New York City spared downgrade by Fitch and Moody’s, for now

Published Sat, Aug 1, 2026 · 10:13 AM

[NEW YORK] New York City avoided a debt downgrade on Friday (Jul 31) by two major credit-rating companies, though both warned the city must take steps to narrow projected deficits or risk a cut – despite the current boom on Wall Street. 

Fitch Ratings and Moody’s Ratings kept a negative outlook on the city’s US$53 billion of general obligation debt in advance of a US$1.5 billion bond offering next week. 

New York Mayor Zohran Mamdani and the city council avoided dipping into reserves and raising property taxes to balance a US$126 billion budget approved last month.

But the spending plan – US$10 billion larger than last year’s – relies heavily on one-shot and short-term measures, such as extending the timetable to payoff pension debt and additional state aid. The city’s financial plan projects a deficit of US$6.4 billion for fiscal year 2028, rising to US$8.5 billion by 2030.

“Over the next 12 months, the outlook will be influenced by the city’s ability to narrow projected gaps through recurring measures,” Moody’s wrote in a note on Friday. “Gap-closing strategies that rely on non-recurring measures limit financial flexibility, especially if economic growth slows sharply.” 

Moody’s grades the city’s bonds Aa2, its third-highest investment grade rating. Fitch gives the bonds a comparable AA rating.

The deficits partly reflect rapid growth in a rental-assistance programme for homeless New Yorkers and by city-funded private school tuition payments for special education students. The voucher programme has ballooned to US$1.8 billion from just US$36 million in fiscal 2019, according to the Citizens Budget Commission. 

Meanwhile, health insurance costs for the city’s roughly 320,000 employees have increased US$3.6 billion over the last five years, according to the commission, a fiscal watchdog.

Spending is outpacing strong revenue growth propelled by a surging stock market and a windfall in corporate profits from the country’s largest banks. Tax collections for the fiscal year that ended Jun 30 were US$4.3 billion higher than forecast, according to the city’s bond offering document.

A recently enacted pied-a-terre tax is expected to raise US$500 million annually.

To cut costs, on Jul 28, Mamdani directed city agencies to identify 2.5 per cent in savings, as part of efforts to streamline a government that spends more than all but three states. BLOOMBERG