RBC Capital Markets will price for Chicago $806 million of bonds on Thursday, a refinancing that will help close the city's fiscal 2024 budget gap.
The city remains in the midst of a heated 2025 budget debate that looks likely to go down to the wire, with
Meanwhile,
State statute requires the city to pass a budget by Dec. 31.
According to
The $546.31 million refunding Series 2024A senior lien and the second lien refunding Series 2024A and taxable $133.37 million Series 2024B bonds are being issued through the Sales Tax Securitization Corporation, according to
Fitch assigned the GO refunding Series 2024B bonds an A-minus rating with a stable outlook. KBRA assigned an A rating (Watch Downgrade), and S&P assigned a BBB-plus rating (CreditWatch negative).
"The risk of a downgrade is very real at this point," said Justin Marlowe, director of the Center for Municipal Finance and research professor at the University of Chicago's Harris School of Public Policy. "The problem now is a governance problem. The budget is no more challenging today than it has been in the past. I think the finance team at the city is doing a good job of providing the mayor and City Council with options. They have responded well to the current market conditions. But policymakers need to pass a budget, and they need to pass a budget very soon.
"Every day that this goes on, it continues to feed the narrative that Chicago does not have its act together, and the rating agencies have no choice but to respond to that," he added.
Marlowe said the bonds that will be used to close the budget gap are nothing new, and while "in a perfect world, we wouldn't have to do that," the city is taking advantage of favorable municipal market conditions. Right now, Chicago can borrow and its bonds "will price in a way that suggests a stronger credit than Chicago actually is," due to market strength, he said.
As to the budget debate now playing out in public, Marlowe
A strengthened COFA, Marlowe wrote, could go beyond its current summarization role and provide "council-focused budget analysis." Legislative budget staff in other cities release budget resolutions that explain the council's shared budget priorities and suggest to the mayor what to include in the proposed budget.
"[COFA 2.0] could compare the previous year's budgeted spending to actual spending, reveal spending patterns by neighborhood, and estimate the costs to improve key performance indicators, such as crime clearance rates and street pavement condition," Marlowe wrote. "This information is readily available and many other cities present it in their budget documents."
Recently, it's been remarkable to see "alders putting forward a public counterproposal for a budget — they're not staffed up to do that sort of detailed budget analysis," Marlowe said.
Also noteworthy, he said, is the shift from conducting budget negotiations behind closed doors to having it out in public. The tax increment financing sweeps that are part of this budget, and were in recent budgets, were previously decided through quiet negotiation between the finance department and alderpeople, Marlowe noted. This time, those talks are very public.
It's unclear if this is a deliberate attempt at transparency from the mayor's office or a failure to communicate with key stakeholders, Marlowe said.
"Radio silence" from the mayor's office, combined with how the mayor set expectations — Johnson promised on the campaign trail not to raise property taxes, and he has also railed against cuts to city services — have created "a very different political dynamic," Marlowe said.
Previous administrations bought some goodwill with the rating agencies through an orderly budget negotiation process and the advance pension payment policy. But the rating agencies are signaling that might change, as is Municipal Market Analytics, which
"There is a concern that Chicago can't get out of its own way," Marlowe said. "The Lightfoot administration did a lot to alleviate that. That goodwill is now gone."
