Chicago Mayor Defends ‘Tough Decisions’ Leading City Out of Junk

Shruti Date Singh and Isis Almeida
·4 min read
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(Bloomberg) -- Chicago Mayor Lori Lightfoot said using extra revenue to bolster the city’s troubled pensions was a tough decision, but one she can defend because it will help save residents billions of dollars long-term.

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The nation’s third-largest city diverted $242 million in unexpected revenue to its four retirement funds, instead of spending more on badly-needed services. That helped lift Chicago’s credit rating out of junk for the first time in seven years, a move that can reduce borrowing costs and lure more investors.

Lightfoot’s administration has focused on building a transparent relationship with the rating companies, giving them multiple years of financial reports and annual projections as well as paying more than the minimum for pension costs, she said during an interview with Bloomberg News on Thursday.

“It’s building up a credibility about who we are, our approach to city finances -- which is not gimmicks, not one-timers -- and that we’re willing to make the tough decisions to right the ship on our finances,” Lightfoot said. “In the long-run, we’re going to save the taxpayers of the city billions of dollars.”

Chicago has coped with the push and pull between strengthening its finances and enhancing services for residents such as policing, mental health and affordable housing. Overall crime is up 40% this year even as murders are down. At the same time, fiscal woes have marred Chicago’s image for years, with its pension debt climbing to $33.7 billion, more than twice the size of the budget the city council passed earlier this week.

But Lightfoot got some good news recently. The city received back-to-back credit upgrades after several years of increasing its pension contributions. Moody’s Investors Service on Tuesday raised the city’s rating by one level to Baa3, taking away its one non-investment grade rating for the first time since 2015. Fitch Ratings also lifted its rating a notch last month, putting Chicago two steps above junk.

Read more: Chicago Wins Moody’s Upgrade, Exiting Years in Junk Status

The Moody’s upgrade came a day after the Chicago City Council approved Lightfoot’s $16.4 billion 2023 budget, which includes the additional $242 million in early pension payments after the city increased its annual contributions by $1 billion over the last three years.

“It’s like when you’ve got a credit card and all you’re doing is barely making your minimum monthly payments,” she said. “What we have done is go beyond the minimum monthly payment to start paying down the principal, not just the interest. And we’re being rewarded with a better credit card, with a lower APR and frankly savings.”

Tough Reelection

Higher ratings and staying above non-investment grade can attract more investors to buy the city’s bonds. It could also temper the cost of taking on new debt amid interest rate hikes by the Federal Reserve. More than 80% of the city’s annual $1.73 billion in property tax levy will be used in 2023 to pay for pensions, according to budget documents.

Read more: Chicago Mayor Race Heats Up as US Lawmaker Challenges Lightfoot

Elected in 2019, Lightfoot faces a tough fight for a second term in February and faces a big challenge from US Representative Jesus “Chuy” Garcia, who entered the race Thursday. The mayor has come under criticism from some residents for a high crime rate, struggling schools and the departure of some corporate titans like Ken Griffin’s Citadel hedge fund and Boeing Co.’s headquarters.

She says the roughly 135 companies so far this year that have decided to move to, expand in or invest in Chicago help make up for these losses. Alphabet Inc.’s Google bought a downtown building the size of a city block, where Lightfoot says at least 3,000 jobs will be housed. Food giant Kellogg Co. announced that the snack division, the biggest piece as the company splits into three, would locate its headquarters in Chicago.

“We don’t want to lose any companies,” Lightfoot said. “When you think about these big household global names making decisions to come to our city with significant investments, I think that speaks volumes.”

Still Chicago is planning for a potential recession, Chief Financial Officer Jennie Bennett said in the interview. The city with a 2.7 million population has a diversified economy, and Lightfoot, who has focused on the most economically-challenged neighborhoods, now wants to look to expanding the middle class. One way to do it: get the 200,000-plus undergraduate and graduate students that come to the city every year to stick around.

“If we connect with those folks and even get a fraction of them every year to stay, we’re going to grow our middle class,” Lightfoot said. “We are really, really focused on that as an economic pillar.”

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