Moody’s Downgrades DC Credit Rating Amid Workforce Challenges

Moody's Downgrades D.C. Credit Rating

Moody's Ratings has 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.

In a new report, Moody's reported a downgrade of the district's issuer rating from Aaa to Aa1, marking a significant blow to the city: making it potentially more expensive for local government to borrow money and increase costs to taxpayers.

Impact of Federal Workforce Cuts on D.C.

• The downgrade is attributed to severe pressure from cuts to federal spending, workforce, and real estate on D.C.'s economy.
• According to Moody's analysis, D.C. is anticipated to lose 40,000 federal workers over the next four years due to the Trump administration's Department of Government Efficiency (DOGE).
• This loss in workforce may significantly erode the stability usually provided by the federal sector in the city.

Statements from Local Leadership

D.C. Chief Financial Officer Glen Lee commented that this rating change does not stem from issues in governance but instead is due to broader federal decisions impacting the local economy disproportionately.

Lee emphasized that these economic trends are beyond D.C.'s control.

Outlook and Future Considerations

Moody's outlook is currently negative due to expected further cuts in federal spending and workforce, combined with a downturn in the commercial real estate market. Although D.C.'s rating stands at Aa1, which is still favorable, there are concerns for its future.

Still, analysts recognized D.C.'s economic strengths, such as a highly educated workforce and above-average income levels owing to exemplary fiscal governance.

The agency does not foresee an upgrade of Washington’s ratings in the next 12 to 18 months, but adjustments could be made if the district successfully manages the transition of laid-off federal workers.