Ratings Agency Downgrades Chicago’s Credit, Pointing to ‘Structural Budgetary Imbalance’

(Michael Izquierdo / WTTW News) (Michael Izquierdo / WTTW News)

A Wall Street ratings agency downgraded Chicago’s credit rating Tuesday, blasting Mayor Brandon Johnson and the Chicago City Council for crafting a 2025 spending plan that leaves intact “a sizable structural budgetary imbalance” that will only worsen the city’s financial condition.

S&P, one of a handful of major ratings agencies, downgraded Chicago’s credit one notch to BBB with a stable outlook on Thursday. A credit rating of BBB indicates a government agency has “adequate capacity to meet financial commitments,” but is susceptible to “adverse economic conditions.” It is two notches above a junk rating.

“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,” S&P Global Ratings credit analyst Scott Nees said in a statement.

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The City Council narrowly approved a $17.1 billion spending plan on Dec. 16 after months of intense debate over how to close a $982.4 million deficit. Johnson’s initial budget proposal, which included a $300 million property tax hike, was unanimously rejected by the City Council.

After those negotiations, “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,” according to the statement from S&P.

In addition to serving as a public vote of no confidence, S&P’s decision to lower Chicago’s credit rating could cost the city a significant amount of money in borrowing costs, officials said. The ratings issued by the four major ratings agencies help determine how much the city must pay in interest to borrow money, much like an individual’s credit score.

Mayor Brandon Johnson slammed S&P’s decision to downgrade the city’s credit rating.

“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,” Johnson said in a statement. “My administration remains committed to working collaboratively with the City Council to achieve structural balance and strengthen Chicago’s financial future.”

After December’s budget vote, Johnson appealed to the ratings agencies not to downgrade the city’s credit rating.

Chief Financial Officer Jill Jaworski said the downgrade “does not accurately reflect the strength of the city’s credit.”

“We are confident that our city’s vibrant economy and our commitment to fiscal responsibility will guide us through these challenges," Jaworski said.

Chicago’s finances have long been out of whack, pinched by soaring pension costs, spiraling personnel costs and a massive amount of debt.

Chicago taxpayers will pay an additional $272 million into the city’s four underfunded pension funds. That will prevent the further growth of the city’s pension liabilities and save the city $3.9 billion by 2030, officials said.

In all, the city will pay $3.1 billion into its pension funds, the vast majority to comply with a state law that requires two of Chicago’s funds be funded at a 90% level by 2055 and the other two by 2058, ensuring they can pay benefits to employees as they retire.

“The stable outlook reflects our expectation that the city’s overall reserves and liquidity will remain strong enough to support the ‘BBB’ rating through the outlook horizon, that it will continue making its advance pension payments and therefore see relative stability in pension funding levels, and that it will continue to work toward addressing the structural budget gap, likely through some combination of cost-cutting and new revenue over a multiyear period,” Nees said.

Contact Heather Cherone: @HeatherCherone | (773) 569-1863 | [email protected]


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