Two months ago, a Wall Street rating agency warned there was a “one in two chance” of a drop in the bond rating that determines Chicago’s borrowing costs.
Standard & Poor’s cited Chicago’s “heavy reliance on one-time” revenue and a “politically-charged standoff” between Mayor Brandon Johnson and the City Council.
The marathon stalemate ultimately ended with no property tax increase and a tension-filled 27-to-25 vote approving the mayor’s $17.1 billion budget. But Chicago still was not spared from the borrowing consequences.
Standard & Poor’s has dropped Chicago’s bond rating down a notch — from BBB+ to BBB. Anything below the lowest investment grade of BBB- is considered “junk.”
The move is expected to cost Chicago taxpayers tens of millions of dollars over the next 40 years. That includes Johnson’s upcoming $1.25 billion bond issue for housing and economic development.
In a news release announcing the downgrade, S&P analyst Scott Nees was quoted as saying the final budget “leaves intact a sizeable structural budgetary imbalance” that will “make balancing the budget in 2026 and out years more challenging.”
The budget debate and the City Council’s refusal to agree to any property tax increase means “practical options for raising new revenue appear less certain,” the statement said.
“The willingness of city leadership to cut spending, creating a level of uncertainty around its financial trajectory … is more appropriately reflected in the lower rating,” the rating agency said.
Even as it dropped Chicago’s bond rating, S&P assigned the city a “stable” outlook. That’s because the rating agency expects the city’s “overall reserves and liquidity will remain strong,” that the city will “continue making its advance pension payments,” and that it will chip away at the structural budget gap through “some combination of cost-cutting and new revenue over a multi-year period,” Nees said.
Johnson pushed back in a press release of his own. He argued that while S&P’s report correctly focuses on the “fiscal challenges” Chicago faces, it “does not accurately reflect our fundamental economic strength and the steps we’ve taken top address legacy issues.”
A deep distrust between the mayor and Council was on display during the final budget debate and is almost certain to linger.
Even so, Johnson was quoted as saying his administration “remains committed to working collaboratively with the City Council to achieve structural balance and strengthen Chicago’s financial future. … We will meet these challenges head-on.”
Chief Financial Officer Jill Jaworski said the city is “firmly focused on delivering sustainable solutions” to its “structural fiscal challenges” and has a “track record to prove it. … We do not agree with this rating adjustment and it does not accurately reflect the strength of the city’s credit.”
The mayor originally proposed a $300 million property tax increase, but the Council voted unanimously to reject it. He later suggested a $68.5 million property tax hike, to no avail.
Instead, the budget that finally passed hits Chicagoans’ wallets in other ways, such as adding an amusement tax on streaming services; higher taxes on cloud computing, business software and equipment leases; and higher taxes on parking and downtown congestion.
The city also hopes to generate $11.4 million from “automated speed limit enforcement,” by adding 50 more speed cameras in wards where alderpersons allow it, and $4.6 million by raising an array of license fees, transfer fees and fines, as well as the cost of residential parking permits.
Another late change to the 2025 budget: $10 million in “cost recovery” by charging organizers of ticketed events for police and traffic services and by better scheduling those events to reduce overtime costs.
The final budget also assumes other savings: $1 million by cutting 10 jobs in the mayor’s office; $2.8 million by eliminating middle-management jobs of deputy commissioners and their assistants; and $5 million through unspecified “energy and facilities management efficiencies.”
And it claims $40 million in savings in 2025 by restructuring the Michael Reese debt that former Mayor Rahm Emanuel refinanced twice.