Moody's weighing Washington, D.C. downgrade

Christopher Mobley

Moody's Ratings is considering a downgrade to seven of Washington D.C.'s outstanding bonds and its overall issuer rating as the region reels from job cuts in the federal government. 

"Moody's Ratings announced that it has placed the District of Columbia's credit ratings under review for a possible downgrade; another outcome of the federal workforce reductions and shifts in the real property markets," said Glen Lee, the city's chief financial officer. 

"We will continue to exercise fiscal prudence and sound financial management practices in collaboration with the elected leadership to ensure the District's financial health and sustainability."

The rating warning comes on the heels of Lee's office presenting a letter to the city's mayor and City Council predicting a $342.1 million drop in revenue for the year. 

"The District's most recent revenue estimate reflected the impact of these two fundamental changes in the local economy," said Lee. "No rating decision has been made at this time by Moody's."  

Per Moody's, "Placement of the District of Columbia's ratings on review for possible downgrade is prompted by drastic cuts to the federal workforce, which have an outsized impact on the District's economy, finances and employment." 

"Federal workers make up one-quarter of the District's total employment. This institutional presence historically has been a stabilizing factor in the District's economy."  

The CFO's letter is predicting a drop of 40,000 workers which could impact the city's commercial real estate market that is still recovering from work from home measures installed during the pandemic. 

Per Moody's, "the District's downtown office real estate market also continues to experience high vacancy rates, leading to lower assessed values and property tax collections." 

Numbers from the DC Office of Revenue Analysis, shows office vacancy rates between 2020 and 2024, with an increase of 8.4 million square feet, a 46.2% rise. The rate was already heading north before the pandemic. 

The Trump administration is pushing hard for the federal workforce to return to the office while simultaneously releasing probationary employees. 

The net result points to the return-to-office orders not being enough to offset the decline in office usage.

Still unfolding events in Congress may complicate the interwoven relationship between the city and the federal government it hosts. 

The current version of the House's continuing resolution to keep the government open could force the city to revert to its 2024 budget which could mean a billion dollars' worth of cuts. 

Cracks in Republican support for the CR have already emerged from House conservatives and moderates while Senate approval is less than certain.  

Last week, the city's mayor announced plans to paint over "Black Live Matter Plaza," which came into existence during Trump's first administration, after the U.S. Department of Transportation called out the city to deal with "the application of murals or other forms of artwork within the traveled way." 

The city also recently gained control of the RFK stadium site from the federal government as part of last year's short-term spending bill passed by Congress.  

The mayor has already signaled a desire to tap public money to renovate the stadium and ideally lure the NFL's Washington Commanders back to city from its current home in Prince George's County in Maryland.  

The city is also on the hook for $5.6 billion in general obligation bonds, $366 million in outstanding senior-lien tax revenue bonds issued by the Washington Convention & Sports Authority, and $137 million in outstanding Ball Park Revenue bonds.