International credit rating agency Moody’s Ratings has recently issued a warning to investors, indicating the possibility of downgrading New York City’s credit rating due to a persistent budget gap. This move is considered a major alarm bell for the city’s financial situation, as a downgrade would lead to an increase in the city government’s borrowing costs.
Moody’s has revised New York City’s credit outlook from “stable” to “negative,” marking the first step towards lowering the current Aa2 issuer rating for the city.
In a statement, Moody’s pointed out that the negative outlook reflects the city’s “large and persistent budget gap,” highlighting fiscal structural imbalances and declining financial flexibility, despite the relatively good local economy.
Amid the risk of a credit rating downgrade, Mayor Mamdani is advancing a municipal budget plan totaling up to $127 billion.
This budget includes levying approximately 10% property tax on homeowners, as well as utilizing city reserves to address the budget gap, with measures to cut spending being relatively limited.
New York City Comptroller Mark Levine described Moody’s decision as a “wake-up call,” noting that this is the first time since the onset of the COVID-19 pandemic that the city has faced a negative outlook evaluation, even during a period of relatively healthy local economy. “The fundamental issue is clear: New York City’s current expenditures exceed its income,” Levine stated.
The city government, on the other hand, is taking a cautious stance towards Moody’s warning, stating that it is “premature.” A spokesperson for the City Hall mentioned that a recent single-house budget proposal from the New York State legislature indicates that Albany may provide around $5 billion in assistance to New York City to alleviate financial pressures.
In contrast, during former Mayor Adams’ tenure, New York City received multiple positive evaluations from the four major credit rating agencies.
Analysts point out that if the credit rating is ultimately downgraded, the interest rates on future municipal bonds issued by New York City may increase, further exacerbating financial pressures.