A Wall Street rating agency, Fitch, has recently assigned an A- bond rating to Mayor Brandon Johnson’s plan to borrow over $600 million aimed at infrastructure, housing, and economic development.
However, Fitch has revised its outlook to “negative,” suggesting a potential future downgrade of the city’s bond rating.
The agency cited a significant concern regarding Chicago’s structural budget gap, which currently stands at $1.12 billion, representing 20% of the corporate fund.
The situation could worsen especially if Chicago were to lose any portion of the $3 billion in federal funding that is currently under scrutiny.
Fitch noted that the ongoing fiscal struggles could lead to increased reliance on non-recurring solutions, including larger-than-expected withdrawals from the city’s reserves.
Efforts to secure new revenue streams are ongoing, but these require state or voter approval—a process that does not appear to be promising in the near future.
Additionally, there has been notable internal resistance to raising the property tax levy, although the City Council did pass a smaller package of fee increases intended for the 2025 budget.
While operational efficiencies might provide some relief, the prospects of achieving significant budget reductions through broad program or service cuts remain uncertain.
Fitch further emphasized that Chicago’s reserves are providing only a “dwindling cushion” against formidable fiscal challenges.
According to the agency, the reserves could decline to less than 15% of spending by the end of this year, down from 29% in 2023.
The city has already budgeted significant reserve draws, amounting to $414 million last year and $368 million this year, aimed at closing the fiscal gap and making pension payments above the state-mandated minimum.
These pension advances, initiated by former Mayor Lori Lightfoot and continued under Johnson, were described as a “positive factor” amid the city’s budget constraints.
However, Fitch warned that competing demands on the city’s dwindling resources could jeopardize these pension payments in future years.
According to Fitch, maintaining the city’s rating stability is contingent upon making considerable progress in stabilizing budgets for 2025 and 2026.
This includes the $175 million pension payment allocated for non-teaching school employees, which Johnson has included in his budgets for 2024 and 2025 but has yet to receive from the Chicago Public Schools.
Fitch noted that the city should secure external support for additional resources and/or utilize internal fiscal tools more robustly while aiming to preserve a reserve position of at least 10% of spending—the minimum level needed for financial resilience.
The rating agency cautioned that failure to meet these conditions would likely result in a downgrade of at least one notch.
As of now, the mayor’s office has not provided an immediate response to Fitch’s negative outlook.
During a weekly City Hall news conference, Mayor Johnson highlighted the limitations of Chicago’s home-rule authority.
He acknowledged, “The levers in which I have direct control over in terms of being able to generate revenue — there’s limitations there. … [We will need] the state to [approve] more areas of revenue streams.”
Budget Director Annette Guzman informed reporters that the City Council’s revenue subcommittee is scheduled to meet next week to discuss state-level taxes.
This may include discussions about a proposed sales tax on professional services, which requires authorization from the Illinois General Assembly.
Guzman reassured that the city is not solely relying on state-level revenues.
“We’re going to have continued conversations with our alders about the types of revenues that they have the ability to put into effect, not just for this budget but for future budgets as well,” she stated.
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