Potential Credit Downgrade for New York City
New York City’s credit rating is facing a significant threat that could cost the city as much as $200 million immediately and potentially lead to a staggering loss of over $14 billion, according to a recent analysis.
A study from the City Council indicates that the ability to refinance annually could be severely impacted if major bond rating agencies follow through on their threats to downgrade the city’s rating.
This looming credit crisis—marking the first since 2020—could push the city’s borrowing rates from 6% to 6.25%. This shift would mean an increase of $3.6 billion in interest fees over the lifespan of the city’s total bond portfolio, which is currently valued at $65.5 billion.
Moreover, an internal report has pointed out that such downgrades often lead to a decrease in future valuations, which might result in even higher costs down the line.
If interest rates were to climb to 7%, the extra cost burden would nearly add $500,000 annually, culminating in approximately $14.1 billion over the duration of the city’s extensive bond portfolio.
“The fact is, any downgrade would inflate the city’s borrowing costs and limit its refinancing options. We do rely heavily on borrowing for our capital projects,” noted Andrew Lane, Chairman of the City Budget Committee. He added, “It’s going to cost the city some real money each year.”
The City Council’s analysis gained traction after Moody’s altered the city’s credit rating from stable to negative—a preliminary step toward a potential AA downgrade—following Mayor Zoran Mamdani’s proposal to withdraw $2.6 billion from savings to support the large $127 billion budget.
Mamdani’s team acted quickly, appealing to credit rating agencies to reconsider their impending decision, even preparing a PowerPoint presentation aimed at changing Moody’s mind.
Similar warnings were issued by two other investor services shortly thereafter.
The finance team’s analysis suggested that a decline in credit scores could also impact future interest rates on variable rate loans, though the exact increase remains uncertain.
City Council President Julie Menin expressed her disapproval of using the city’s savings as a fallback and instead proposed finding alternative solutions to address the anticipated budget shortfall. “The responsible path forward is not to deplete the financial safety net, but to pursue real efficiency and sustainable solutions,” Menin stated.
Any adjustments to the current fiscal budget to access these savings would require parliamentary approval. Reports indicate that Mamdani’s request for amendments has been set aside for now.
The detailed executive budget is slated for release on April 20th, with expectations that it will finally outline $1.7 billion in savings that the administration has previously withheld, apart from a few minor reductions, including a $20,000 expense for a messaging service subscription.
