Moody’s Ratings smacks New Orleans with another credit downgrade

By Ben Myers

Source: The Times-Picayune | NOLA.com

February 4, 2026

The City of New Orleans suffered a serious blow to its credit rating this week, with Moody’s Ratings dropping it near the bottom of its investment grade and warning investors of moderate risk on future bond sales.

The action on Tuesday is more severe than downgrades by Moody’s and other major ratings agencies last year as the city’s budget crisis exploded into public view. Analysts at the time warned that ongoing financial instability could lead to future downgrades.

The Moody’s downgrade to “Baa2” puts New Orleans at the second rung from the bottom of its investment-grade scale, just two notches above junk status. Future downgrades could result if the city fails to show progress toward balancing its budget, Moody’s said in its report.

Mayor Helena Moreno said in a statement the downgrade is disappointing but “not surprising based on the situation we have inherited.”

“My administration is working hand in hand with the City Council to make the tough decisions to get us out of this mess,” Moreno said. “We hope that over the next few months, Moody’s will see there’s a new direction for New Orleans.”

Improving the rating could be a tall order, at least in the short term. To receive an upgrade, Moody’s said the city needs to boost its reserves close to 40% of revenue and show it can operate without cash flow borrowing. The city last year obtained a $125 million investor loan to make payroll, and Moreno has said another loan is likely needed this year.

The city expects to end the year with $67 million in reserve, less than half what it held at the end of 2024, according to Moody’s. That’s about 8% of anticipated operating revenue.

In its report on Tuesday, Moody’s cited reserves that “will remain well below peers in the next two years.”

“Governance is a key driver of this rating action, reflecting budget management practices that have led to escalating reliance on reserves,” Moody’s said. “The city’s new management team is actively working to reduce costs, though returning to sustainably balanced financial operations remains a challenge.”

In a statement, City Council Budget Chair Lesli Harris said the downgrade “confirms what we already know, the city is facing a serious financial challenge.”

“I am working diligently to restore long-term fiscal stability by returning to a balanced city budget and strengthening our cash reserves,” Harris said.

Meanwhile, the downgrade could significantly increase borrowing costs on a $510 million bond sale voters authorized in November for street repairs, drainage upgrades and affordable housing. The timing of the bond sale hasn’t been announced.

“It is a terrible time for the rating to go down,” said Rebecca Mowbray, chief executive officer of the Bureau of Governmental Research, a public policy watchdog. “We need to fix all sorts of things in our infrastructure, as the bond issue proposal that went before voters in November laid out.”

Moreno has instituted layoffs and furloughs since taking office three weeks ago, while also pledging to hold the line on essential city services and public safety. Her $800 million operating budget also includes new revenue sources, some of which are a moving target and not expected to accrue until later this year – beefed up parking enforcement, for example, will require the hiring and training of 50 new officers.

The cost cutting and revenue measures come on the heels of a $160 million spending deficit last year, which city officials projected to grow to $220 million this year without corrective action.

Mowbray said the focus by Moody’s on governance “is really damning,” noting the downgrade isn’t influenced by external factors like a hurricane or other emergency that require reserve spending. She said the city should adopt a policy requiring a reserve of at least 17% of revenue, the minimum recommended by the Government Finance Officers Association. The city charter currently requires a 5% reserve fund.

“These ratings downgrades make clear that all the ratings agencies want to see this,” Mowbray said, referring to a reserve policy.

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