Local outlet Fox Baltimore reports that the ratings agency lowered Baltimore's rating from Aa2 to Aa3, citing "declining fund balance and cash levels across all government operations," with much of the deterioration concentrated in utility and internal-service funds.

Moody's explained that the city's finances have weakened since the COVID-19 pandemic, despite efforts and forecasts aimed at stabilizing reserves. The new Aa3 rating remains investment grade, but the downgrade suggests that the municipal bond market will demand a higher rate when lending to the city.

In a statement, the ratings agency said the downgrade "reflects the trend of declining fund balance and cash levels across all government operations, largely concentrated in the utility and internal service funds."

Economist Anirban Basu warned that the city's financial position is deteriorating and that this is "not great news."

"This is a city now with over $4 billion in outstanding bonds, outstanding debt in that form," said Basu. "And the decline in the bond rating from Aa2 to Aa3 simply means that when the city goes to float its next set of bonds, it's going to pay more interest or higher interest rates on those bonds, which makes financing infrastructure and other city expenditures more expensive."

Basu continued, "A lot of our fiscal concerns, including how much we want to spend on education, how much we need to spend on infrastructure, and the fact that other city funds have also been downgraded, including the water, sewer, and internal service funds, have been downgraded recently."

Fox Baltimore stopped short of addressing a much deeper structural problem: Baltimore has seen a massive exodus of residents, losing more than 70,000 residents, or about 11% of its population, over the past two decades.