Chicago's Credit Rating Downgraded Amid City Council Disputes
Chicago's credit rating has been downgraded following political disagreements between the mayor's office and the City Council. The downgrade is expected to increase the city's future borrowing costs. This could potentially impact funding for public services and infrastructure projects across Chicago.
Two credit rating agencies, Fitch and Kroll, have lowered Chicago's general obligation bond rating to BBB+. Fitch pointed to ongoing operating deficits since 2023 and a heavy reliance on "non-structural solutions" to balance the budget as key reasons for the downgrade. The downgrades come amid a protracted budget battle between Mayor Brandon Johnson and a coalition of City Council members. The conflict centered on how to close a budget gap, with the mayor advocating for a corporate head tax, which his opponents blocked. The City Council instead passed a $16.6 billion budget that included alternative revenue streams like selling off uncollected city debt and increasing taxes on items like plastic bags and liquor sales. Mayor Johnson allowed this budget to pass without his signature to avoid a government shutdown but criticized some of its measures as "immoral." Fitch specifically cited the political disagreements as having "impeded decision timeliness and the development of a credible and comprehensive plan to restore structural balance." Both Fitch and KBRA noted that the city's capacity to address its structural deficit with recurring revenue is increasingly limited. In addition to the general obligation bonds, Fitch also downgraded the Sales Tax Securitization Corporation bonds from AAA to AA+. This is significant as the city has increasingly used this corporation, created by former Mayor Rahm Emanuel, to borrow at lower rates. The downgrade to BBB+ places Chicago's credit rating just a few steps above "junk" status. For comparison, New York City and Los Angeles hold AA ratings from S&P, while cities like Minneapolis and Columbus are rated AAA. This is not the first time political infighting has impacted the city's credit, with a contentious budget process also leading to a downgrade from S&P in the previous year. The immediate practical effect of these downgrades is an increase in the interest rates the city must pay to borrow money, a cost ultimately borne by taxpayers.
