayers, the Treasurer proposes transitioning to a self-supported model, decreasing dependence on Chicago’s corporate tax dollars and instead aligning the cost of managing the city’s enterprise fund portfolios with those that benefit from their services.

The Treasurer’s Office serves as the money manager for Chicago’s enterprise funds, including the Chicago O’Hare Airport Fund, the Chicago Midway Airport Fund as well as the Water, Sewer, and Tax Increment Financing Administration Funds. Historically, the cost of managing those funds has been subsidized by the taxpayer.

For example, currently for every $10 the Treasurer’s Office earns the O’Hare fund, the office charges the fund six cents and charges the corporate fund, or general taxpayer, 63 cents. Under the new proposal, the office will instead charge the corporate fund nothing and the O’Hare fund 68 cents.

In the Treasurer’s 2016 proposed budget, that alignment changes so that the cost of managing those funds is born by the fund and the beneficiaries of those funds, and not the general taxpayer.

By aligning the cost and benefit, the Treasurer’s Office 2016 proposed budget sees a nearly 30 percent decrease in its corporate fund allocation from last year, allowing the office to address long-standing systemic issues and become a modernized revenue center for the City.

Treasurer Summers serves as the City’s banker, investor and advocate, overseeing Chicago’s $7 billion investment portfolio. He also serves as a trustee or fiduciary on five of the City’s public employee pension boards with $25 million under management. Since taking office in December of 2014, the Treasurer has worked to provide taxpayers with greater transparency and efficiency ensure a responsible investment approach and drive value for residents in each of Chicago’s 77 neighborhoods.