Credit rating agencies have sent a strong message to the city: get your fiscal house in order.
In recent weeks, New York City’s credit rating agencies have sent us a clear warning about the fiscal trajectory our city is on. This may eventually have implications for our ability to borrow for critical capital investments. But it already raises a serious question: Can our budget withstand an economic downturn or unexpected shock? New Yorkers should be paying attention.
By many indicators, New York City’s economic health remains strong. Wages grew 3% last year in real terms, while income tax, sales tax and property tax receipts are all up. Wall Street just had the best bonus season ever. Office leasing is at a pace we haven’t seen in two decades. Demand for housing, including luxury properties, remains robust. (One notable exception: Job growth has stalled.)
If New York City’s economy is strong, and our tax revenue is increasing, what’s the problem?
Our rating agencies have told us: The City’s budget has a structural imbalance, with recurring expenses outpacing recurring revenues. And the current fiscal plan does too little to correct it, instead drawing down the City’s fiscal cushion, including its reserves, end-of-year surplus and overall flexibility.
Three agencies — Moody's, Fitch Ratings and Kroll Bond Rating Agency — have made that concern clear by revising their outlook for New York City from “stable” to “negative.” S&P Global Ratings has not changed its outlook but has issued similarly stark warnings.
None of the agencies has yet lowered NYC’s bond rating, which remains strong. And there is still robust demand for our bonds among buyers. But the agencies are making it clear that a downgrade could well be on the horizon if we fail to fix the structural problems in our city’s budget.
The City’s budget has a structural imbalance, with recurring expenses outpacing recurring revenues.
The bond rating agencies are not making a political judgment. They are evaluating whether the City is managing our finances in a way that protects our ability to meet our obligations in good times and bad. To do that, they look not just at whether the budget balances in a given year, but how it balances — and what condition it leaves the City in for the future. They track key quantitative indicators such as reserve levels as a share of spending, the size of projected budget gaps and whether fund balances are rising or falling.
The agencies have been crystal clear about their concerns. Moody's cited “large and persistent imbalances” in NYC’s budget even during favorable economic conditions, and warned that a downgrade could follow if budget gaps grow, reserves are depleted, or the City continues relying on one-time measures like drawing on retiree health funds. S&P Global Ratings, while maintaining a stable outlook, has issued a similar warning: Continued reliance on temporary fixes and a weakening cushion could put the City’s rating at risk.
Fitch Ratings flagged a “sustained erosion” of reserves as a key concern and emphasized the need to close budget gaps in a lasting way. Kroll Bond Rating Agency has raised similar issues, pointing to growing imbalances, large out-year gaps and declining reserves and surplus. Different frameworks, but the same message: The City’s financial cushion is shrinking, and its room for error is narrowing.
What would the impact be if New York City’s bond rating were to be downgraded? It would likely add to our borrowing costs, but in the near term the direct financial cost may be manageable given the City’s strong investor base.
But even small increases in borrowing rates, applied across tens of billions of dollars in debt, add up. Over time, those higher costs compound — meaning more taxpayer dollars going to interest and fewer available for schools, parks, housing and infrastructure. Just as important, a downgrade sends a broader signal about fiscal management, which can further raise borrowing costs and reduce flexibility. The real risk is not a sudden shock, but a gradual erosion of the City’s financial position.
There will be only tough choices between now and June. The politically easy solutions have mostly already been exhausted.
For me, the greatest concern with a potential downgrade is what it says about our city’s ability to weather a difficult turn in the economy or other unexpected shock. Though our economy is strong today, we face myriad risks ahead, driven by continued damage from the president’s tariff policies, the impact of the war in Iran and mounting inflation. And then there is the rapid pace of AI advancement, which adds a whole new level of uncertainty for employment, the stock market, cybersecurity and more. This is a terrible time to be weakening NYC’s fiscal shock absorbers.
Fortunately, a bond rating downgrade is not inevitable. If the economy holds, we could see stronger-than-expected tax revenues. In Albany, State leaders are currently negotiating the budget, which I hope will include much-needed (recurring) support for New York City, especially given that we send billions more to Albany each year than we receive in return.
Most important are the choices we make ourselves. We have significant work to do between now and the June deadline to adopt the City budget. We need a plan that relies less on one-time fixes, reins in fast-growing expenses, avoids unspecified cuts and preserves — not depletes — our reserves, including both the Rainy Day Fund and the Retiree Health Benefit Fund. There will be only tough choices between now and June. The politically easy solutions have mostly already been exhausted. But the alternative to decisive action now is to push risk into next year at a moment of real uncertainty.
New York City has one of the most dynamic economies in the world, a deep and diverse tax base and a track record of adapting in the face of challenge. The warning from the rating agencies should not be read as a verdict on our future, but as a call to action. If we make the right choices now — restoring our fiscal cushion and addressing our structural imbalances — we can ensure that New York remains not just resilient in the face of the next downturn, but positioned to thrive for years to come.
