Short-term Liabilities of City of Chicago Increase through FY2014, while CPS and Cook County Short-term Liabilities Decrease

Short-term or current liabilities are financial obligations that must be satisfied within one year. They can include short-term debt, accounts payable, accrued payroll and other current liabilities.

This blog post presents five-year trends for: 1) total short-term liabilities in the Governmental Funds, and 2) short-term liabilities as a percentage of operating revenues for the three largest local governments the Civic Federation regularly monitors and evaluates: the City of Chicago, Cook County and Chicago Public Schools (CPS).

Increasing short-term liabilities in a government’s operating funds as a percentage of net operating revenues may be a warning sign of possible future financial difficulties.^[1] The short-term liabilities to net operating revenues ratio, developed by the International City/County Management Association (ICMA), is a measure of budgetary solvency or a government’s ability to generate enough revenue over the course of a fiscal year to meet its expenditures and avoid deficit spending.

The data for these trends was found in the Governmental Funds Balance Sheet in each Government’s Comprehensive Annual Financial Report (CAFR). More detailed explanations of five-year short-term liability trends can be found in the Civic Federation’s annual budget analyses of these and other major Chicago-area local governments.

Total Short-Term Liability Trends FY2010-FY2014

The three governments report different types of short-term liabilities on their Governmental Funds Balance Sheets. They are described below.

City of Chicago

• Voucher Warrants Payable: Monies owed to vendors for goods and services carried over into the new fiscal year (called accounts payable by most other local governments);
• Accrued Interest: Includes interest due on deposits payable by the City in the next fiscal year;
• Due to Other Funds: These are monies owed to other funds for services that have been rendered that are outstanding at the end of the fiscal year;
• Accrued and Other Liabilities: Includes self-insurance funds, unclaimed property and other unspecified liabilities;
• Claims Payable: Monies owed for claims against the City; and
• Line of credit and commercial paper:^[2] Lines or letters of credit are commitments issued by a bank or other financial institution to provide a short-term loan for certain purposes.^[3]  Commercial paper is a type of short-term borrowing whereby a government issues a security that can be traded by the lender to other parties.^[4]

Chicago Public Schools

• Accounts payable: Monies owed to vendors or employees for goods and services;
• Accrued payroll: Employee pay carried over from previous years; and
• Amounts held for student activities: Deposits held in custody or funds that belong to individual school accounts.

Cook County

• Accounts payable: Monies owed to vendors for goods and services carried over into the new fiscal year;
• Accrued salaries payable: Employee pay carried over from the previous year;
• Amounts held for outstanding warrants: Cash balance maintained to offset claims made by the State Treasurer pursuant to the Illinois Uniform Disposition of Unclaimed Property Act. The County disputed these claims;
• Due to other funds, others or other governments: These are monies owed to other funds for services that have been rendered that are outstanding at the end of the fiscal year;
• Notes payable: Short-term loans due within the next fiscal year;
• Arbitrage Liability: The Tax Reform Act of 1986 requires issuers of state and local government bonds to rebate to the federal government arbitrage profits earned on those bonds under certain circumstances. There was no arbitrage liability as of November 30, 2014; and
• Other liabilities: Include self-insurance funds (the County is self-insured for various types of liabilities, including medical malpractice, workers’ compensation, general automobile and other liabilities), unclaimed property and other unspecified liabilities.

Five-Year Trend Summary

The following chart displays the five-year trends of total short-term liabilities in the Governmental Funds for the three major local governments that are examined in this blog. This chart is not intended to directly compare current liabilities between the three local governments, but rather to show each government’s overall trends.

City of Chicago

Chicago short-term liabilities rose by 59.7% between FY2010 and FY2014. This was an $812.5 million increase from $1.36 billion to $2.17 billion. Between FY2013 and FY2014, short-term liabilities increased by $396.3 million, or 22.3%. This is primarily due to the City reclassifying $297.3 million of lines of credit and commercial paper as short-term obligations beginning in FY2014. During the five-year period of this review, total short-term liabilities increased by 59.7%, rising from nearly $1.4 billion to nearly $2.2 billion. The large five-year increase was primarily due to three items:

• A $110.5 million increase in voucher warrants payable;^[5]
• A $301.2 million increase in amounts due to other funds;^[6] and
• A total of $297.3 million for short-term debt in the form of lines of credit and commercial paper obligations.[7]

Chicago Public Schools

Between FY2010 and FY2014 Chicago Public Schools (CPS) short-term liabilities in the Governmental Funds decreased by approximately $431.9 million, or 48.0%, from $899.6 million to $467.7 million.

The largest portion of the decrease in this five-year period is for accrued payroll, which declined by nearly $408.9 million, or 78.5%. Most of that decrease occurred between FY2013 and FY2014, when accrued payroll fell by 76.4%, or $361.4 million, from $473.2 million to $111.8 million. This was because in FY2014 CPS discontinued the practice of deferring a portion of non-52 week employee's payroll.[8]

Cook County

Cook County short-term liabilities totaled $204.6 million in FY2014. This is an increase of 38.3%, or $56.7 million, from the prior fiscal year. The biggest reason for the increase was the $35.6 million increase in accounts payable because the Non-titled Use Tax was not accrued for in FY2013 through FY2014 for nearly $3.5 million, and accounts payable increased by $10.5 million due to an increase in delayed motor fuel taxes and capital project reimbursements.[9]

Since FY2010, short-term liabilities have decreased by $100.8 million, or 33.0%. Accounts payable have always been the largest share of short-term liabilities, averaging 56.5%.

Short-term Liabilities as a Percentage of Operating Revenues

As previously noted, increasing current liabilities in a government’s operating funds at the end of the year as a percentage of total operating revenues may be a warning sign of future financial difficulties. The use of ratios additionally allows for a more effective comparison across the three governments examined in this blog.

• Between FY2010 and FY2014, Chicago’s ratio of short-term liabilities to operating revenues increased from a low of 25.3% in FY2010 and FY2011 to a high of 35.9% in FY2014. Overall, it rose 10.7 percentage points from 25.3% to 35.9% over the five-year period of this review.  Chicago’s ratio averaged 29.5% over the 5-year period.
• The Chicago ratio was consistently higher than the corresponding ratios for CPS or Cook County.
• The Chicago Public Schools’ ration of short-term liabilities to operating revenues fell 8.4 percentage points between FY2010 to FY2014, from 17.0% to 8.6%. As previously noted, this is because in FY2014 the District discontinued the practice of deferring a portion of non-52 week employee's payroll. The ratio has averaged 15.4% over the five-year period examined.
• Cook County’s ratio of short-term liabilities to total operating revenues has fluctuated slightly over time, falling from 15.0% in FY2010 to 7.5% in FY2013. In FY2014, it rose again to 10.5%, primarily due to increases in accounts payable. The ratio averaged 10.7% over the five-year period.