On Wednesday, Chicago's Mayor, Rahm Emanuel, has undertaken stringent debt reforms to restore balance in the city's structural deficit.

Several steps like ending interest-rate swaps and phasing out bond restructurings were triggered due to a rating downgrade by Moody's. The modification in the debt practices will cost the city more than $275 million.

The Chicago city has already terminated four such swaps. The conversion of about $800 million of variable-rate general obligation bonds into fixed-rate bonds and the subsequent elimination of interest-rate swaps would greatly benefit the city by counterbalancing the $200 million liability that the city has to pay banks to end the swaps.

However, the city might be caught in a debt trap as it would raise the $200 million initially through the sale of commercial paper that would be replaced with long-term bonds at a later stage. Lois Scott, Chicago's chief financial officer, remarked, "We have to get back to the basics - long-term fixed rate bonds, fund this year's costs with this year's revenues".

The Second corrective measure involves halting the practice of restructuring the city's debt service on bonds. Chicago city has been resorting to this method in order to push payments into future years and thus, get free up money for operations.

Alexandra Holt, Chicago Budget Director, said that the mayor will first look to savings and reforms before turning to taxpayer and this plan would impact the city's next operating budget by $75 million.

For the $8.9 billion budget of Chicago, which is struggling under the burden of high pension cost, the debt reforms are an indispensible step to provide the much needed respite.

Illinois Governor, Bruce Rauner has even suggested to slash about $135 million of funding for the city.