Chicago, IL's $199M GOs Rated `AA-` By Fitch IBCA.

Business Editors

NEW YORK--(BUSINESS WIRE)--March 3, 2000

Fitch IBCA has assigned a `AA-` rating to the City of Chicago, IL's $198.9 million of general obligation bonds (Neighborhoods Alive 21 Program), series 2000A and taxable series 2000B which will sell March 8 in a negotiated underwriting led by LaSalle Capital Markets. The series 2000A bonds total $174.6 million and mature serially Jan. 1, 2012- 2020; the series also includes term bonds maturing each Jan. 1, 2025, 2030 and 2040. The taxable series 2000B bonds total $24.4 million and mature Jan. 1, 2002-2012. Dated March 2, the bonds are secured by the city's full faith and credit pledge, subject to limitations imposed by the city's property tax limitation ordinance. This is the initial installment of a four-year $800 million municipal facility infrastructure program (Neighborhoods Alive 21) to construct and equip police stations, fire stations, public libraries, and senior citizen centers.

The rating reflects Chicago's continued economic diversification toward service industries, improved financial management and stable debt levels. In addition, the rating is affirmed on $2.6 billion of the city's outstanding general obligation debt. Strong economic growth has broadened the city's tax base and supports continued financial improvement. Although most labor contracts expired in June 1999, the agreements continue in effect as the administration proceeds with employee union negotiations. The satisfactory labor climate portends continued success in achieving affordable settlements.

As the focal point of economic activity in the Midwest, Chicago has experienced less growth volatility as the service sector expanded at a faster pace than manufacturing. While manufacturing remains a vital component in the city's makeup, its size more closely resembles national industry distribution. Employment has grown 1.5% annually in the last five years as service industry jobs, to a greater degree, replaced manufacturing positions that largely migrated to suburban areas. Unemployment rates have declined with a tightening labor market and now average 5%, against 4% for the county and state.

With economic broadening and a diverse tax revenue stream, the city's financial picture has improved as general fund reserves grew to 11.0% of expenditures in fiscal 1998, from 7.7% in fiscal 1993. Fiscal 1999 results are expected to decline modestly due to unusually high snow removal costs of $40 million within the general fund. Audited results for fiscal 1999 are not final, but any use of discretionary reserves will be replenished in subsequent years.

The city achieved its record of gradual financial strengthening by limiting overall budget growth to inflationary rates. As property tax levies remained unchanged to ease property tax pressures on residents, the city implemented various user charges to capture consumption-based economic activities. Nevertheless, as a home rule city, Chicago has enhanced its revenue-raising flexibility with continued economic growth.

Over the last few years, the city has pursued an aggressive neighborhood redevelopment program, which includes infrastructure renewal, public safety initiatives and better operating budget resource utilization. Staff levels have been stable, as both improved management systems and reprioritization of city services have limited natural budget growth. The city has curtailed healthcare and other fringe benefit spending growth by renegotiating provider contracts, tightening eligibility and limiting fraud. Enterprise funds -- primarily O'Hare International Airport, Midway Airport and the Chicago Skyway Toll Bridge -- have a record of generating operating surpluses and are in good financial condition.

While using both internal and external financing resources, the city has kept its debt burden stable. Direct debt equals $1,015 on a per capita basis and 2.5% of property market values; including the debt of the Chicago Board of Education and other overlapping entities, total debt equals $2,974 per capita and 7.4% of property market values. Future tax-supported debt is expected to be modest as the city enterprises continue to raise capital supported by user fees and non-property tax sources. Chicago's four defined-benefit pension plans are funded at 76% of liabilities at historical cost.