But the credit rating agency said Chicago still risks a downgrade of its BBB-plus general obligation bond rating if it fails to adequately address pension funding or raids budget reserves.

Emanuel's plan calls for a record $543 million, phased-in property tax increase to pay for public safety worker pensions.

While the plan assumes the enactment of an Illinois law lowering the city's upcoming contribution to its police and fire pension funds to $318 million, Fitch said if that does not happen, Chicago would have to come up with $540 million mandated under a 2010 law.

"If they don't get (the bill) passed, we'll be waiting to see how that gap is filled," said Fitch analyst Arlene Bohner, adding that the use of recurring or non-recurring revenue will be an important determinant of Chicago's credit quality.

Fitch warned the city's rating is likely to be downgraded unless it "implements solutions that move all of the pension plans on a clear path toward adequate, actuarially based funding, while also making progress toward a balanced budget."

Chicago has a $20 billion unfunded liability for its four pension systems. The constitutionality of a 2014 state law aimed at shoring up the city's municipal and laborers' funds, in part by cutting benefits, will be determined by the Illinois Supreme Court in the coming months.