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Chicago Wins Stable Outlook Trio for First Time in Pandemic

Chicago Wins Stable Outlook Trio for First Time in Pandemic

Chicago has gained stable credit outlooks from the three large credit rating companies, a sign that its debt ratings aren’t expected to change or worsen in the near-term for the city that has one junk rating.

S&P Global Ratings on Wednesday lifted the city’s outlook to stable from negative given the “return to greater stability following the pressures created by the Covid-19 pandemic,” according to a report. Still, the company affirmed its BBB+ rating, which is three notches above junk, largely given rising pension costs. S&P had lowered the outlook, an indicator of future rating changes over a two-year period, to negative in April 2020 at the start of the pandemic.

“The outlook revision to stable from negative recognizes the city’s actions to address the short-term pressures created by the pandemic without a significant deterioration in its financial position,” S&P analysts Jane Ridley and Blake Yocom wrote in the report.

Fitch Ratings on Oct. 25 also raised its outlook to stable and affirmed its BBB- rating, one notch above junk, on the city’s debt. Moody’s Investors Service took the same step in July and also maintained its Ba1 rating, the first step into junk. Both had lowered their outlooks to negative in October 2020 as the financial toll of the pandemic and related business shutdowns became evident.

S&P’s stable outlook is supported by the nearly $1.9 billion in federal American Rescue Plan funding Chicago is receiving, a recovery in key revenue sources including sales taxes and the “city’s ability to manage through the pandemic’s challenges without creating additional long-term fiscal pressure,” according to the report.

The city is paying down debts, “living within our means” and implementing reforms to be “better stewards of taxpayer dollars,” Chicago Chief Financial Officer Jennie Huang Bennett said in a statement Thursday.

One of the city’s biggest challenges continues to be pensions as noted by all three rating firms. The city has about $33 billion of unfunded liabilities across four pension funds after years of inadequate contributions, an amount nearly twice as large as Mayor Lori Lightfoot’s $16.7 billion fiscal 2022 budget that the Chicago city council passed last month.

“We will climb our pension ramp, which means that for the first time in our city’s history, all four pension funds will be paid on an actuarially determined basis,” Lightfoot said in a statement Thursday regarding the city’s 2022 budget and work toward structural balance after years of deficits. “We expect to reach structural balance by 2023, which bodes well for our prosperous, post-pandemic recovery.” 

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