STATEMENT ON 2019 BUDGET PROPOSAL

Kurt Summers, Treasurer, City of Chicago

October 31, 2018

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

Three years ago, I came before this body for my first budget hearing as Chicago’s Treasurer.
And I promised that I would work with all of you to transform the City Treasurer’s Office by (i)
providing taxpayers with greater transparency and efficiency; (ii) ensuring a responsible
investment approach that maximizes returns; and (iii) broadening the scope of our strategy to
offer new opportunities to all of Chicago’s 77 neighborhoods.

Three years later, as I sit here testifying for the last time as your City Treasurer, I am proud to
say that we have been delivering on those three core promises each and every day. I want to
take a moment to thank Mayor Emanuel for his support of that work, and for his longstanding
commitment to public service. And I also want to take a moment to thank the members of this
body for your stewardship and for your commitment to the city that we love and call home.

So how exactly have we delivered on those three promises? We’ve significantly increased
investment returns, hitting $117.1 million in 2017 and $62.2 million in the first half of 2018
alone. We’ve reduced our office’s reliance on the corporate fund and cut down on wire transfer
fees, generating millions in savings per year. We’ve modernized the office with new investment
software and put more cash into interest-bearing investments, generating more in investment
returns per year. And we’ve explored every possible way to ensure our office matters in the
lives of everyday Chicagoans, not just by increasing our returns and lowering our costs but also
by bringing resources directly to our neighborhoods.

In each of the last two budget testimonies, I have talked about how we’ve taken a magnifying
glass to every aspect of our office’s operations. And this year, we have continued modernizing
and innovating to reduce costs and improve efficiency:
 Generating Returns and Increasing Savings with New Cash Management Strategy: This
year, we implemented a new cash management strategy that involves paying low bank
fees to free up cash for investment in higher-yielding interest accounts, generating
additional returns per year. And since we’ve implemented this new strategy with
maximum efficiency this year, we are requesting a $750,000 decrease in budgeted
dollars to support paying bank fees next year—that’s close to a million extra dollars that
can then be spent on other worthy City programs.
 Better Understanding Liquidity Needs: This year, we’ve decided to spearhead an
initiative – working closely with other departments such as the Department of Finance –
to get more exact information on the City’s inflows and outflows. While the savings
might be small when compared with the size of the City’s budget, it’s another example

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 of how our office is trying to find every way possible to put every dollar available to
work for the residents of Chicago.
 Improving Internal Reporting: This year, we improved internal investment reporting with
modernized software, increasing both accuracy and transparency within our office.
 Building a Master Account List: This year, we worked on building a master account list in
SharePoint to improve interdepartmental transparency and accountability—and to
make it easier for us to identify additional efficiencies. This project should be completed
in the coming months.

But these important efficiencies are exactly what you should expect from elected and
appointed officials—to execute the basic duties of the office. For the remainder of my time
today, I’d like to talk about our efforts to go above and beyond the basics—and instead to drive
as much impact as possible through our portfolio and our platform. With that mindset, we have
been able to make more and more of an impact on the lives of everyday Chicagoans—especially
those in our most challenged neighborhoods. And as I will discuss later, it is time for this body
to take some additional steps to empower this work today—and to codify this work into the
Municipal Code so that it lives on tomorrow.

Investing for Impact

When I first became Chicago’s Treasurer, my office had no mandate around investing for
impact locally. We had a mandate to invest everywhere in the world…but not in our own
backyard—in Chicago’s neighborhoods. And not always in accordance with the long-term
challenges that our residents face. That’s why we’ve sought to bring our portfolio investments
more closely in alignment with our City’s priorities—with the priorities that you all fight for
every day as members of our City Council.

ESG Integration: After nearly two years of extensive analysis and review of best practices from
some of the world’s largest investment managers, my office introduced the evaluation of
Environmental, Social, and Governance (ESG) factors into the analysis of our investment
decisions. This strategy builds on our existing investment portfolio standards by expanding our
analysis to include a comprehensive evaluation of factors including financial transparency, data
security, strong governance, sustainable development, carbon emissions, board diversity,
executive compensation, and more.

There are now volumes of empirical studies that attest to the fact that portfolios perform
better when they invest in companies looking to the future—companies adapting to climate
realities rather than ignoring them, embracing diversity rather than shunning it, and proactively
respecting workers rather than denigrating them. These values are not only intrinsic to our
identity as a welcoming and forward-looking city, but are also material to long-term financial
performance.

That’s why we have made ESG integration central to our investment strategy in four key ways:
 First, we are applying these “ESG” factors to 100% of our investment decisions on
corporate securities.

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  Second, we are adopting a minimum ESG portfolio rating for our holdings in corporate
securities.
 Third, we have committed to the United Nations-supported Principles for Responsible
Investment, the leading international initiative for responsible investment, and in doing
so became the first city to make that commitment.
 And fourth, we have promised to achieve a carbon-neutral portfolio by the year 2020,
proactively searching for green bonds to finance renewable energy projects, Ginnie Mae
loans to finance affordable housing, and other socially responsible investment vehicles.

This effort is a win-win proposition, generating better risk-adjusted returns while making an
impact on the lives of Chicagoans each and every day. But unfortunately, it’s also come with its
share of detractors. We’ve been told by some that we’re playing politics with public money.
We’ve been told that investments are not a vehicle for meaningful social change. We’ve
received letters from fossil fuel and petrochemical industry groups saying that this decision is
driven by “political whim” rather than “fiduciary responsibility.”

To these and other critics, we cite study after study from the world’s leading financial
institutions and investment managers. From Barclays in London to Morningstar in Chicago, they
have found that portfolios with high ESG ratings outperform their peers over the long run by
mitigating risk without sacrificing returns.

Our efforts have earned recognition far beyond Chicago’s borders. We are now serving as a
leading model for state and local treasuries all across the country—and that’s something that
all Chicagoans can take pride in.

But let me be clear: We are still shackled by the lack of movement on an ESG ordinance that
was introduced in City Council back in February 2018. The ordinance would amend the City’s
investment policy to (i) give us more tools at our disposal to make impactful investments and
(ii) ensure that future treasurers are mandated to align investment dollars with the priorities of
your constituents. Without passage of this ordinance, our office will be held back from
maximizing its impact—not just now but for years to come. So today, I am calling on you to
bring the legislation through committee and to a vote.

Chicago Community Catalyst Fund: Your support of our ESG work will be critical, just as your
support of our work around the Chicago Community Catalyst Fund has been. As you all know,
we have worked with you all here in City Council and the Mayor’s Office to create the Catalyst
Fund, a local economic development fund that will make strategic investments in Chicago’s
neighborhoods. This fund will focus its efforts on the types of places that traditional investors
overlook, in communities like the one I grew up in on the South Side.

Last year, we finalized the ordinance to seed the Catalyst Fund with $100 million and confirmed
the mayoral appointees to the Board of Directors. This year, we selected an investment
consultant, thoroughly drafted and approved the necessary legal documentation to govern the
Fund, and held a number of meetings to rally private sector investors to join us in growing the

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Fund’s initial capital. I know the success of this Fund is as important to everyone in this room as
it is to me and to our residents, and we are on the verge of seeing it to fruition.

And given everyone’s shared objective in supporting initiatives to ensure that our dollars are
reinvested into our communities, I want to ask this body to amend the existing ordinance to
enable credit unions to apply for municipal depository status. A deposit in a credit union is just
as safe as a traditional financial institution—but also carries with it the added benefits of
creating local jobs, catalyzing economic development, and supporting community wealth-
building. This body always talks about neighborhood economic development; by not allowing
credit unions to hold City funds, we’re leaving enormous opportunities on the table. Amending
the existing municipal depository ordinance would bring an immediate, positive impact to
neighborhoods all across the city—so I hope to see this action taken in the very near future.

Investing in Chicago’s Residents

As we’ve redoubled our commitment to investing for impact, we haven’t lost sight of our duty
to also invest in Chicago’s residents through additional financial empowerment and access to
capital initiatives. Because while Chicago continues to maintain its prominence as a global city
with a gross regional product of almost $700 billion, there are huge swaths of our residents
who have not seen the benefits of Chicago’s strong economic engine. In fact, as venture capital
funds raised by local tech companies continue to rise exponentially, micro-loans to small
businesses have remained mostly flat, perpetuating the existence of two Chicagos—one soaring
and prospering, the other often stagnating and struggling. Given the shortage of financial
empowerment resources and a lack of access to capital in underserved neighborhoods, we
have sought to design and implement innovative programs that help ensure that the growth of
our City touches all of its residents.

Financial Empowerment for Residents: The lack of financial empowerment resources is an

especially salient problem for many Chicagoans. Today, compared to the rest of the country,
residents of Chicago are more likely to be unbanked, far more likely to be delinquent on their
debt payments, and far more likely to have low credit scores—and these problems are
especially grave in communities of color.

Clearly, many Chicagoans could benefit from financial coaching and knowledge, and over the
last few years, my office has worked to build new partnerships to provide these resources to
residents. Most significantly, we have worked with the national non-profit Operation HOPE to
launch Chicago Uplift 2020, a partnership to bring financial wellbeing coaches to Chicago’s
neighborhoods, who will provide programming at no cost to residents. Just last week,
Operation HOPE opened its first “HOPE Inside” brick-and-mortar financial empowerment center
at Bright Star Community Outreach in Bronzeville, and we are excited to be a part of it—and to
see more of these centers in our neighborhoods in the coming years.

We’re complementing efforts like Chicago Uplift 2020 with targeted initiatives to serve those
most in need, like people with disabilities. Studies show that people with disabilities are more
than twice as likely to not have a bank account, and twice as likely to live in poverty, compared

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to the rest of the population. That’s why, one year ago, we co-launched the Financial Advisory
Council for the Empowerment of People with Disabilities (FACED) with Commissioner Karen
Tamley and the Mayor’s Office for People with Disabilities. In its inaugural year, FACED held
four quarterly meetings and created two sub-committees that became vehicles for information-
gathering. Specifically, the Advisory Council created a snapshot on the accessibility of bank
branches in the City of Chicago, and conducted a survey and focus group on access to banking
for Chicagoans with disabilities during AccessChicago 2018. I’m looking forward to all that the
Council does over the coming years to provide real solutions for this underserved population,
and I’d like to take a moment to recognize Commissioner Tamley and all the community
partners involved in this critical effort.

Access to Capital for Small Business Owners: Investing in Chicago’s residents also means helping
to extend capital to small enterprises that have often been left behind by our City’s recent
growth, especially those in historically underserved communities. Data shows that micro
lending to small businesses is down significantly from pre-recession levels, and unfortunately
when these businesses do manage to attain capital, it is often at the hands of predatory lenders
who charge exorbitant interest rates. So with insufficient capital access, we not only miss out
on the economic opportunity provided by these new businesses; we also put many residents at
risk of being plunged into desperate situations as a result of unscrupulous lending practices.

In 2017, my office sought to address this two-headed problem by partnering with Small
Business Majority to create a first-of-its-kind local lending portal, SimpleGrowth, to help local
small business owners and entrepreneurs find affordable loans. We’ll build on that model in
2019, when we work with World Business Chicago and other partners to create Chicago
SourceLink, an online platform that will connect local small businesses with technical assistance
providers. We are excited to be partners in one of the most comprehensive efforts in Chicago’s
history to help small business owners navigate the landscape of available resources.

Conclusion
As Chicago’s Treasurer, it is incumbent on me to be a strong fiduciary of the people’s capital
and to advocate for more equitable economic opportunity for all of our residents.

Every day, my charge to the staff of the City Treasurer’s Office is to find ways to directly help
the people of Chicago—and to find new avenues for increased innovation in delivering those
services. And alongside that, we are dedicated to transparency and to holding our office to the
highest standards of good governance.

Our success is not only defined by the increased earnings of the City’s portfolio or the security
we provide to our taxpayers. Our success is also defined by the opportunities that we are
creating for languishing communities, ripe for new and lasting investment, to share in our City’s
economic strength and to ensure that they thrive for generations to come.

Again, as we seek to generate as much impact as possible on the lives of Chicagoans, I strongly
urge the City Council to pass the existing ordinance on ESG integration—and to amend the

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existing municipal depository ordinance to enable credit unions to hold City funds. These two
important measures will take the shackles off our portfolio—and lay the groundwork for an
even more impactful City Treasurer’s Office for years to come.

It has been the privilege of a lifetime to serve as Chicago’s Treasurer. And as you look ahead to
the next treasurer, whoever that may be, I hope that you will remember the principles that
have undergirded our office for the past few years—and that you will expect them of my
successor: generating significant revenue, modeling financial transparency, investing in our
neighborhoods, leveraging our portfolio for impact, and so much more. I thank you for your
time and your support, and I am happy now to take your questions.