KBRA lifted New York City bond rating outlook to stable

Bloomberg News

KBRA has lifted New York City’s outlook to stable from negative. 

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Three rating agencies lowered their outlooks on the city’s rating to negative in March, in response to its budget gap and Mayor Zohran Mamdani’s proposed budget. 

Moody’s Ratings and Fitch Ratings kept their negative outlooks when they reviewed the city ahead of last week’s $1.5 billion pricing. But KBRA felt the city had rectified many of the red flags in its adopted fiscal 2027 budget. 

“They’re obviously navigating a very challenging situation, and with lots of potential political pitfalls,” KBRA analyst Douglas Kilcommons said. “They addressed every one of the reasons the credit was put onto negative outlook to begin with.”

New York City entered its budget season with a shortfall of roughly $12 billion. Mamdani pushed the state to fill the gap with taxes on the wealthy and corporations. Failing that, he proposed a budget which would raise property taxes and — to the ire of rating agencies — spend the city’s reserves.

The city ultimately closed the budget gap with a so-called “pied-à-terre” tax on second homes, an intense plan to find savings, and around $8 billion of non-recurring revenue sources. 

“Over the past seven months, the Mamdani administration has taken extraordinary steps to return the city to strong fiscal footing after years of chronic underbudgeting drove historic budget gaps,” Matt Rauschenbach, a spokesperson for the mayor, wrote in a statement. “Mayor Mamdani and our entire administration will stay laser-focused on strong fiscal management and transparency, saving taxpayer dollars, making government more efficient, building and maintaining budget reserves, and making the city more affordable and livable for working class New Yorkers.”

New York City is currently rated AA with a stable outlook by S&P, Aa2 by Moody’s, , AA by Fitch, and AA-plus by KBRA. 

KBRA analyst Linda Vanderperre said the city’s budget still “contributes to future structural instability” because of its reliance on one-time funds and delayed expenses. But it’s “meaningfully improved from the preliminary budget framework,” she said.

New York will also have to battle to enforce its pied-à-terre tax. A judge in Staten Island blocked the implementation of the tax on Monday, although that ruling is on hold. On Tuesday, President Donald Trump wrote on Truth Social that the tax “must be stopped, NOW!”

Despite the litigation, Vanderperre expects the city to be able to collect the $500 million from the tax that it projects for fiscal 2027. 

The fiscal 2028 budget will have to address a projected $7 billion shortfall, roughly 6.7% of budgeted revenues; however, that’s pretty normal for the city, Vanderperre said. 

The projected budget gaps for 2029 and 2030, she said, pose more of a problem — 8.3% and 8.4% of budgeted revenues.

“We continue to feel that structural imbalance persists, and that it’s something that the city has to address,” Vanderperre said. “Certain components of their cost structure… are just growing so quickly that this structural imbalance cannot be addressed.”

The city has been extremely transparent with rating agencies, Kilcommons said, walking KBRA’s team through its fiscal decision making — that’s not always the case, he said. 

In November, New Yorkers will vote on an amendment to the city charter to set contribution targets for the city’s rainy day fund. If the policy passes, Vanderperre said, it would be a “really strong improvement” to the city’s credit.