Following Moody’s Ratings recent issuance of a “negative” outlook on the financial prospects of New York City, another major credit rating agency, S&P Global Ratings, has also expressed serious concerns regarding the massive budget plan proposed by Mayor Mamdani, stating that if the city government taps into reserves to balance expenditures, it could lead to a downgrade of New York City’s credit rating.
In its latest report, S&P highlighted that if New York City relies on one-time fiscal measures to fill budget gaps without addressing the structural imbalance between recurring revenues and expenditures, which results in reserves falling to levels insufficient to withstand an economic downturn, the agency will reassess the city’s current credit rating.
Currently, S&P still maintains New York City’s General Obligation debt at “AA/Stable” rating, but emphasizes that downside risks are accumulating. The report points out that while the city has demonstrated resilience in facing fiscal challenges in the past, if short-term measures are relied upon to maintain budget balance, financial flexibility will significantly weaken.
Prior to this warning, Moody’s had already adjusted New York City’s credit rating outlook from “stable” to “negative” last week, indicating a potential further downgrade in the future. Moody’s statement indicated that the negative outlook reflects the city’s “enormous and persistent budget gap,” showing structural fiscal imbalances and declining financial flexibility, even though the local economy remains relatively strong. If the credit rating is ultimately downgraded, the borrowing costs for issuing municipal bonds by the city government could increase, potentially putting long-term pressure on the financial situation.
One of the contentious points is the proposed budget for the 2027 fiscal year of approximately $127 billion put forth by Mayor Mamdani. The plan aims to use around $2.6 billion from city reserves and trust funds to cover the expenditure gap. Critics argue that this move will weaken New York City’s financial cushioning ability during economic slowdowns or unforeseen crises.
Furthermore, S&P also points out that the city government should not overly rely on state financial support. The report states that against the backdrop of possible federal funding cuts, the state government itself faces budget pressures and may not necessarily have the willingness or ability to provide New York City with one-time or long-term resource commitments.
Currently, New York City’s credit rating remains at a high investment-grade level, however, with the successive warnings issued by the two major rating agencies, it indicates that the market’s concern over the city government’s financial sustainability is escalating.