After spending two decades climbing from the lows of ignoble junk-bond status, teetering on the edge of bankruptcy, to finally reach the highest triple-A bond rating in 2018, the District has lost that coveted status — owing largely to workforce cuts and other actions by the federal government and Congress, Moody’s Ratings announced.
Moody’s, a bond ratings agency, downgraded the city’s bond rating Wednesday from Aaa to Aa1, a drop that will likely make it more expensive for the District to borrow money, potentially costing taxpayers millions per year. In making the downgrade, Moody’s cited the Trump administration’s “substantial cuts to the federal workforce” that are expected to hurt the city’s economy. And it revised the city’s outlook to “negative,” pointing to a still-sluggish commercial real estate market, the “increased likelihood” of deeper federal spending and workforce cuts and the uncertainty surrounding whether Congress will make cuts to Medicaid — a major fear among D.C. officials and local hospitals.
The consequences of the federal actions highlight the city’s unique vulnerability to the whims of the federal government and Congress, in which it has no voting representation yet is impacted by decisions that broadly affect the city’s financial and economic health.
“This rating change is not the result of a degradation of the District’s strong governance and effective fiscal management practices,” D.C. Chief Financial Officer Glen Lee said in a statement. “Rather, 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.”
