Chicago's Credit Rating Downgraded
Chicago’s general obligation bonds were just downgraded by both Fitch and KBRA. The credit agencies cited political gridlock and a lack of financial discipline as the primary reasons for the move. This could increase the city's borrowing costs and create future pressure for property tax hikes.
Fitch and KBRA have both lowered Chicago's general obligation bond rating to BBB+ from A-, while maintaining a negative outlook. This downgrade points to concerns over the city's deteriorating fund balance, narrowing liquidity, and an exceptionally high and rising fixed cost burden. The rating agencies highlighted consecutive operating deficits since 2023 and a heavy dependence on non-structural, one-time solutions to balance the budget. Disagreements between Mayor Brandon Johnson's administration and the City Council were also cited as a key factor, impeding the creation of a credible plan for long-term structural balance. This isn't an isolated event; S&P Global Ratings had previously downgraded the city's general obligation debt from BBB+ to BBB in January 2025. These downgrades can increase the city's borrowing costs, potentially adding millions in annual expenses, which could translate to future financial pressures. The city faces a projected budget gap of $1.15 billion for the 2026 fiscal year. This financial challenge is exacerbated by soaring pension costs, which are a primary driver of projected expenditure growth. The city's four pension funds have a staggering $38.1 billion shortfall. In response to the downgrades, the Johnson administration acknowledged the concerns, particularly regarding the lack of sustainable, recurring revenue sources in the 2026 budget. The mayor has expressed a commitment to finding progressive revenue solutions to address what he termed inherited structural damage. Looking ahead, the city is planning to issue approximately $502 million in general obligation bonds. The higher borrowing costs resulting from the recent downgrades will make this and future debt more expensive for taxpayers to finance.
