Bloomberg News
After multiple attempts, Chicago Mayor Brandon Johnson got his 2025 budget through the City Council, without
The final $17.3 billion budget narrowly passed Monday, 27-23, less than two weeks before it takes effect when the new year starts.
The advance pension payments that were preserved in the final budget are “critical to fully recognizing the liabilities the city carries and addressing them head-on,” Johnson said.
“The good news is they passed a budget. But much of it was based on one-time solutions,” said Lisa Washburn, managing director at Municipal Market Analytics.
“It does little to sustainably solve the current problems and leaves a much harder budget for 2026,” she said.
“While Chicago’s approved 2025 budget underscores a continuing commitment to advance pension payments, it virtually guarantees that the city will face another challenging budget year in 2026,” Fitch Ratings Senior Director Michael Rinaldi told The Bond Buyer.
Fitch rates Chicago A-minus with a stable outlook,
“The budget depends heavily upon various near-term, unsustainable resources including TIF sweeps, prior year surplus and ARPA funds,” he said. “Future prospects for raising property taxes, securing additional new revenues and/or deeper expenditure cuts than approved are unclear at best while the city’s improved revenue estimates and certain operational efficiencies warrant some degree of caution given risk to implementation.”
Washburn stressed that the advance pension payment is really not “supplemental” but necessary to keep the city’s liability from growing.
“That needed to be done,” she said. “All these adjectives that are used to describe it really kind of shade it in a more credit-positive light than that it’s just to prevent things from getting worse.”
If the City Council had passed a budget with more meaningful recurring revenue streams, she added, they would have made it more likely that Chicago would be able to maintain its current ratings.
Instead, the final budget turned to one-time fixes and maneuvers like a move to amortize a $40 million line of credit payment due from the city’s purchase of the Michael Reese Hospital site in 2009, which will cost the city an estimated $2 million a year.
“We were working form a scenario in which there had been warning signals coming from the rating agencies… [that] the city was really precariously close to a downgrade,” said Joe Ferguson, president of the Civic Federation of Chicago, a nonprofit fiscal watchdog group. “To defer payment of debt on an existing schedule is one of those events that one assumes the rating agencies would look at, especially against the backdrop of having failed to make real structural reforms.”
Howard Cure, partner and director of municipal bond research for Evercore Wealth Management, said the amortization “is really a one-time saving, and you worry about that, because you’re not going to necessarily have access to that unless you resort to real scoop-and-toss measures later on.”
He raised concerns about the mayor’s political capital.
“Overall, it was still a close vote, and it was not a smooth process,” Cure said. “So you wonder about getting support for other initiatives, if the City Council is sort of feeling its oats or feels the mayor was not upfront about things.”
From using COVID relief funds for revenue replacement to drawing on tax increment surplus monies, Cure noted many one-time fixes in the budget and said only about 60% of the budget’s savings are structural.
“There seems a limited willingness to cut expenditures and programs,” he said. “The state is going to be grappling with its own budget deficit, so you can’t expect much help from there.”
The city has decent reserves, Cure said, but pointed as an example to the city’s repurposing of COVID relief funds in this budget: “That’s what should be protecting you in an economic downturn,” he said.
“We did not right-size this budget,” Alderperson Marty Quinn said during Monday’s debate, before voting against it. “Our pension obligations will continue to grow if we keep adding more and more people to the payroll.”
Alderperson Anthony Beale, who voted no, said the budget was full of “hidden stuff,” such as a security detail for the city treasurer, Melissa Conyears-Ervin, that would have been funded through the city’s water fund.
Alderperson Brian Hopkins, another no voter, told his colleagues, “We did not defeat [the property tax increase]; we simply delayed it. We will be right back here at this time next year dealing with the same set of circumstances,” he said.
“We have heard from our creditors on multiple occasions that we are going to get downgraded,” said Alderperson Raymond Lopez, a “no” voter. “We kept taking out more and more credit, borrowing, bonding, whatever they had to do to avoid any kind of fiscal accountability.”
Alderperson Nicholas Sposato, who voted yes, touted support for the final budget from the restaurant lobby and the Teamsters Union.
“Without the passage of this budget, I know that the city’s bond ratings will go down,” he said.
S&P Global Ratings placed its BBB-plus rating of Chicago
Kroll Bond Rating Agency placed its A rating of Chicago
“Those that voted for the budget I would say did not manifest adequate concern for the risk that the city was taking on with respect to its standing with the rating agencies,” said the Civic Federation’s Ferguson.
He noted that the city faces additional challenges from the state of Chicago Public Schools, which he described as “verging on a state of functional insolvency.”
With the City Council having passed “yet another technically balanced but structurally imbalanced budget… it makes it critically important that the work that wasn’t done this past year be done this coming year,” Ferguson said.
Johnson, celebrating the passage of the budget, vowed to defend the city “from people who want to make an example of us,” a thinly veiled reference to the incoming Trump administration.
Along with the property tax increase, the final budget removed a proposed increase in the liquor tax, which has not been raised in 16 years.