Federal worker layoffs and uncertainty over policy changes under the Trump administration have caused D.C. to lose its top "Aaa" credit rating with Moody's Ratings.
Moody's, one of the three major bond rating agencies, announced Wednesday it downgraded D.C.'s rating to "Aa1" and changed its outlook to "negative." Fitch Ratings and S&P Global Ratings are also watching D.C. for a possible downgrade.
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WATCH HEREIt's the latest financial blow to the nation's capital, which is already facing a $1.1 billion budget crisis created when the Republican-controlled House of Representatives eliminated a little-known provision in a budget resolution. D.C. Mayor Muriel Bowser has said the city will have to make devastating cuts to programs and services if the House doesn't pass a fix soon.
Moody's said its downgrade reflects the significant cuts to the federal workforce, which it projects could decline by 40,000 workers or 21% over the next four years. Those layoffs "will erode the stability that the institutional presence of the federal government has historically had on the District's economy," the agency said.
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"A bond rating decrease will make it harder for DC to borrow money, make strategic investments and support popular initiatives. DC’s bond rating decrease is just another consequence of DC lacking Statehood because the current federal oppression coupled with our lack of autonomy continues to harm Washingtonians," Oye Owolewa, D.C.'s shadow representative, said in a release.
A declining commercial real estate market and a "high degree of uncertainty" about federal government policy changes — specifically, potential cuts to the federal share of D.C.'s Medicaid spending — were among reasons Moody's cited for the downgrade.
More than 270,000 D.C. residents have Medicaid, according to the most recent data. The federal government pays 70% of costs for traditional D.C. Medicaid recipients and 90% of costs for residents who were added in the Medicaid expansion. It's still unclear how Medicaid cuts would shake out, but D.C.'s Medicaid program is already facing "unprecedented challenges" amid budget issues.
D.C. Chief Financial Officer Glen Lee said Moody's downgrade isn't a result of D.C.'s own financial management.
"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 said in a statement.
"It’s clear that we must act with urgency and clarity. As a government, we have to make thoughtful but decisive policy choices that help stabilize our local economy in the wake of these federal job reductions. That means investing in projects and places that drive growth—particularly those that breathe new life into our commercial corridors and bring vibrancy to every corner of the city," D.C. Councilmember Kenyan McDuffie said in a statement.
