Wall Street delivered a warning shot to the District on Tuesday by downgrading the city’s financial outlook. Moody’s Investors Service and Fitch Ratings cut the city’s credit outlook from stable to negative, meaning that if the city’s finances don’t start improving, its credit rating could be downgraded next year. A credit downgrade would make it more expensive for the city to borrow money and taxpayers would likely carry that burden.
Tuesday’s forecast was the first time D.C.’s credit outlook has received a negative rating in 15 years.
However, the outlook downgrade is more a reflection on the District’s “unique exposure, as the nation’s capital, to federal government downsizing and the risk that such a downsizing could have on the finances of the District,” Moody’s said.
So, although the city should stop dipping into its reserve fund to balance its budget, this outlook downgrade isn’t a result of that, said George Mason University economist Stephen Fuller.
“The uncertainty in the [federal] budget and the potential reductions in federal employment and federal spending [make] the District’s economy more vulnerable,” he said.
The District has a rating of Aa2 on $2.8 billion in general obligation bonds.
– Liz Farmer
