NEW YORK, FEB. 11 -- Citing the city's spiraling fiscal crisis and a deepening recession, Moody's Investors Service informed city officials today that it had reduced the rating on more than $16.5 billion of the city's general bonds.
The implications of the decision to lower the rating one notch from "A-" to "B-aa-1" will be significantly greater than its immediate financial impact, as the city is already reeling from a current budget deficit of $732 million.
"What it means in simplest terms is that the city's financial prospects are worse than they were the last time Moody's made this assessment," said Paul Dickstein, a city budget director under former mayor Edward I. Koch. Such an action "is never good news, particularly now."
Coming just two days before New York attempts to sell $950 million worth of bonds to investors, the action is likely to fuel a new round of uncertainty over the city's financial prospects.
The bonds remain at investment grade, and Moody's went out of its way to say in a statement that the budget plan of Mayor David N. Dinkins (D) is "a credible attempt to close substantial gaps."
But it added that analysis of the recently announced spending plan -- which calls for sharp reductions in spending and services, layoffs of thousands of workers and raising taxes to close an expected budget gap of more than $2.6 billion over the next two years -- revealed "enormous problems and uncertainties."
The decision came only a week after the other major bond rating agency, Standard & Poor Corp., took the city off its negative-credit watch.
Dinkins said he was disappointed in Moody's decision.
"Since assuming office 13 months ago, my administration has adopted gap-closing measures for fiscal years 1991 and 1992 totaling more than $7 billion," Dinkins said in a statement. "These measures have been painful and difficult for all New Yorkers."