Chicago to sell $830 million of GO bonds

Chicago plans to sell roughly $830 million of general obligation bonds to help finance its 2024-28 capital improvement plan, according to the city's finance team.

The bond sale was announced on the heels of a Jan. 14 downgrade from S&P Global Ratings, which dropped Chicago's GO debt to BBB from BBB-plus. The agency said the move reflects diminished options for new revenue streams following the 2025 budget debate, the tapering off of COVID-19 relief funds and the city's underfunded pensions and high fixed costs for retirement benefits. The outlook from S&P is now stable.

Fitch Ratings assigns Chicago's GOs an A-minus rating following an upgrade from BBB-plus in July. The outlook is stable.

Kroll Bond Rating Agency placed its A rating of Chicago on watch for downgrade in November. Moody's Ratings rates Chicago Baa3 with a positive outlook. The rating agency said in December that the city's 2025 budget is credit neutral.

"It's important to note that the city's CIP remains unchanged despite the opinion of any one rating agency," Chief Financial Officer Jill Jaworski said in a statement. "The concerns raised by S&P relate to the operating budget, not the capital budget."

Jaworski noted the city issued $646 million in GO bonds to support the CIP last year. Chicago currently has $4.978 billion in GO bond debt outstanding, she said.

The new GO bonds will fund projects outlined in the four-year, $16.3 billion CIP, including improvements to public rights-of-way, infrastructure and transportation, loans and grants, acquisition of property, construction and maintenance of public buildings, economic programs and lead service line replacement, among other things.

The city also plans to issue $75 million of GO bonds to finance housing and economic development projects in the first quarter of 2025, according to a recent official statement posted on the Municipal Securities Rulemaking Board's EMMA website.

Howard Cure, partner and director of municipal bond research at Evercore Wealth Management, stressed that Moody's, while rating the city lower than S&P, still has Chicago on a positive outlook. That's partly because "Moody's really puts a lot of emphasis on the pension funding and their ability to keep funding the pensions at a level that will eventually, if they maintain it," bring Chicago's pension liability under control, he said.

"It's not the economy," Cure said of the city's financial challenges. "The economy is fairly strong and diverse, and it seems like they're trying to expand into high-tech areas like quantum computing. So that helps."

Still, Cure said it was "disturbing" to see "just how chaotic the budget process was, in terms of negotiating with [the] City Council, and also, I sense not having the best of relationships with the state. ? I'm still trying to get a handle on [the mayor's] relationships with the legislature and the governor. Asking for money or authority for programs takes time to develop."

In a recent interview with NBC 5's Mary Ann Ahern, Gov. JB Pritzker said Mayor Brandon Johnson did not ask for any help from the state when the mayor last visited Springfield.

"If you need resources, you should, of course, talk to people in Springfield," Pritzker said. "He doesn't do that enough. He doesn't. His relationships are not very close with people."

Cure noted the state "is going to have their own [budgetary] imbalance going forward," and "there could be real problems for a state like Illinois, which has a big Medicaid program, and then K-12 funding for schools through the federal government," which is now led by a president who has been open about his hostility to certain blue-state governors.

"Cities around the country have to be prepared, depending on the state they're in, for the state having its own fiscal issues and not having as much money to help cities," Cure said. "That's a potential national phenomenon."

Then there are the budgetary challenges facing Chicago Public Schools and Chicago-area transit. An expansion of the sales tax to cover services has been discussed, but with the city, the public schools and the transit system all needing more money, "you're talking about the same customer base," Cure said.

Meanwhile, it remains to be seen if the Trump administration will claw back some of the pandemic relief funds still unspent, or cut Medicaid or K-12 schools funding.

"Being targeted by the federal government is not great," Cure said. "[The mayor] may use it as a badge of honor, but it still has fiscal implications."