Chicago received downgrades from two rating agencies Wednesday.
KBRA downgraded Chicago's general obligation bonds to BBB-plus from A-minus, and kept its rating outlook at negative.
Fitch Ratings downgraded Chicago's issuer default rating and outstanding GO bonds to BBB-plus from A-minus, also keeping its outlook at negative.
The rating actions come ahead of Chicago's plans to sell about $502 million of series 2026A GOs and Series 2026B GOs.
The downgrade stems from the city's deteriorating fund balance, narrowing liquidity and high and rising fixed cost burden, KBRA said in a statement.
"These pressures limit financial flexibility and may impair the city's ability to sustain advance pension contributions intended to stabilize the net pension liability and maintain progress along its statutory pension funding ramp," the rating agency added.
Fitch said its downgrade "reflects consecutive operating deficits since 2023, the still high dependence on non-structural solutions and assumptions underpinning the adopted 2026 budget, persistent out-year gaps, and ongoing disagreements between the administration and the city council. These disagreements have impeded decision timeliness and the development of a credible and comprehensive plan to restore structural balance."
KBRA said its outlook remains negative because the city's ability to confront its expanding structural deficit through recurring revenues and meaningful expenditure reforms "is increasingly constrained," noting this reality was further reinforced by recent budget actions.
"These limitations are likely to lead to greater reliance on one-time measures, an increased risk of midyear budget adjustments, including in the current fiscal year, and greater budget deficits in FY 2027 and beyond," KBRA said.
The rating agency acknowledged the city is making the advance pension payment this year, albeit in two stages — a long-term credit positive — but said the advance pension contributions risk pushing aside other corporate fund spending.
It noted Chicago's reliance on one-time and "untested" revenue sources raises questions about whether future budgetary balance can be achieved. The city's borrowing for operations also raises concerns, KBRA said.
And it said
Fitch downgraded the Chicago's outstanding senior lien Sales Tax Securitization Corporation sales tax securitization bonds to AA-plus from AAA, and affirmed STSC's outstanding second lien sales tax securitization bonds at AA-minus.
The Fitch outlook remains negative on Chicago's issuer default rating, GO bonds and senior lien STSC sales tax securitization bonds. The outlook on the STSC second lien sales tax securitization bonds is stable.
KBRA said further downgrades could result if the city resorts to Chicago Skyway or parking meter asset and concession lease reserves to offset budgetary gaps, KBRA warned.
It could also downgrade the city if it sees a failure to follow established financial and debt policies, or if there is further borrowing by the city for purposes other than capital projects.
Chicago could see an upgrade if it enacts spending reforms and revenue enhancements that address its structural budget gap, KBRA said.
Upgrades could also result from the earmarking of specific revenue streams to reach actuarial pension funding levels, or from improved debt ratios, stemming from moderated borrowing and expansion of the city's resource base, KBRA said.
The city's finance team did not immediately respond to a request for comment.
