Fitch Downgrades Chicago's Credit Rating
Fitch Ratings has downgraded Chicago's credit rating, citing the city's mounting fiscal challenges. This development is being monitored by the city's business and investment communities, who track fiscal stability for its impact on local economic sentiment and quality of life.
Fitch has lowered Chicago's general obligation bond rating to BBB+, while also downgrading the city's sales tax securitization bonds from AAA to AA+. This action was mirrored by Kroll Bond Rating Agency (KBRA), which also downgraded the city's general obligation bonds to BBB+, citing a deteriorating fund balance and rising fixed costs. A lower credit rating can lead to higher borrowing costs for the city on future bond issuances. The primary driver for the downgrade, according to Fitch, is the city's operating deficits since 2023 and the political disagreements between Mayor Brandon Johnson's administration and the City Council. These disputes have reportedly hindered the creation of a credible plan to achieve long-term structural financial balance. Fitch expressed specific concerns over the city's reliance on non-recurring revenue sources and "untested" financial maneuvers, such as the proposed sale of uncollected receivables, to balance the budget. The ratings agency pointed to a lack of political will to implement more sustainable, recurring revenue streams to address the city's structural deficit. Underlying the immediate budget disputes are Chicago's massive unfunded pension liabilities, which total over $53 billion across its various retirement funds. In fact, the pension debt of Chicago's municipal, laborers, police, fire, and teachers' funds surpasses the pension debt of 44 U.S. states. The city's four main pension funds—for firefighters, police officers, municipal employees, and laborers—have alarmingly low funding ratios. Experts warn that pension plans funded at less than 60% are "deeply troubled," and all four of Chicago's major funds fall well below this threshold. While the Johnson administration has acknowledged some of the concerns raised by the rating agencies, both the Mayor's office and the City Council have publicly blamed each other for the fiscal situation that led to the downgrade. This public dispute highlights the governance challenges noted by the rating agencies. For context, a BBB rating is still considered "investment grade," but it is on the lower end of the spectrum. In comparison, New York City and Los Angeles hold AA ratings from S&P, while Midwestern cities like Minneapolis and Columbus are rated AAA. This places Chicago's fiscal health in a significantly weaker position than many of its peers.
