Months Into Mamdani’s Term, NYC Gets A Big Credit Warning

Moody’s downgraded New York City’s financial outlook from “stable” to “negative” on Wednesday, citing a projected $5.4 billion budget deficit.

The deficit was unveiled by Democratic Mayor Zohran Mamdani during a preliminary budget hearing in February. Mamdani has proposed increasing the city’s budget from $115 billion under his predecessor to $127 billion for the upcoming fiscal year. 

A spokesperson for Mamdani said Moody’s action is premature, noting that state lawmakers are considering roughly $5 billion in additional funding for the city.

In its statement, Moody’s acknowledged that the proposed state funding “could have a stabilizing effect over time,” but cautioned that it would matter only “if enacted.”

Without additional state funding, Mamdani has proposed raising property taxes by 9.5% and taking $980 million from the city’s rainy-day fund. Moody’s warned that tapping reserves would “limit financial flexibility, especially if economic growth slows sharply or an outright downturn materializes.” 

New York City Comptroller Mark Levine described the potential property tax hike and use of reserves as having “dire consequences” and called Moody’s decision a red flag.

“Moody’s decision to review New York City’s outlook to negative is a sobering wakeup call about the fiscal challenges ahead for us,” Levine said.

The downgrade comes after a year in which the city posted record Wall Street revenues amid a strong local economy.

Despite revising the outlook, Moody’s left the city’s bond rating unchanged. A full downgrade would likely raise New York’s borrowing costs by signaling greater credit risks to investors.

Moody’s warned that a rating downgrade could follow if budget gaps widen to 10% of city revenue.

Mamdani has attributed the projected deficits to what he describes as mismanagement under former Mayor Eric Adams, arguing that prior budgets failed to adequately fund cash assistance, rental support, and shelter services.

During the Adams administration, the city absorbed more than 210,000 migrants, with officials estimating the cost of housing and support services at roughly $4.3 billion. Those expenses continue to strain the city’s budget.

Meanwhile, Mamdani has advanced several costly campaign proposals, including expanded childcare and transit initiatives. According to estimates cited by the New York Post, the mayor’s proposed expansion of childcare for two-year-olds could grow from $73 million in its first year to $425 million by 2027. A proposed “free and fast buses” initiative could cost the city up to $800 million.