Chicago hit with 2 credit downgrades as Johnson secretly floats new borrowing plan
Chicago’s “pay later” political culture was on full display last week.
It started with two credit downgrades on Wednesday, Feb. 25, with Fitch and Kroll each knocking Chicago credit down a notch.
Both agencies pointed to the city’s persistent deficit spending. And disputes between Mayor Brandon Johnson and the City Council.
Kroll made special note of the $11 billion Chicago pension sweetener signed into law by Gov. JB Pritzker last year, following token opposition from Mayor Brandon Johnson’s administration.
But the best example of why Chicago’s credit is sliding toward junk status came to light just two days later, when the Chicago Tribune editorial board revealed a secret, reckless new borrowing plan floated by the Johnson administration.
Here’s what’s happening. And how to stop it.
Johnson’s new borrowing scheme
The Chicago Tribune editorial board revealed Johnson’s administration has been furtively floating a $500 million bond on which the city would make no payments at all for three years.
Not interest-only payments. Literally $0 in payments on the debt.
For the remainder of Johnson’s term, and beyond.
Here’s what the editorial found, specifically:
Wednesday’s downgrades come as the city prepares to solicit bond investors next month for close to $500 million to cover back pay owed to firefighters due to a lengthy contract negotiation and hundreds of millions in anticipated costs to settle lawsuits, most of which pertain to alleged police misconduct. The downgrades will make the debt more expensive for the city, as investors will be expected to demand higher yields in response to the higher risk tied to Chicago’s precarious financial condition.
But here’s the real shocker: The city is structuring this debt so it doesn’t have to make payments for the next three-plus years, extending the time frame for paying off the bonds and making the entire enterprise considerably more expensive than was envisioned during the fraught budget discussions late last year.
In short: Johnson gets to spend the money now. But the next mayor—and the next generation of Chicagoans—are stuck with the tab.
Johnson’s bait-and-switch
This backloaded payment structure is not what Johnson’s team sold to City Council members last year.
Back in November, Chicago CFO Jill Jaworski briefed the Council on a borrowing package that included new debt to cover, among other items, retroactive raises for firefighters.
Ald. Bill Conway wisely kept receipts on that briefing. Borrowing for this kind of operating expense in itself is a terrible financial practice. But as Conway noted, at least the payment schedule was relatively straightforward.
As we know now, that was all a bait-and-switch.
It’s happening again
This isn’t the first time Johnson has dumped a massively backloaded repayment schedule on the backs of young Chicagoans.
Last year, the mayor broke a tie vote on an $830 million bond deal that made no payments at all for two years (again, through the remainder of his term) and no payments on the principal for 18 years after that.
This ballooned the total cost of that borrowing to $2 billion.
At the time, I dubbed it Johnson’s parking meter deal.
In research for our book The New Chicago Way: Lessons from Other Big Cities, my co-author Ed Bachrach was fortunate to interview the late Dick Ravitch. Ravitch is arguably the single person most responsible for saving New York City from bankruptcy in the 1970s, among many other achievements throughout his career in public service.
In Ravitch’s book So Much to Do, he wrote, “Cities need access to the credit markets for two reasons that are respectable and one that is not.”
The first respectable reason is short-term borrowing to balance emergency mismatches of revenue and spending in a given year, due to an economic shock, for example. The second respectable reason is to borrow in the long term to fund capital projects.
The third reason, which is not respectable, is to cover operating deficits. That is exactly what Johnson—and mayors before him—have done.
How can Chicago stop this?
City Council should be calling public hearings and demanding answers on Johnson’s new borrowing package.
The extent of their authority to stop the deal already in progress remains murky, but vocal opposition from the Council could give the bond market pause.
Beyond the short term, Chicago governance is riddled with shortcomings that make the city vulnerable to bad deals like this, including:
Lacking an independently elected CFO with real authority, as is common in other big cities.
Lacking a requirement for voters to approve new debt, as is common in other big cities.
Lacking a fully resourced budget office within the City Council.
Lacking an independently elected city attorney. (Today, if the Council wanted to sue the mayor’s office, they would be required to use corporation counsel…which reports to the mayor’s office.)
Many of these safeguards are typically found in a city charter. But Chicago is the only big city without one.
In the news
Pesca podcast: I joined the great Mike Pesca on his podcast Not Even Mad alongside The Bulwark’s Andrew Egger. We discussed the State of the Union address, tariffs, and the Department of War’s treatment of Anthropic. (Apple, Spotify).
Charter chatter: The leader of the nonprofit legal team that brought down Trump’s emergency tariffs at the Supreme Court penned an op-ed in the Chicago Tribune about why constitutional limits matter, and why we should have them here in Chicago via a modern city charter (“Sara Albrecht: What Chicago can learn about the separation of powers from the Supreme Court tariff ruling”). Also worth noting: Newly announced Chicago mayoral candidate Liam Stanton includes a city charter in his platform.