The City of Chicago “published” its annual financial report today, July 8.
The city has acknowledged that state law requires it to publish the report within six months of the end of the fiscal year (December 30th). That may help explain why the letters introducing the report, addressed in part to the “Citizens of the City of Chicago,” are dated June 30 -- even though the citizens didn’t get the report until July 8.
The report looks pretty bad. Some quick “highlights:”
- The city’s unrestricted net position (basically assets less liabilities -- how far the city is in the "red") fell from a negative $11.7 billion reported at year-end 2014 to a negative $29 billion at the end of 2015. This was primarily due to the long-delayed recognition of massive pension debts on the balance sheet.
- The change in net position – basically revenue less expenses – had been running at a negative $1 billion in each of the previous four years, even though the city states that Illinois law requires it to “balance its budget.” In 2015, the change in net position ballooned to a negative $5 billion – even after a massive restatement in the beginning net position. In other words, in private sector language, the city has been losing money every year -- especially last year.
- Interest expense ballooned from $581 million in 2014 to over $860 million in 2015. While it can be hard to infer underlying trends in the rest of the mess of the financial statements, given changes in accounting and actuarial assumptions, the sharp increase in interest expense is a simple, bad sign.
Here’s a peek at the unrestricted net position, as reported at each fiscal year-end since 2005:
And here's a look at Chicago's interest expense since 2005 (and in a period when market interest rates fell dramatically):
Some fun weekend beach reading lies ahead!