With budget hearings in full swing, a Wall Street ratings agency gave Mayor Brandon Johnson’s $16.6 billion spending plan for 2024 its seal of approval.
Fitch, one of a handful of major ratings agencies, upgraded Chicago’s credit one notch to BBB+ with a stable outlook on Thursday. That is likely to boost efforts by Johnson to convince Chicago City Council members to support his budget, which he hopes will pass on Nov. 15.
Fitch’s action represents the second rating increase for Chicago in as many years. Between 2016 and 2021, Fitch rated Chicago’s general obligation debt at BBB-, which is one rung above junk status.
Fitch also upgraded Chicago’s Sales Tax Securitization Corporation’s sales tax securitization bonds to AA+ with a stable outlook from AA.
“These additional upgrades reaffirm the fiscal stability of Chicago,” Mayor Brandon Johnson said in a statement. “The ratings not only prove the excellence of our city’s operational and financial management, but also confirm that we have the ability to attract additional investment, boost economic vitality, and further strengthen our city’s finances.”
That rating helps determine how much the city must pay in interest to borrow money, much like an individual’s credit score, and will likely save the city tens of millions of dollars in borrowing costs, officials said.
The analysis by Fitch said the rating upgrade “is driven by a decline in the city’s long-term liability burden stemming from steady growth in the economic resource base and improved debt management practices.”
Despite the upgrade, the agency says Chicago’s credit rating remains lower than other similarly sized cities, because so much of its workforce is unionized as well as “exceptionally high carrying costs for debt and pensions, a history of sizable budget gaps and dependence on one-time gap closing measures, and a revenue base highly sensitive to economic setbacks.”
In 2024, state law requires Chicago to pay more than $2.41 billion to its pension funds. The agency praised Johnson for the proposal to make an additional payment to the city’s four pension funds of $306.6 million, in an effort to prevent “further growth of the city’s unfunded pension liabilities,” according to the Johnson administration.
“Fitch views the supplemental payment and full funding of the statutory contribution as key components to Chicago’s improved fiscal policies,” according to the rating’s agency statement.
The agency also praised the city’s robust reserve fund, which will provide “protection against current budget uncertainties.”
“That said, the direction of future rating actions will be based on the level of commitment to solving budget gaps through recurring measures, and its ability to limit the extent to which it leans on various one-shots,” according to the rating’s agency statement.
The three other major ratings agencies, Standard & Poor’s, Moody’s and Kroll, have yet to weigh in on Johnson’s 2024 spending plan.