Chicago’s historic budget battle, pitting Mayor Brandon Johnson against an increasingly restive City Council, has reached the throw-ideas-against-the-wall stage of discussion and debate.
Increasing the grocery bag tax, selling advertising on light poles and snowplows, offering augmented-reality experiences around Millennium Park, installing slot machines at O’Hare International Airport: The novel and desperate ideas keep rolling out.
Every little bit might help, I guess. But many of the ideas are helplessly small. The proposed 5-cents-per-bag hike in the tax on grocery bags would raise less than $9 million. Up against a $1.19 billion budget gap, that wouldn’t do much good.
When such ideas suck up time and attention — with a Dec. 31 deadline fast approaching — the distraction comes at the cost of inattention to bigger issues that could have long-lasting, negative impact on the city.
Exhibit A in the category of underemphasized issues is the billions in new debt Johnson wants to sell in order to balance the city’s $16.6 billion budget.
Debate over the head tax, grocery tax and garbage fees has sucked up time and attention. But Johnson’s borrowing plans, which will have both immediate and yearslong ramifications, have not gotten nearly enough focus.
Initially, Johnson proposed selling $3.8 billion in debt — new borrowings and refinancing — to cover the city’s budget gap. But the plan now is scaled back, by $1 billion altogether, after pushback led by Ald. Bill Conway, 34th, and others.
Even at that lower amount, Johnson still is proposing a daunting surge of indebtedness for a city with more burden on its balance sheet than any other in the U.S. — some $65 billion in long-term debt and unfunded pension liabilities.
This is risky business for the city — the elected officials, yes, but for residents, too. Standard & Poor’s already has warned that it’s keeping a close eye on Chicago, with a negative outlook. A credit downgrade could be an inevitable result of the budget stalemate. Even if the City Council somehow passes a balanced budget in time to meet a Dec. 31 deadline and avoids a government shutdown, it could still happen.
After all, a responsibly run city doesn’t flirt with economic calamity, for a second straight year, like this one is doing.
Weeks of contentious hearings and veto threats, hourslong negotiations that make little progress, accusations of “immoral” motivation and flirtation with job-killing ideas have done us no good.
There are questions about why Chicago needs to borrow so much, as the Tribune Editorial Board has noted in these pages.
After all, the city already has $2.4 billion in unused borrowing ability, thanks to prior authorizations granted by the City Council, according to Conway. For example, a $1.25 billion bond issue, targeted for economic development projects, has barely been put to use in more than a year since the council authorized it.
Taxpayers are paying the cost of borrowing that money: The mayor ought to put it into job-creating projects, as he said he would do. And by asking for more borrowing authority on top of approvals already granted to him, Johnson is signaling that the city’s thirst for new debt is far from quenched.
Of even more concern is the way the Johnson administration plans to structure its new debt.
Contrary to best practices, the Johnson administration plans to sell bonds to fund some operating expenses: $166 million for back pay to Chicago firefighters and $285 million to cover police settlements and judgments.
Against their own better judgment, even the budget hawks in the City Council have backed this plan. The back pay and police settlements built up over years, they reason, so it’s sensible to borrow to pay them down. That kind of thinking is slippery, leading to more debt and more downgrades, and it would be good to see council members resist such temptation and focus instead on cutting costs and streamlining government.
It’s good that the bulk of Johnson’s borrowing plan would go toward conventional purposes such as roads, bridges and other infrastructure. But the way Johnson plans to structure the loans is concerning.
These bonds would be seriously back-end-loaded. Johnson’s plans, first spelled out in detail in an amortization table shared with the City Council last month, call for the city to pay interest only — putting off the paydown of principal — for years after the bonds are sold.
This would help with cash flow now, while Johnson is in office, but substantially increase the cost of the debt, shifting immense financial burdens to future years.
On one bond issue included in Johnson’s initial plans, the city would put nothing toward paying down the principal amount for 19 years after the bonds are sold, according to the budget document released to the City Council. Altogether, the mayor’s original plan set the city on course to accumulate more than $2 billion in interest payments before putting a dollar toward principal.
It’s a kick-the-can approach that rating agencies dislike and taxpayers should dread.
While Johnson has scaled down the size of his borrowing plans, back-end loading is still expected to feature in the 2026 budget. And Conway told me he remains concerned.
“The can is kicked and kicked, and ultimately you kick it into a wall,” Conway said. “We are heading into a terrible situation.”
The scenario will take years to play out, but the credit rating agencies won’t wait for that. They’ll immediately look at Chicago’s debt plan in the context of their problems: a budget impasse last year, an even bigger problem this time and a looming deficit when work on the 2027 budget begins.
If Chicago is hit with a credit downgrade soon, as many market watchers expect, the city would be just a step above “junk” status. At that point, a single downgrade would put Chicago’s debt below investment grade.
This would raise borrowing costs. It also would cause a costly liquidity problem.
Partly that’s because many investment funds — holders of billions of dollars in Chicago’s general-obligation bonds — are forbidden in their contracts with investors from holding below-investment-grade bonds. A “junk” rating could set off panic selling by the big funds, with significant repercussions for Chicago’s fiscal future.
Chicago’s huge debt and substandard credit rating may seem to be marginal issues amid the high-drama budget battle between Johnson and the City Council. In fact, they’re among the biggest problems the budgeteers face as they push to finish next year’s budget. For the good of the city, they need to give these issues the credit they deserve.
David Greising is president of the Better Government Association.
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