Moody’s downgrades DC credit rating

Moody’s Ratings announced this week that it was downgrading D.C.’s credit rating amid a wave of mass federal workforce cuts and hits to the local economy.

Moody’s said in a new report that it was downgrading the district’s issuer rating from Aaa to Aa1, a blow to the city that will likely make it more expensive for the local government to borrow money and cost taxpayers more.

The downgrade comes from the “mounting negative pressure that cuts to federal spending, workforce and real estate are having on the District’s economy and finances.”

The analysis noted that under the Trump administration’s Department of Government Efficiency (DOGE) slashes to the federal workforce, D.C. is expected to lose 40,000 workers over the next four years. Moody’s said that workforce loss will “erode the stability” that the federal government historically held in the city and over its economy.

D.C. Chief Financial Officer Glen Lee said in a statement that the rating change is not a result of the degradation of Washington’s governance.

“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,” Lee’s statement said.

The ratings change was first reported by The Washington Post.

Moody’s noted in its report that it was giving D.C. a negative outlook because there likely will be more cuts to federal spending and the federal workforce, and the city has seen a decline in its commercial real estate market. While the rating now rests at Aa1, it’s still a strong rating given that Moody’s can go down to a C.

Still, the analysts noted that D.C. has some strengths. The city benefits from a highly educated workforce and above-average income levels and has “exemplary fiscal governance.”

Moody’s said it is unlikely to upgrade Washington’s ratings in the next 12 to 18 months, but it could be revised to stable instead of negative if the district can absorb the laid-off federal workers into the private sector without the city’s reserves declining.

D.C. achieved the triple-A rating, the highest status possible, in 2018 after it recovered from financial troubles in the 1990s, the Post noted.