Moody's, a major debt-rating agency, issued a warning to investors on Wednesday that it is considering downgrading New York City's credit rating. This potential downgrade could result in higher borrowing costs for the city.
Moody's has changed the city's credit status from stable to negative, indicating a possible reduction in its Aa2 issuer rating. The agency highlighted significant and persistent projected budget gaps, indicating an underlying structural imbalance and reduced financial flexibility despite New York City's favorable economic conditions.
The warning of a potential credit rating downgrade comes as Mayor Zohran Mamdani is pushing for his $127 billion budget, which includes implementing a 10% property tax increase and depleting city savings to cover the growing financial plan proposed last month with minimal cuts.
Mamdani has been using these revenue-generating measures to pressure Governor Kathy Hochul to assist the city through increased taxes on the state's highest earners and corporations. City Comptroller Mark Levine described Moody's announcement as a "sobering wake-up call," noting that New York City is currently spending more than it is earning and relying on reserves to achieve budget balance.
During Mayor Eric Adams' tenure, the city received positive reviews from all four debt-rating agencies. A spokesperson from City Hall downplayed Moody's move as "premature," citing signals from the state legislature's one-house budgets indicating a potential $5 billion allocation to help bail out the city.
The spokesperson expressed optimism about Albany's commitment to investing in essential services for New Yorkers and the city's fiscal health. They emphasized ongoing discussions with Albany and the City Council to address the inherited deficit and restore the city's financial stability after years of underbudgeting and mismanagement.
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