Chicago’s second straight budget stalemate is not about the City Council vs. Mayor Brandon Johnson, or left vs. centrist. It’s about Wall Street rating agencies and an almost certain downgrade in the city’s bond rating “if we don’t get this right,” Civic Federation President Joe Ferguson said Thursday.
In trying to salvage a proposed corporate head tax shot down by the City Council’s Finance Committee, Ferguson said Johnson has demonstrated an “almost willful blindness to the red flashing lights” all around him.
One of those warnings was the recent decision by S&P Global Ratings to reduce Chicago’s credit outlook to negative, citing Johnson’s decision to cut in half — to $120 million — the city’s annual pension advance over and above the state mandated payment.
S&P issued a similar warning during last year’s budget stalemate and followed through on it two months later, dropping Chicago’s bond rating to just two notches above “junk bond” status.
An equally ominous warning came last month, when the city floated $454 million in bonds, but $75 million of those bonds went unsold. The remaining $379 million did sell, but at a higher interest rate than the city’s initial estimate to lure more buyers, according to Bloomberg News.
Ferguson views both developments as a “last warning” about Johnson’s decision to balance his third budget with one-time revenues that include the shrunken pension advance, a record $1 billion tax increment-financing surplus and $449 million in loans to bankroll retroactive pay raises for Chicago firefighters and paramedics and large settlements tied to allegations of police wrongdoing.
“Get your act together. Stop with the one-time revenue sources. Get to the structural fixes because what you’re doing is not sustainable. You are out of time,” Ferguson said. “The markets are saying, `We’re expecting a downgrade… at levels of junk so why buy it now.’”
Ferguson likened the city’s predicament to the long road that nearly forced New York City into bankruptcy in 1975 after then-President Gerald Ford initially refused a request for billions in federal loans, only to relent after business and labor concessions.
“We’re not anywhere near as bad as New York, but that’s a cautionary tale that goes to an old maxim: Bankruptcies start out slow and then, they get real fast,” Ferguson said. “We’re on a track to… the next level of external circumstances that may push us into that high-speed lane towards fiscal insolvency.”
Senior mayoral adviser Jason Lee dismissed Ferguson’s warning about the perils of reducing the pension advance.
“Last year, the Civic Federation suggested that the city not make the advance payment for the pension. So I don’t understand how the Civic Federation has any credibility on the credit rating,” Lee said. “Their proposal last year would have resulted in an immediate downgrade. So why do they care now?”
Lee said what Wall Street rating agencies “like the most” is the very thing that the mayor and a City Council majority find politically untenable after property tax bills soared — fueled by increased assessments that hit hardest in the predominantly Black South and West Sides.
“They like property tax increases because it’s reliable, sustainable revenue that’s predictable. When you don’t do property taxes, they have concerns,” Lee said.
Ferguson spent twelve years as Chicago’s inspector general before resigning to avoid being fired by then-Mayor Lori Lightfoot.
He was among the brain trust of city finance experts and former budget officials who helped a small group of conservative and moderate alderpersons devise the framework of an alternative to Johnson’s budget that does not include a corporate head tax, but does nearly double Chicago’s $9.50 a month garbage collection fee and raise taxes on off-premise liquor sales and rides on Uber and Lyft.
The proposed alternate budget would also restore the full advance pension payment, shave $100 million from the $1 billion tax-increment-financing surplus that the mayor hopes to use to rescue the Chicago Public Schools, and cancel plans to borrow to help bankroll four years of retroactive pay raises for Chicago firefighters and paramedics.
Ferguson views the alternate budget as a “starting place” that proves the corporate head tax is “not an imperative” and sets the stage for the “shared sacrifice” that the moment demands.
“Have all of the major constituent players been called in together by a mayor that is using both the power of persuasion that he has to serve the interest of the city as a whole?” Ferguson said. “Right now, we are not seeing any activity in that regard.”