Chicago's Budget Stalemate Threatens to Send Its Bond Rating into Junk Territory.
A prolonged budget standoff in Chicago could result in a significant downgrade of its credit rating, pushing it just one notch above junk status. This would have serious implications for the city's ability to borrow money and pay its debts.
At the center of this crisis is Mayor Brandon Johnson's reluctance to raise property taxes or implement meaningful revenue hikes, despite a worsening budget deficit. To make up for this shortfall, he has been relying on one-time revenues, including a record $1 billion tax increment financing surplus and advance pension payments.
Experts warn that this approach will have severe consequences in the long run. "The danger is that it will be incredibly expensive to issue a lot of debt," said Dana Levenson, a former chief financial officer for Chicago under Mayor Richard M. Daley. "It'll be at a higher price and the property tax will be impacted."
Municipal Market Analytics has predicted that Chicago's bond rating will continue to deteriorate, with the city facing significant borrowing costs in the years ahead. The firm's partner, Matt Fabian, warned that cities are heading into a period of sustained growth in borrowing, driven by inflation and climate change.
"This is not just a short-term problem; it's a long-term issue," Fabian said. "We tell bond raters to assume that the city's rating will be downgraded, and that you'll see more downgrades than not in the coming years."
The consequences of this downward trend are already being felt. Last year's budget stalemate led to a downgrade from Standard & Poor's, which dropped Chicago's credit outlook to negative.
Experts point out that Chicago has no choice but to issue general obligation debt backed by property or sales taxes to bankroll its infrastructure needs. However, this approach is unsustainable and will have significant implications for taxpayers in the future.
"This is yet another one-time fix," said Lisa Washburn of Municipal Market Analytics. "They front-load the savings to provide budget relief instead of making tough decisions."
The city's pension crisis is also a major concern, with three out of four city employee pension funds facing assets that can cover less than 25% of future liabilities.
"We're in a bigger problem now," said Andre Vasquez, Co-Chair of the Progressive Caucus. "We're going to be in an even bigger problem next year."
Mayor Johnson's response to this crisis is under scrutiny, with many experts warning that his approach is not sustainable and will lead to significant financial problems down the line.
As the city's bond rating continues to deteriorate, its ability to borrow money and pay its debts becomes increasingly uncertain. This poses a significant risk to the city's financial future and has far-reaching implications for taxpayers in the long term.
A prolonged budget standoff in Chicago could result in a significant downgrade of its credit rating, pushing it just one notch above junk status. This would have serious implications for the city's ability to borrow money and pay its debts.
At the center of this crisis is Mayor Brandon Johnson's reluctance to raise property taxes or implement meaningful revenue hikes, despite a worsening budget deficit. To make up for this shortfall, he has been relying on one-time revenues, including a record $1 billion tax increment financing surplus and advance pension payments.
Experts warn that this approach will have severe consequences in the long run. "The danger is that it will be incredibly expensive to issue a lot of debt," said Dana Levenson, a former chief financial officer for Chicago under Mayor Richard M. Daley. "It'll be at a higher price and the property tax will be impacted."
Municipal Market Analytics has predicted that Chicago's bond rating will continue to deteriorate, with the city facing significant borrowing costs in the years ahead. The firm's partner, Matt Fabian, warned that cities are heading into a period of sustained growth in borrowing, driven by inflation and climate change.
"This is not just a short-term problem; it's a long-term issue," Fabian said. "We tell bond raters to assume that the city's rating will be downgraded, and that you'll see more downgrades than not in the coming years."
The consequences of this downward trend are already being felt. Last year's budget stalemate led to a downgrade from Standard & Poor's, which dropped Chicago's credit outlook to negative.
Experts point out that Chicago has no choice but to issue general obligation debt backed by property or sales taxes to bankroll its infrastructure needs. However, this approach is unsustainable and will have significant implications for taxpayers in the future.
"This is yet another one-time fix," said Lisa Washburn of Municipal Market Analytics. "They front-load the savings to provide budget relief instead of making tough decisions."
The city's pension crisis is also a major concern, with three out of four city employee pension funds facing assets that can cover less than 25% of future liabilities.
"We're in a bigger problem now," said Andre Vasquez, Co-Chair of the Progressive Caucus. "We're going to be in an even bigger problem next year."
Mayor Johnson's response to this crisis is under scrutiny, with many experts warning that his approach is not sustainable and will lead to significant financial problems down the line.
As the city's bond rating continues to deteriorate, its ability to borrow money and pay its debts becomes increasingly uncertain. This poses a significant risk to the city's financial future and has far-reaching implications for taxpayers in the long term.