What's Happening?
Chicago Mayor Brandon Johnson is facing criticism over his plan to sell billions in new debt to balance the city's $16.6 billion budget. Initially proposing $3.8 billion in debt, the plan has been scaled
back by $1 billion after pushback from the City Council. Despite the reduction, the borrowing plan remains controversial due to Chicago's existing $65 billion in long-term debt and unfunded pension liabilities. The plan includes selling bonds to fund operating expenses, which is contrary to best practices and could lead to more debt and potential credit downgrades.
Why It's Important?
The borrowing plan is significant as it could have long-term financial implications for Chicago. The city's debt burden is already substantial, and additional borrowing could lead to a credit downgrade, raising borrowing costs and causing liquidity problems. A downgrade to below investment grade would trigger panic selling by investment funds, further impacting Chicago's fiscal future. The plan's structure, which includes back-end loading of debt payments, shifts financial burdens to future years, raising concerns about the city's economic stability.
