A credit rating agency has dropped San Francisco's rating because of the city's deficit spending and economic outlook.

S&P Global Ratings lowered its long-term rating and underlying rating to 'AA+' from 'AAA' on the City and County of San Francisco's existing general obligation debt and lowered its long-term rating and SPUR to 'AA' from 'AA+' on the city's appropriation obligations outstanding.

"The downgrade reflects our view of the city and county's continued weakening economic trends and deficit spending based on audited fiscal 2024 figures and further revenue deterioration compared with previous forecasts that heightens the size of the budget gap in current and subsequent fiscal years, which could lead to a meaningful draw on reserves," S&P Global Ratings credit analyst Li Yang said.

Lower credit ratings for governmental bodies have a similar effect to a lower personal credit rating. Borrowers see loans to them as riskier and will charge a higher interest rate to mitigate the increased risk of not getting that loaned money back. A city with a high credit rating would be able to issue bonds that are purchased with much lower rates.