Fitch Rates City of Chicago, IL's $180MM GOs Ser 2000C `AA-'.

Business Editors

NEW YORK--(BUSINESS WIRE)--August 7, 2000

Fitch has assigned a `AA-' to the City of Chicago, IL's $180 million general obligation bonds, project and refunding series 2000C. The bonds, which will include a refunding of about $80 million of outstanding general obligation debt, will sell August 9 in a negotiated underwriting led by First Albany Corporation. Dated August 1, the bonds mature serially Jan. 1, 2010-2040 and pay interest each Jan. 1 and July 1, beginning Jan. 1, 2001. This issue will include both current interest and capital appreciation bonds. Terms of optional and mandatory redemption will be set at pricing.

The city has pledged its full faith and credit to the bonds, including an unlimited tax levied on all taxable property within the city. The pledge also applies to any compound accreted value of any capital appreciation bonds at maturity. The bonds will finance various public infrastructure and facility improvements, capital equipment purchases, the acquisition and improvement of real property.

The rating reflects Chicago's continued economic diversification toward service industries, improved financial management and stable debt levels. In addition, the `AA-' rating is affirmed on $2.9 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 City Council already has ratified agreements with three bargaining units in the Police Department and has ratified an agreement with the American Federation of State County and Municipal Employees (AFSCME) union, both of which expire June 2003. 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 1.3% annually in the last seven years as service industry jobs, to a greater degree, replaced manufacturing positions that largely migrated to suburban areas. Underlying the stability of total citywide employment is a shift in recent years toward service jobs as manufacturing declined. Nevertheless, citywide employment is 4.6% above 1990 levels, compared with 9.3% for the metropolitan area and 11.4% for the state. City unemployment rates have declined to 5.5% in May 2000, from 8.4% in 1990.

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, reflecting the unusually high snow removal costs of $40 million within the general fund, reduced the general fund balance to 7.8% of expenditures. Fitch expects that these discretionary reserves will be replenished in subsequent years.

In July, the city released its preliminary budget estimates for fiscal 2001, as required by the city's municipal code. Using conservative revenue assumptions and estimated spending through the remainder of the year, the corporate fund anticipates a $115.3 million shortfall without subsequent budgetary actions. However, the city plans to adjust the budget during the remainder of the fiscal year to produce balanced year-end results.

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 $1,103 on a per capita basis and 2.7% of property market values; including the debt of the Chicago Board of Education and other overlapping entities, total debt equals $3,087 per capita and 7.6% 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 79% of liabilities at historical cost.

Fitch is an international rating agency that provides global capital market investors with the highest quality ratings and research. Dual headquartered in New York and London with a major office in Chicago, Fitch rates entities in 75 countries and has some 1,100 employees in more than 40 local offices worldwide. The agency, which is a combination of Fitch IBCA and Duff & Phelps Credit Rating Co., provides ratings for Financial Institutions, Insurance, Corporates, Structured Finance, Sovereigns and Public Finance Markets worldwide.