The AAA rating of the city of Zurich is in danger: Standard & Poor's lowers the outlook to "negative"

The AAA rating of the city of Zurich is in danger: Standard & Poor's lowers the outlook to "negative" A worse rating would bring higher interest costs for Zurich. This is especially a problem because the debt is increasing sharply. The increasingly strained financial situation of the city of Zurich could affect its creditworthiness: The rating agency Standard & Poor's has lowered its outlook for Zurich from "stable" to "negative". This comes from the latest report by S&P, published late Friday evening. This means that the city of Zurich could lose its AAA rating and would be classified as an AA+-debtor in the future. Although this is still very good, it is no longer top class. A downgrade could result in the city of Zurich having to pay higher interest for new loans or the repayment of maturing bonds. Furthermore, the circle of creditors could shrink because institutional investors who only invest in AAA bonds would leave. The probability of a downgrade is quite real for S&P analysts: The risk is one in three over the next two years. Zurich could fall to Geneva's level S&P upgraded the city of Zurich from AA+ to AAA three years ago, in October 2023. This gave Zurich a top position among municipal debtors. With an AA+, however, Zurich would be rated the same as, for example, the city of Winterthur, the canton of Geneva, and several cantonal banks. The canton of Zurich and its cantonal banks each hold the rare AAA rating. For the city of Zurich, a downgrade to AA+ would occur at an unfavorable time. A combination of sharply increasing debt burden, poorer creditworthiness, and the generally rising interest rate environment would drive up the costs of debt interest. S&P justifies its warning signal by stating that the city of Zurich may not be able to control its expenditures. The city expects a deficit of around 400 million Swiss francs in the budget for 2027. At the same time, the debt burden is rising rapidly: from under 5 billion francs in 2022 to 14 billion francs by 2030. Real estate purchases and the expansion of district heating are the main contributors to this. The municipal finance officer, Daniel Leupi from the Greens, had already warned about a downgrade of creditworthiness when presenting the new budget at the end of September. This was to be avoided. Leupi also announced countermeasures at that time, including on a very sensitive political issue, regarding real estate purchases. There, the budget is to be cut from 600 million francs to 150 million francs. Several other projects will at least be postponed. The big question is whether the city council will support this course. This concern has also been reflected in the S&P rating. It is stated in the latest report that there is a risk of larger disagreements over spending priorities, which would lead to a sharp increase in the debt burden. Left initiatives as cost drivers S&P also mentions two initiatives of the SP that were accepted last year and that are particularly significant financially: First, the agreement to reduce the VBZ subscription from 800 to 365 francs – this costs the city around 195 million francs per year. Second, the municipal reduction in health insurance premiums. Around 90,000 city dwellers will receive up to 1200 francs per year. This costs 60 million francs each year. In any case: in a poor financial situation, subsidies can be reduced in both cases at the will of the city council. S&P emphasizes that there are also factors that speak in favor of a positive development. The liquidity base is strong, and tax revenues will increase. Zurich is one of the most dynamic and prosperous agglomerations in the world. Competitiveness and quality of life are very high. Furthermore, S&P expects the city to perform better than in the past in terms of budgeting.