Moody's Ratings downgraded six groups of Washington, D.C., bonds, resulting in an Aa1 issuer rating, a move that's being blamed on the city's complicated relationship with the federal government.
"Moody's Ratings announced a downgrade of the District of Columbia's credit rating from Aaa to Aa1 and revised the outlook to negative," said Chief Financial Officer Glen Lee.
"This action reflects the challenging economic environment facing the District due to significant reductions in the federal workforce and federal spending, as well as ongoing weakness in the commercial real estate market."
The ratings change affects the city's general obligation bonds and income tax secured revenue bonds which both went to Aa1 from Aaa.
Federal highway grant anticipation revenue bonds went to A1 from Aa3.
Senior lien dedicated tax revenue bonds issued by the Washington Convention & Sports Authority, DC went to Aa3 from Aa2.
Ballpark revenue bonds went to Aa2 from Aa1, and deed tax revenue bonds went to Aa3 from Aa2.
Moody's telegraphed the changes in
Fitch Ratings has the city's General Obligation bonds at AA+ and stable as of August 2024, Standard & Poor's Global Ratings has them at AA+ and stable as of this month.
The effect of the downgrade if any, may play out in a planned $1.49 billion new issuance of income secured revenue bonds by the city which is tentatively set for May 15.
Moody's rates the new issuance at Aa1, S&P has it at AAA.
The city has been reeling from the Trump administration's attempts to reduce the federal workforce which is the largest employer in the area and a downtown office market that has never fully recovered from the pandemic.
"This rating change is not the result of a degradation of the District's strong governance and effective fiscal management practices," said Lee.
"It stems from broader federal decisions regarding its workforce and spending, and economic trends that are beyond the District's control and are having a disproportionate impact on the local economy."
The legality of some of the cuts are being debated in court but nationwide there has already been over 58,000 jobs lost with over 76,000 federal employees accepting buyouts.
The greater Washington area including Virginia and Maryland accounts for an estimated 450,000 federal employees with 147,000 living in the city limits.
Per Moody's, "The downgrade reflects substantial cuts to the federal workforce estimated to decline by 40,000 workers or 21% over the next four years, which will erode the stability that the institutional presence of the federal government has historically had on the District's economy."
"Economic growth in the nation's capital will lag the region and the U.S. because of the outsized impact of federal workforce cuts."
The financial blow comes on top of a budget snafu caused by the House of Representatives omitting language in the continuing resolution passed in
The approved 2025 budget is set at higher numbers, resulting in $1.1 billion worth of revenue that the city can't spend.
The budget confusion has delayed the city's mayor from delivering her version of the 2026 budget which requires city council approval and certification by the CFO.
Congress retains oversight on the city's finances which are laid out in four-year cycles with balanced budgets required by law.
"We remain committed to fiscal prudence and sound financial management and will continue to work closely with the mayor and council to ensure the District's long-term financial health and sustainability," said Lee.
