Moody's Investors Service revised the outlook on Syracuse, N.Y., to negative from stable.
The upstate city has $326 million in outstanding general obligation debt, rated A1 by Moody's.
"The negative outlook reflects significant out-year budget gaps that could greatly weaken the city's financial position," analysts said in a report.
"The outlook also reflects some question as to the city's willingness to close gaps and meet all its obligations, given the mayor's research into municipal bankruptcy protection."
Syracuse Mayor Stephanie Minor told The Wall Street Journal that she had asked an outside legal expert to prepare a legal memorandum about the process of municipal bankruptcy, according to an article on August 7.
Minor has said that the inquiry was for informational purposes only.
Moody's said the rating could be downgraded if there is a material decline in reserves and liquidity, a trend of general fund structural imbalance, a narrowing liquidity and fund balance trend, a significant increase to the city's debt burden, or further exploration of a bankruptcy filing.