A Wall Street rating agency on Tuesday assigned an A- bond rating to Mayor Brandon Johnson’s upcoming plan to borrow more than $600 million for infrastructure, housing and economic development, but revised the outlook to “negative,” signaling a future downgrade.
Fitch said the negative outlook is “driven by a lack of substantial progress procuring permanent, high-impact solutions” to a structural budget gap of $1.12 billion — 20% of the corporate fund — that could get worse if Chicago loses even a portion of the $3 billion in federal funding on the chopping block.
At the least, that could result in “additional dependence on non-recurring solutions, including higher than expected draws on reserves,” the rating agency said. “The city continues to pursue new revenue streams that require state or voter support, which do not appear to be forthcoming in the near term.
“The city has faced further internal opposition to increasing its property tax levy, though it did approve a smaller package of various fee increases for the 2025 budget. Operational efficiencies are likely to provide some relief. But the prospects for meaningful budget reductions vis-a-vis broad-based program or service cuts are uncertain.”
Chicago’s reserves provide a “dwindling cushion” to the city’s formidable fiscal challenges, Fitch said, noting that reserves could “weaken to less than 15% of spending” by the end of this year. That would be down from 29% in 2023.
Already, the city has budgeted reserve draws of $414 million last year and $368 million this year to help close its fiscal gap and make advance pension payments over and above the amount required by state law, the rating agency said.
The pension advances initiated by former Mayor Lori Lightfoot and continued by Johnson were characterized as a “positive factor amidst other budget stressors.” But Fitch stated that competing demands on Chicago’s dwindling resources “could jeopardize this payment in future years.”
“Rating stability is predicated on the city’s ability to make considerable progress to stabilize the 2025 and 2026 budgets,” Fitch wrote, apparently referring to the $175 million pension payment for non-teaching school employees that Johnson included in his 2024 and 2025 budgets, but has yet to receive from the Chicago Public Schools.
“This can be achieved by securing external support for additional resources and/or leaning more heavily on internal fiscal tools while preserving a reserve position equivalent to at least 10% of spending, the minimum level to maintain its financial resilience. … Failure to do so would result in a rating downgrade of at least one notch.”
The mayor’s office had no immediate comment on the negative outlook from Fitch.
During the mayor’s weekly City Hall news conference earlier Tuesday, Johnson said there are limits to Chicago’s home-rule authority.
“The levers in which I have direct control over in terms of being able to generate revenue — there’s limitations there. …There are far more areas of revenue streams that we will need the state to [approve],” he said.
Budget Director Annette Guzman told reporters that the City Council’s revenue subcommittee would be meeting next week to “talk about state-level taxes,” presumably including a sales tax on professional services, that must be authorized by the Illinois General Assembly.
“But we’re not just resting on state-level revenues,” Guzman said. “We’re going to have continued conversations with our alders about the types of revenues that they have the ability to put into effect, as well as it relates to not only this budget, but future budgets for the city.”