Editorial: Credit rating downgrade an unsurprising warning about the future of Chicago's financial stability

The Editorial Board, Chicago Tribune on Jan 20, 2025

Published in Op Eds

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It’s bad news — though unsurprising — that following the passage of Mayor Brandon Johnson’s most recent city budget, S&P downgraded the city’s credit rating to BBB.

Bad policy decisions trigger bad outcomes, and ratings agencies serve as harbingers of these consequences, good or bad. This marks the first ratings downgrade since May 2015, when Moody’s Investors Service downgraded the city’s rating to junk status.

That action followed a ruling from the Illinois Supreme Court that invalidated a Democratic-led 2013 pension reform bill that would’ve made modest changes to the pension system in exchange for major cost savings that would’ve stabilized state and local government finances.

Now, with the possibility of pension reform nowhere in sight, Chicago faces $51 billion in pension debt — a larger number than that of 43 states — and perpetual budget crises. In some ways, this policy outcome was out of the hands of city leaders.

After all, it was the state Supreme Court that invalidated the state’s pension reform policy. And former Mayors Lori Lightfoot and Rahm Emanuel both ended their tenures by calling for pension reform, the only obvious solution to salvaging Illinois’ state and local municipal financial crises. Locals, unfortunately, have their hands tied by the state constitution on pensions.

S&P’s recent credit rating downgrade is different. This action shows the financial community has little confidence in the city’s current leadership to tackle Chicago’s fiscal crisis.

“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 said in a Tuesday news release. Tribune reporters A.D. Quig and Alice Yin reported that “a downgrade isn’t only a reputational hit; it could also increase the city’s cost to borrow money for long-term projects like Johnson’s $1.25 billion housing and development bond, which is slated to go to market early this year.”

In sum, S&P confirms what the editorial board has long said: The city is not being managed sustainably, with projections suggesting higher taxes and cuts to government services in the future. The city’s budget has grown at an incredible rate — just 10 years ago, city spending was $8.9 billion. The most recent budget will cost taxpayers $17.3 billion.

City officials narrowly avoided a property tax hike in the most recent budget, which would’ve led to public revolt, though Johnson’s initial proposal included a $300 million property tax hike.

As Chicagoans continue to suffer from inflation and a cost of living that’s rising faster than wage growth, plus continued basic government service failures, city officials need to come up with a long-term plan. Our city cannot afford to eke by year after year building on a Leviathan spending baseline that isn’t giving residents what they need, while also crippling the city’s finances and reputation.

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