Moody’s Investors Service has downgraded the City of New Orleans’ credit rating from A3 to Baa2. This decision, reported on February 5, 2026, stems from significant cash shortages linked to budget shortfalls initially identified in late 2025. The downgrade could increase borrowing costs and impact financing for both public infrastructure and private developments reliant on city incentives or tax-backed solutions.

New Orleans is facing a financial crisis, with projections indicating a cash shortfall of $160 million for 2025 and a potential deficit of $222 million in 2026. These fiscal challenges have placed considerable strain on the city’s liquidity, prompting concerns over municipal-backed project viability. Previously, the city secured a $125 million short-term loan to meet payroll demands, highlighting the severity of the situation.

The downgrade directly affects the city’s ability to finance real estate projects and public infrastructure, raising borrowing costs for city-backed bonds. This change may deter developers, owners, and lenders who consider municipal ratings crucial in assessing risk, potentially reducing interest in public-private partnerships and projects supported by public financing.

The Louisiana Legislative Auditor’s Office and New Orleans city officials are involved in addressing these challenges, as the city seeks to stabilize its financial outlook. The implications of this downgrade extend to increased scrutiny over future city grants, permits, and capital programs that bolster commercial real estate activity.

Moody’s began reviewing New Orleans’ credit status in November, though any subsequent actions or updates have not been specified. As the city navigates these financial hurdles, stakeholders will be keenly watching for any strategic moves to mitigate the effects on ongoing and future development initiatives.

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