As the city gears up to borrow a substantial $518 million for infrastructure enhancements alongside an additional $92 million for Mayor Brandon Johnson’s ambitious affordable housing initiative, a heated debate unfolded Tuesday.
Aldermen and Johnson’s administration engaged in a tug-of-war, each side pointing fingers over who should be held accountable for recent credit downgrades that threaten to financially burden taxpayers further.
While the precise financial implications of these downgrades may not be known until the city enters the market later this month, the discussions during the hearing highlighted concerns raised by ratings agencies. According to these agencies, there are fears that the political gridlock witnessed during the 2025 budget cycle may continue, complicating fiscal dynamics.
The Finance Committee meeting was called by Ald. Anthony Beale from the 9th Ward to review a downgrade issued by S&P in January, closely followed by another downgrade from Kroll. Recently, Fitch also weighed in, altering its outlook on the city’s general obligation debt to a “negative” status, signifying a potential future downgrade.
Cited reasons for these downgrades include an ongoing structural budget gap, estimated at around $1.1 billion by 2026, and an overwhelming pension debt burden. These factors have contributed to the city’s debt ratings, which linger above “junk” status.
Compounding challenges for the city are external pressures, including federal grant reductions attributable to the Trump administration, along with wider market trends that Fitch analysts claim could further deepen the fiscal divide.
Johnson’s finance team has confirmed that the downgrades will inevitably escalate borrowing costs for the city, although a specific figure has yet to be disclosed.
Chief Financial Officer Jill Jaworski specifically placed blame on City Council members for the current predicament, pointing to their rejection of a proposed $300 million property tax increase. This measure was seen as a dependable revenue source Johnson aimed to include in the year’s budget.
Instead of supporting the tax increase, the council opted for a series of one-time fixes to address the revenue gap, alongside the temporary solutions Johnson had initially proposed.
Jaworski stated, “Negative rating actions occurred after this council rejected the property tax increase,” asserting that rating agencies perceived this as a sign of reluctance to embrace revenue increases necessary for a fiscally balanced budget.
In response, Beale defended the council’s choice, emphasizing their commitment to finding cuts and efficiencies rather than defaulting to hiking property taxes.
Jaworski and Budget Director Annette Guzman acknowledged that personnel cuts pose significant challenges, as most require negotiation with organized labor due to existing contracts. Guzman mentioned ongoing dialogues with labor unions regarding budget cost reductions, explaining later that cuts alone could not achieve a structurally balanced budget.
Ahead of Johnson’s forthcoming shortfall announcement later this summer, he has assembled a working group and engaged accounting firm Ernst & Young to explore longer-term strategies for addressing the deficit.
Ald. Bill Conway from the 34th Ward also sought to question Jaworski regarding alleged “misrepresentations” regarding the city’s downgrading. He was notably critical of the repayment schedule pertaining to $830 million in infrastructure bonds, suggesting it only postpones essential decisions.
In her defense, Jaworski clarified her previous statements, asserting that she claimed new borrowing would not trigger a downgrade and expressed disappointment in the insinuation of misrepresentation. “I stand by my comments that the authorization for bonds for greatly needed infrastructure did not lead to a downgrade,” she affirmed.
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