Chicago’s debt crisis a ‘pay later’ cycle, Illinois Policy Institute expert warns

Chicago Mayor Brandon Johnson and his administration preside over a city experiencing serious financial difficulties.

Chicago, the nation’s third-largest city, faces a corporate funds budget deficit of more than $1 billion, while fiscal 2025 is expected to close with a deficit of about $150 million, with about two-fifths of the budget going to debt service and pension costs.

Johnson said In April, the city was “at a crossroads” and had to “essentially do more with less,” while also slamming the Trump administration for reportedly threatening federal funding, calling it “a different scenario we haven’t experienced before.”

Austin Berg, executive director of the Illinois Policy Institute, a pro-taxpayer research group, said markets are looking at the real numbers and are “really worried” about Chicago.

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“That’s why you’re seeing spreads on Chicago debt—structural problems—getting wider and wider,” he said.

Berg explained that this situation is like someone calling into financial advisor Dave Ramsey’s radio show and asking what to do when in debt.

“The solution set is always the same: Stop making bad decisions; you have to put a structure in place to make better decisions,” Berg said.

“So bad decisions are things like taking one-time revenues from federal COVID spending and putting that into operations. Bad decisions are borrowing for operations, which is what the last bond issue just did. That’s a big no-no and a red flag for investors.”

Chicago also scrutinized former Mayor Richard M. Daley’s 75-year parking meter lease in 2008; Critics of that deal say it has already allowed the private operator to recoup its investment while depriving the city of that revenue stream for decades.

Berg accused Johnson of expanding the city’s “pay later” culture, noting a recent analysis he wrote, arguing that the mayor’s $830 million 2025 bond deal, which defers principal payments for 20 years, is Richard M. Daley’s own version of the parking meter mania.

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He also suggested the city take more seriously the potential $1 billion in efficiencies found in an extensive taxpayer-funded study by consulting firm EY, formerly Ernst & Young.

Although Chicago spends 40 percent of its money on debt service, real services suffer, Berg said, adding that it is also the only city other than New York that does not require voter approval for new general obligation debt.

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Berg claimed the city lacked a “truly independent” chief financial officer, saying the treasurer’s office lacked full oversight authority and that another related agency, called COFA, was understaffed and underfunded.

“Voters didn’t decide to take on all of this debt. It’s important for voters to be able to decide because these decisions affect Chicagoans 30 years from now. So it’s really not fair to handcuff them with these political decisions now,” he said.

Chicago has also come under fire for spending on social justice and other efforts, while city services remain inadequate.

Independent journalist William J. Kelly created a viral moment in January when he asked Johnson which type of ICE he should focus on as he drove through unplowed streets, immigration officers or snow flooding the city.

“I want to recognize the efforts of city employees who keep our streets plowed. … I personally do not plow the streets. … No one gets stuck,” Johnson replied.

Berg said a way out for Chicago might be to require the state of Illinois to allow municipalities to declare Chapter 9 bankruptcy, a rare restriction nationally. He said he doesn’t want to see Chicago declare bankruptcy, but without that leverage the city would have far less clout in bargaining with public sector unions for the liabilities it’s drowning in.

The City Council successfully repealed Johnson’s proposed “head tax,” a per-employee tax on large corporations that critics said would eliminate or inhibit future jobs and therefore revenue sources in the city.

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Chicago Mayor Brandon Johnson speaks at a recent City Council meeting. (Terrence James/Getty Images)

The editorial board of the left-leaning Washington Post also slammed Chicago’s woes in a recent op-ed, writing: “It takes a long time to kill a city, and the bigger the city, the longer it takes.”

“Chicago’s ‘public servants’ did a good job expediting the process,” the board wrote, noting that the city’s bond rating was downgraded by both Kroll and Fitch in February.

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“Modest tweaks [council] forced [Johnson] accept in december will not change the financial trajectory” the newspaper predicted.

Fox News Digital has reached out to Johnson’s office for comment.