KBRA Places the City of Chicago, IL G.O. Bonds on Watch Downgrade; Assigns "A" Rating to the City's G.O. Bonds, Refunding Series 2024B
12 Nov 2024 | New York
KBRA places the City's G.O. Bond rating on Watch Downgrade and assigns a long-term rating of "A" to the City of Chicago’s General Obligation Bonds, Refunding Series 2024B. The Watch Downgrade reflects the mounting fiscal challenges confronting the City in light of a $982.4 million projected 2025 Corporate Fund budgetary shortfall. KBRA expects to resolve the Watch status by early January 2025, pending the outcome of budget deliberations by the Chicago City Council.
Concurrently, KBRA affirms the long-term rating of "A" on the City's outstanding General Obligation Bonds.
Key Credit Considerations
The rating actions reflect the following key credit considerations:
Credit Positives
- The City’s regional significance is reflected in its substantial tax base and large, diverse economic base.
- Ample available reserve balances supplement the City’s General Fund reserves and liquidity position.
Credit Challenges
- Reliance on temporary, one-time gap closing measures perpetuates structural imbalance and risks compounding outyear costs.
- The increased fixed asset burden of actuarially scheduled pension funding risks crowding out other Corporate Fund spending unless additional long-term funding sources are identified.
- Continued reliance on economically sensitive revenue sources poses ongoing budgetary uncertainty.
- The delayed start of the annual budget process leaves only weeks to address a large budgetary shortfall.
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 by the City and overlapping jurisdictions and the continued expansion of the resource base.
For Downgrade
- A FY 2025 Budget which does not sufficiently address the structural deficit, including an over reliance on non-recurring revenues or expense savings.
- Continued reliance on one-time solutions to achieve budgetary balance.
- 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.
This press release has been revised to remove reference to a series of taxable General Obligation refunding bonds that the City elected not to issue subsequent to the original posting of the press release.
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