Dunedin Mayor Dave Cull says a downgrade of the outlook on the city's large debt is a timely reminder it has to watch its spending.
Standard & Poor's said Dunedin City Council has good financial management, but relatively high debts and restricted ability to service debt.
It confirmed the council and its treasury arm at the rating level of AA/A-1+, but said there was a one-in-three chance of it being downgraded in the next two years.
Dunedin's total debt is about $620 million and If there is a downgrade, it may face higher interest costs on that debt.
But Mr Cull says the council is determined for that not to happen.
The ratings agency said the negative outlook was because the council might not achieve its financial targets and because of an investigation recently begun by the Auditor-General into property purchases by Delta, a council subsidiary.