KBRA Assigns A- Rating to Various City of Chicago, IL General Obligation Bonds; Affirms Rating for Parity Bonds; Outlook Remains Negative
22 May 2025 | New York
KBRA assigns a long-term rating of A- to the City of Chicago, IL: General Obligation Bonds, Series 2025A; General Obligation Bonds, Series 2025B; General Obligation Bonds, Series 2025C; General Obligation Bonds, Taxable Series 2025D; General Obligation Bonds, Series 2025E; General Obligation Bonds, Series 2025F (Housing and Economic Development Projects); and, General Obligation Bonds, Taxable Series 2025G (Housing and Economic Development Projects). KBRA additionally affirms the long-term rating of A- for the City's outstanding General Obligation Bonds. The rating Outlook remains Negative.
Key Credit Considerations
The rating actions reflect the following key credit considerations:
Credit Positives
- The City’s regional significance reflected in its substantial tax base and large, diverse economic base.
- Ample available reserve balances supplement the City’s solid liquidity position.
- The funding of a third consecutive advance pension contribution, albeit from a one-time assigned fund balance, is an important and meaningful step towards long-term pension funding stability.
Credit Challenges
- Reliance on non-recurring revenues rather than structural expenditure adjustments to resolve budgetary shortfalls calls into question the City’s ongoing ability to meet its exceptionally high pension-driven fixed cost burden and growing personnel and other operating costs.
- The advance pension contributions made since 2023 to stabilize the NPL and prevent liquidation losses, while credit positive in the long run, risk crowding out other Corporate Fund spending in the short run, unless additional long-term funding sources are identified.
- Compounding the City’s severely underfunded pension status, the possibility of retroactive adjustments and increased future pension benefits exists should the pension systems’ Tier 2 benefits fall out of compliance with IRS Safe Harbor Tests.
Rating Sensitivities
For Upgrade
- Long-term revenue enhancements and spending reforms that address the City’s growing structural budget gap.
- Dedication of specific revenues (in lieu of one-time assigned fund balance) to achieve actuarial pension funding requirements.
- Improved debt ratios, reflecting a sustained moderation of borrowing and continued expansion of the resource base.
For Downgrade
- Use of Chicago Skyway and parking meter asset and concession lease reserves to offset budgetary gaps.
- Failure to adhere to established financial and debt policies.
- Borrowing by the City for other than capital purposes.
Note: This rating action press release was updated on May 22, 2025 to correctly identify the rating Outlook.
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