JPMorgan Chase & Co. strategists have raised the prospect that New York City could face a credit rating downgrade, pointing to a narrowing set of revenue options after the state appeared unwilling to greenlight major tax increases.
In a report published Friday, strategists led by Peter DeGroot said the city’s ability to close projected budget gaps looks limited now that New York State has shown reluctance to approve substantial personal and corporate tax hikes that would otherwise help address the shortfalls.
"We believe downgrade risk, which was already elevated, has increased as Albany appears unlikely to approve meaningful new revenue sources," the report states.
The analysts’ warning comes as New York City grapples with an estimated $5.4 billion two-year deficit. That shortfall has already led two major ratings firms to revise their outlooks on the city to negative, reflecting growing concern about its fiscal path.
As it stands, New York City retains an Aa2 rating from Moody’s, which is the third-highest tier of investment grade, and holds an equivalent AA rating from S&P Global Ratings and Fitch. The JPMorgan report frames the potential downgrade risk as a function of constrained revenue options in the absence of state-approved tax measures.
The report does not introduce new budget figures beyond the two-year deficit estimate, nor does it offer specific remedial measures beyond noting the reduced likelihood of Albany endorsing major tax hikes. Instead, it highlights the narrowing policy choices available to municipal leaders seeking to close the gap.
Ratings agencies have already signaled concern through negative outlook revisions, and JPMorgan’s strategists interpret the state’s stance on tax increases as a factor that elevates the probability of a rating downgrade.
The situation leaves the city managing a sizable projected shortfall while its primary revenue-raising avenue - approval of significant personal and corporate tax increases at the state level - appears less likely to materialize, according to the bank’s analysis.
Summary takeaways - the city faces limited revenue options, a roughly $5.4 billion two-year deficit, and an increased downgrade risk according to JPMorgan, with Moody’s and Fitch already assigning negative outlooks.