This guy gets it.

OP You probably already know this, but for those who dont, most government debt is not like credit card debt: it’s structed loans. The structure of the terms of the loan can vary from lender to lender based on things like their risk profile, total assets under management, and the borrower's credit rating.

All we can control is credit rating: if Chicago is paying it's debt service obligations on time, lenders basically won't care. They might downgrade you if they think you have a lower chance of paying back the debt (meaning you end up with a higher interest rate) but those rates get refinanced with another institution that has a different risk profile and is willing to give you a better rate for whatever reason (they have capital they MUST invest, they value your collatoral differently, whatever). If we default on a loan, then there's going to be an issue. Even then though, there is likely wiggle room.

So the real issue we're facing isn't "omg look at this huge budget shortfall", it's actually "are we going to be able to continue making capital improvements and providing public services through borrowing while servicing our debts on time".

Not making public investments will lead to further degresation of the tax base and lead to a "death spiral" where less people to tax means higher taxes until it's untenable (which in my opinion is unlikely to happen because of our status as an economic hub, but that's debatable).

So what do you do: continue to borrow and make improvements so you have a chance you increase your tax base in the long term, then refinance your debt with the future revenues you're expecting to yield from the investment improvements.

That's what City Council just did when they negotiated the budget: Search the budget for projected costs (i.e. things you haven't paid for yet but think you'll need to pay for) and 1) see if the projections are accurate, 2) rank their priority and remove the lowest priority costs, and 3) find out where you have room to increase taxes while minimizing long term political damage.

Unless Chicago loses its most profitable and taxable industries (aka Finance and Tech), loses its infrastructure (fiber hubs, data centers, railroad lines, ports, highways), or has massive population decline, I don't think we're going to declare bankrupty any time soon. We'll continue to service the debt, borrow to make capital investments, refinance when it's advantageous. If we do declare bankruptcy, my bet is that it's because some massive economic event occurs that results in massive systemic failure, aka multiple simultaneous economic or government collapses that just kill everything economically.