Among the risks for the city is that the civil litigation could end up costing far more in legal fees than it could ever hope to get from Smollett.
The City Law Department said in a Thursday evening statement that it was already drafting a lawsuit in response and would file it "in the near future".
Plan to pursue "the full measure of damages" allowed by city law...
Cook County State's Attorney Kim Foxx's office sparked an intense controversy last week when prosecutors abruptly dropped a 16-count indictment accusing Smollett of orchestrating a January 29 racist and homophobic attack on himself to advance his career.
The city said more than a dozen detectives spent hundreds of hours investigating Smollett's claim that he was a victim of a racial and homophobic attack January 29 in Streeterville.
In a letter sent to Foxx, Park Ridge Police Chief Duane Mellema, who also heads the North Suburban Association of Chiefs of Police, expressed concern over prosecutors' refusal to file felony charges in certain crimes.
Thursday was seven days since Mayor Rahm Emanuel's law chief sent the "Empire" actor a letter demanding the payment by money order or cashier's check for $130,106 - plus 15 cents - but there was no indication Smollett has paid or intends to.
Last week, Cook County prosecutors dropped 16 counts of disorderly conduct against Smollett, after he agreed to forfeit his $10,000 bail, and performed 16 hours of community service.
Their problems with Foxx, said Graham, didn't originate with her handling of Smollett, but it appears to be the decision to suddenly drop all 16 charges in a case that cost the city so much and caused so many problems that was the last straw.
A spokeswoman for Smollett's legal team didn't have an immediate comment on Thursday.
"Empire" is produced by 21st Century Fox, now part of the Walt Disney Co., also the parent company of ABC News.
Trump tweeted last week that he would tell the FBI to investigate how Smollett's charges were dropped.