Fitch Ratings has revised its financial outlook for the city of Chicago to “negative,” citing a lack of meaningful progress in closing a $1.12 billion structural budget gap. The move, first reported by the Chicago Sun-Times, signals the city could face a future downgrade if it fails to stabilize its finances.
The negative outlook accompanies an A- rating on a planned $600 million borrowing package for infrastructure, housing and economic development.
Fitch’s report warns that if Chicago loses a portion of the $3 billion in federal funding currently at risk, the city may be forced to lean further on one-time fixes and deplete its reserves. The agency noted Chicago’s reliance on budgetary stopgaps, including $368 million in reserve draws this year, and questioned the city’s capacity to deliver broad-based cuts or secure new revenue sources without external support.
Reserves, which stood at 29% of spending in 2023, could fall below 15% by year’s end, Fitch said — eroding the city’s financial cushion. The rating agency also raised concerns about the city’s ability to sustain advance pension payments, which have been a key fiscal strategy under both Mayor Brandon Johnson and his predecessor, Lori Lightfoot.
Fitch highlighted a still-unfunded $175 million pension payment for non-teaching Chicago Public Schools employees that Johnson included in this year’s and next year’s budgets. Rating stability, Fitch warned, depends on Chicago preserving reserves equal to at least 10% of spending and making significant headway on the 2025 and 2026 budgets.
"The city continues to pursue new revenue streams that require state or voter support, which do not appear to be forthcoming in the near term," Fitch writes. "The city has faced further internal opposition to increasing its property tax levy, though it did approve a smaller package of various fee increases for the 2025 budget. Operational efficiencies are likely to provide some relief, but the prospects for meaningful budget reductions vis-à-vis broad-based program or service cuts are uncertain currently."
Johnson’s office declined to comment to the Sun-Times on the Fitch downgrade, but at a press conference earlier Tuesday, the mayor acknowledged limits to the city’s home-rule authority. He said many potential revenue sources require approval from the state legislature.
Budget Director Annette Guzman added that the City Council’s Revenue Subcommittee would meet next week to discuss state-level taxes, including a possible sales tax on professional services. “We’re not just resting on state-level revenues,” she said, pointing to ongoing discussions about local revenue options for current and future budgets.
