A major bond rating agency said Tuesday that “any measure that would lower annual contributions into Chicago’s pension systems” would be seen as a negative — potentially jeopardizing the city’s current BBB+ rating.
In a three-page report released Tuesday by S&P Global Ratings — titled “How Chicago Closes Its Fiscal 2020 Budget Gap Will Be Pivotal To The Rating” — the agency noted that “outside of a massive property tax increase, [the city] has limited options to raise significant, predictable revenues through a single tax or fee increase without state legislation that would expand the city’s revenue-raising authority.”
In her State of the City address last week, Mayor Lori Lightfoot said she wanted to avoid a property tax increase “as much as possible, but if we don’t get the structural changes that our pensions need, we will be presented with very hard and limited options.”
However, S&P praised Lightfoot’s candor in the speech, during which she laid bare the city’s $838 million budget shortfall.
“Transparency regarding the size of Chicago’s financial problems, including disclosure of likely pension contributions, debt service, and wage growth, is critical to understanding the scope of the changes required, as well as a necessary measure to begin conversations with lawmakers and citizens on how to address the gap,” the report stated.
S&P said it expects that the city “will continue a trend of using surplus tax-increment financing district revenues to plug the budget gap,” but the agency sees that revenue source as “unpredictable and therefore one-time in nature.”
“The city also maintains substantial reserves, which are crucial to the current rating, and we would consider the use of reserves to offset ongoing expenses — rather than for ‘rainy day’ or one-time purposes — negatively,” the agency added. “Given the magnitude of the gap, we expect some use of one-time revenues.”