By: Ted Dabrowski and John Klingner
The billions in federal covid aid has finally run out and Chicago no longer has the ability to paper over its fiscal problems. The recent $17.1 billion budget passed by Mayor Brandon Johnson and Chicago’s city council fooled no one. As a result, S&P Ratings this week downgraded the city’s credit rating one notch to BBB from BBB+. Per S&P’s methodology, Chicago is now tied with Detroit for the title of nation’s worst-rated major city.
S&P even warned a few months ago of a credit downgrade if city officials continued to play games with the budget. But games they played and, as promised, S&P acted. Here’s what the rating agency said:
“The downgrade reflects our view that the 2025 budget leaves intact a sizable structural budgetary imbalance that we expect will make balancing the budget in 2026 and outyears more challenging…the city’s practical options for raising new revenue appear less certain, as does the willingness of city leadership to cut spending, creating a level of uncertainty around its financial trajectory that is more appropriately reflected in the lower rating.”
But what’s perhaps far more damning than the being the worst-rated city in the country is just how far city officials will go to deny the incompetence with which they run the city.
Take the pushback to the downgrade by both Mayor Brandon Johnson and the city’s financial officer, Jill Jaworski.
Johnson: “The S&P report focuses on the fiscal challenges we face, but it does not accurately reflect our fundamental economic strength and the steps we’ve taken to address legacy issues.” [emphasis ours]
Jaworski: “We do not agree with this rating adjustment, as it does not accurately reflect the strength of the City’s credit.”
Their comments are comical. Johnson and the city council have done nothing to address the legacy issues that are crippling the city. Nothing for the massive pension debts. Nothing for the school district or the transit government’s deep budget holes. Chicagoans are tapped out as property taxes have doubled in the last decade and commercial property tax rates are already the nation’s highest. There’s been no relief. And the city’s tax base is at risk, with Chicago facing one of the worst population drops in the country over the last 25 years. City officials have done literally nothing structural to improve things.
And yet the city’s financial officer can say, “The strength of the City’s credit”?
Just look at Chicago’s pensions, typically the rating agencies’ biggest concern. Have Johnson or the city council done or proposed any structural reforms to stop the city’s pension funds from running dry? No.
The police, fire and municipal funds are just 22% funded. There’s so little money, in fact, that the municipal pension fund’s actuary, Segal, recently wrote the following to the pension fund’s board: “Given the low funded ratio and the expected timing of employer contributions, the Fund is still at risk of potential insolvency if an economic recession or investment market downturn were to occur in the near term.”
That’s a big deal. Chicagoans are on the hook for $53 billion in city and school district pension debts. That’s on average, about $45,000 in future tax hikes per Chicago household. Many won’t want to stick around to pay taxes for the debts of services that were delivered years ago.
Johnson may say he’s created a Pension Working Group to find solutions – we even sent a friendly open letter to the mayor with suggestions – but its been over a year since its creation and there hasn’t been a single update from the group.
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S&P’s downgrade puts an end to Chicago’s short streak of credit upgrades that occurred during the pandemic period when the city was flush with federal cash. Moody’s upgraded its own rating of the city in 2022, while Fitch issued two, one in 2021 and 2022.
As of today, Moody’s rates Chicago at Baa3, just one notch above junk. S&P’s new BBB rating is two notches from a junk rating, and Fitch’s BBB+ rating is three notches higher than junk.
Chicago’s problems can be summed up with one recent exchange with the mayor.
When asked by reporters if he had taken the warnings of a credit downgrade seriously during the budget debate, Johnson said, “I did. I did take it seriously.”
Ok.
Read more from Wirepoints:
- Chicago Public Schools should reject union demands for 9% yearly raises and implement a salary freeze instead.
- A bit of Chicago truth-telling: Actuaries warn of insolvency, businesses fear crime
- Adults murdering kids. Kids murdering kids. “Random” bullets killing kids. Nearly 100 dead youth in Chicago in 2024
Appendix.
Audio and summary 
If this bill passes, say goodbye to local control over all Illinois parks and expect to see open drug and alcohol use, needles, no sanitation and fire hazards, but no ordinary park users.
To Mayor Johnson, and his bosses at the CTU, there is only one question:
How many votes can Moody’s or S&P deliver? None? Then who cares what they think?
Along with the downgrades comes a strong possibility that Federal funding will be cut. I assume there will be no more covid type money showering leaving the alternatives of cutting spending, hiking taxes or another round of pension shorting.
This is the captain of the Titanic saying we are not sinking, we are simply at a modified buoyancy level. Dim bulb.
I never thought Chicago could ever be in the same financial league as Detroit but here we are. Thanks Dems.
Query what this will cost in terms of increased debt service?
Not much in the near term. That’s because most all bonds are fixed rate. So, it’s current bondholders who take the hit if the market sentiment turns against them. Future bond issues would be impacted, however, to the city’s detriment.
Reading between the lines of Johnson and Jaworski they are greasing the skids for more borrowing, i.e. debt to cover operations.
Alfred E. Neuman- “What me worry?”.
What do you expect from Chicago, it has been on this road for decades.
Every year it gets more in debt and one day the ship will sink.
Who in the machines is going to have any moral scruples when it comes to taxing this lifelong Chicagoans rink-e-dink home equity into Harvey land vrs having a CTU/Brando skip a dime off his $5.5 mil pension he can start collecting at 55 for being a CPS teacher for 4 yrs???? Will JB keep his knee pads on for the machine and not even admit there’s a problem MORE tax revenue can’t fix? That’s what he doing so far, so say bye-bye JB to any hopes of national office. Your toast!! All the rest of the blood sucking ghouls from… Read more »
The upgrade in bond rating during a time when Uncle Fed is picking up the tab was pure insanity. It would be akin to a high credit rating for a pro athlete during their playing days, completely ignoring that those high earning days are severely limited and the inevitable fall back to Earth for earnings. How many pro athletes go broke? More than I would care to admit, alas. The real question will be when will Chicago go broke? Soon. Too soon.
What failures? This is the plan. Destroy what is and then create the perfect little Marxist city where Blacks run everything and the rest are slaves. Good news. You’re almost there.