All four major bond rating agencies have put New York City on a watch list, warning they may downgrade the city’s credit rating over Mayor Zohran Mamdani’s budget proposal. Moody’s, Standard & Poor’s, Fitch and Kroll each assign letter grades to the bonds New York City sells to finance its debt, and none of them are pleased with what they see.
The agencies object to Mamdani’s plan to draw down the city’s $8 billion rainy-day reserve fund at a moment when city revenues are actually growing. The mayor also wants to raise property taxes. Budget experts widely believe the proposals are designed to pressure Albany into taxing wealthy individuals and corporations at higher rates.
Mamdani isn’t just fighting the rating agencies. The state comptroller, the city comptroller, fiscal watchdogs and even the City Council have pushed back on the plan. That’s a wide coalition of opposition, and it’s not coming from Wall Street alone.
But before New Yorkers panic about bond downgrades, it helps to understand what a rating cut would and wouldn’t actually mean.
Matt Fabian, president of Municipal Market Analytics, an independent bond analysis firm, offered a pointed analogy. “A bond rating is no more a measure of a mayor or governor than a credit score is a grade on whether you are a good parent,” he said. “Would you be a good parent if you didn’t help your children financially to go to college to keep your credit score high?”
Fabian’s point matters. A downgrade would not automatically cause the city’s borrowing costs to spike. New York City is such a significant issuer of municipal bonds that buyers of state and local debt depend on it. The market needs New York paper. That structural reality provides a cushion that smaller municipalities don’t have.
The more serious concern among budget experts isn’t the rating itself. It’s what dipping into the reserves signals about the city’s fiscal discipline over time.
Ana Champeny, research director of the Citizens Budget Commission, one of the groups opposing the Mamdani plan, was direct about her concerns. “Rainy day reserves should be saved for a recession or severe emergency,” she said. “Look no further than global instability, weak job creation and a possible AI bubble to remember that the economy can swing down as well as up. Using reserves as a one-shot budget hole patch is misguided. It both leaves NYC to face the same hole next year and leaves it less prepared to protect New Yorkers from the next recession.”
That last point is the crux of the argument against the plan. Reserves built up over years get spent once. Whatever budget gap the mayor patches this cycle still exists next year, except now there’s less cushion to absorb a downturn.
The $8 billion figure is the highest in the city’s history, which sounds reassuring. But the former Adams administration and the City Council declined to grow the reserve fund as the overall budget expanded. As a percentage of total spending, the cushion has actually shrunk. Both State Comptroller Tom DiNapoli and former City Comptroller Brad Lander called for years for the city to build up reserves further, not spend them down.
The four agencies didn’t just issue warnings in passing. They placed the city on formal watch status because of the budget proposal, which puts the question of a downgrade on a defined timeline.
Standard & Poor’s spelled out what would push the city toward a cut: continued reliance on non-recurring budget solutions that fail to close the structural gap between what the city spends regularly and what it takes in regularly, combined with declining reserves.
That structural mismatch is the oldest story in New York City fiscal history. The city spent years after the 1970s fiscal crisis trying to build habits that would keep it from that kind of brinkmanship again. What budget watchdogs fear most isn’t a bond rating. It’s that the city is rehearsing old mistakes with a bigger safety net than it will have when the next recession hits.
