As New York City prepares to price $2.65 billion general obligation bonds this week, rating agencies took the opportunity to lay heavy scrutiny on the city's budget, which would tap the city's reserves and threatens a large property tax hike if the state doesn't help.
Fitch Ratings, KBRA, and
In Fitch's rating report, issued Friday, analysts wrote the negative outlook "reflects Fitch's concern about the February 2026 financial plan and the city's ability to right-size the budget given required approvals for recurring sources of new revenues, and the ability to implement cost-savings measures as planned in order to right-size estimated outyear budget gaps without a significant reliance on available reserves."
Howard Cure, director of municipal bond research at Evercore Wealth Management, said the outlook cuts may not have a major impact on the upcoming deal's performance. The factors that led to the downgrade have long plagued the city, he noted.
"I don't think the issues raised are new issues. So I don't know if it's going to have a real impact on how the city trades," Cure said.
New York City is rated Aa2 with a negative outlook by Moody's, AA with a stable outlook by S&P, AA with a negative outlook by Fitch, and AA-plus with a negative outlook by KBRA.
The retail order period for the GOs opens Tuesday.
The deal has four series. Series 2026 F-1 consists of $1.27 billion tax-exempt bonds, maturing from 2029 through 2037; Series F-2 is $411 million taxable bonds, maturing from 2026 through 2028; Series G is $900 million tax-exempts, maturing from 2028 through 2053; and Series 1 is $67 million tax-exempts, a reoffering of a 2016 issue.
BofA Securities is the bookrunning lead manager of the deal, with Jefferies and Ramirez as co-senior managers and 22 co-managers. The bond counsels are Bryant Rabbino and Norton Rose Fulbright, with Orrick as co-disclosure counsel. Frasca & Associates are serving as co-financial advisors.
John Hallacy, president of John Hallacy Consulting, said he doesn't expect the negative outlooks to have a "dramatic" effect on the bonds' performance. If there is an impact, he added, it will likely be on the short end, where the city's budget risk would be most relevant.
New York is facing a budget gap of at least $5.4 billion, after years of under-budgeting for growing expenditures. Mayor Zohran Mamdani has pushed to balance the budget with taxes on the wealthy and corporations. If the taxes aren't enacted, Mamdani proposed a 9.5% property tax hike.
Under Mamdani's plan, the city still has outyear gaps of $6.66 billion in FY 2028, $6.75 billion in FY 2029, and $7.1 billion in FY 2030.
KBRA commended Mamdani's budget for the transparency of accurately accounting for ongoing costs, but that transparency "reveals a materially larger structural imbalance than previously reflected," causing the negative outlook.
"In recent years, the city's financial plan benefited from the ability to prepay future-year expenses and otherwise manage recurring costs within the budget framework. The revised baseline suggests that this flexibility has diminished as expenditure growth has outpaced recurring revenue growth, leaving less capacity to use prepayments and similar budget management tools that have helped support structural balance in prior years,"
New York City Comptroller Mark Levine highlighted the city's economic strengths in his response to the downgrades, while calling for more sustainable budgeting practices.
"A negative outlook from a credit rating agency is not a downgrade — but it is a warning," Levine said in a statement. "Now three of our four ratings agencies are sending us a similar message: New York City needs to address the underlying structural imbalances in our budget."
The mayor's office did not immediately respond to a request for comment. When Moody's lowered the city's outlook, City Hall spokesperson Dora Pekec called the move premature.
"Given the $5 billion in additional funding to the city proposed in
S&P, the one rating agency with a stable outlook on the city, noted, Mamdani's budget proposal is just the first step of a "multifaceted budget development process," which is likely to evolve.
"We believe New York City will walk a tightrope as it faces financial uncertainty in its fiscal 2027 budget cycle and over its five-year financial plan," S&P's analysts wrote in its rating report, "particularly as it recognizes substantial underbudgeted expenses and the costs of complying with state and local mandates that previous budgets and financial plans did not fully fund, in conjunction with potentially less predictable outyear federal and state funding."
Fitch warned of further threats to the city's finances in its report. Mamdani's plan takes advantage of one-time funds, which could erode the city's reserve cushion, Fitch's analysts wrote.
Many revenue-raising measures would require state approval, and while
Fitch's rating report also warned of "regular leveraging of the property tax levy close to maximum permitted levels that erodes future tax increase flexibility." This would damage Fitch's view of New York's overall budgetary flexibility.
