KBRA assigns a long-term rating of BBB+ to the following series of City of Chicago, IL General Obligation Bonds:

• General Obligation Bonds, Series 2026C
• General Obligation Bonds, Series 2026D
• General Obligation Bonds, Series 2026E
• General Obligation Bonds, Taxable Series 2026G

Concurrently, KBRA affirms the BBB+ rating on the City's outstanding General Obligation Bonds. The Outlook remains Negative.

The City of Chicago’s (“the City’s) deteriorating fund balance, narrowing liquidity, and exceptionally high and rising fixed cost burden led to its recent Feb 25, 2026 downgrade. These pressures limit financial flexibility and may impair the City’s ability to sustain advance pension contributions intended to stabilize the net pension liability. Absent meaningful revenue and expenditure reforms, the City has become increasingly reliant on debt structuring approaches that alleviate near-term debt service pressure while exacerbating the already high fixed-cost burden.

The Negative Outlook reflects our view, reinforced by recent budget actions, that the City’s capacity to address its growing structural deficit through new recurring revenues and meaningful expenditure reforms is increasingly constrained. These limitations are likely to lead to greater reliance on one-time measures, an increased risk of the need for significant mid-year budget adjustments in the current fiscal year, and greater budget deficits in FY 2027 and beyond.

Somewhat offsetting these credit concerns is the resilience of Chicago’s highly diversified tax base, attributable to its prominence as the economic hub of the Midwest. Continued expansion in the health care, technology and advanced-industry sectors is expected to support moderate employment and resource base growth over the near term, barring negative macroeconomic headwinds.

Key Credit Considerations

The rating was downgraded because of the following key credit considerations:

Credit Positives

• The City’s regional significance is reflected in its substantial, growing tax base and diverse economic base.
• The funding of a fourth consecutive advance pension contribution, albeit in two equal tranches over the course of FY 2026, is an important step towards long-term pension funding stability.

Credit Challenges

• Reliance on non-recurring and untested revenue sources and the use of borrowing for operations call into question whether future budgetary balance can be achieved.
• Advance pension contributions, while credit positive in the long run, risk crowding out other Corporate Fund spending and exhausting fund balance in the short run, unless additional recurring funding sources are identified.
• The 2025 passage of Public Act 104-0065, the Illinois Public Safety Tier II Adjustment Act, worsened the City’s severely underfunded pension status, necessitating an increase in future advance pension payments for which funding has not yet been identified.

Rating Sensitivities

For Upgrade

• Long-term revenue enhancements and spending reforms that address the City’s growing structural budget gap.
• Dedication of specific revenues to achieve actuarial pension funding requirements.
• Improved debt ratios, reflecting a sustained moderation of borrowing and continued expansion of the resource base.

For Downgrade

• Use of Chicago Skyway and parking meter asset and concession lease reserves to offset budgetary gaps.
• Failure to adhere to established financial and debt policies.
• Further borrowing by the City for other than capital purposes.

To access ratings and relevant documents, click here.

Methodologies

• Public Finance: U.S. Local Government General Obligation Rating Methodology
• ESG Global Rating Methodology

Disclosures

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA), one of the major credit rating agencies (CRA), is a full-service CRA registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a Designated Rating Organization (DRO) by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized as a Qualified Rating Agency by Taiwan’s Financial Supervisory Commission and is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider (CRP) in the U.S.

Doc ID: 1013741

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