The thought of having the lower costs (or no costs) for benefits that mayor-elect Mamdani wants to bestow on the residents of NYC is enticing to many. It seems many desire free benefits, as Mamdani won with just over 50% of the vote. However, the cost of those benefits needs to be borne by residents as well.
Is it reasonable and possible to make such sweeping changes? Benefit proposals include rent control freezes, more affordable housing units, free childcare for six-week-olds to five-year-olds, and faster free buses. To pay for the benefits, Mamdani wants to raise the corporate tax rate to 11.5%, add a 2% surcharge to individuals making incomes over $1million, and bond finance a $70 billion investment in affordable housing. Mamdani may have some control over rents, as he can appoint most of the Rent Guidelines Board; however, bond issuance and income tax rates are controlled by previously imposed limitations on debt, and increases require approval by the state. Bus fares and bus operation are controlled by the MTA, which is a state agency. In short, realizing Mamdani’s goals would be a far more complicated business than campaign promises imply.
At Cumberland we think there will be many news items and some changes to policy associated with NYC and related bonds, causing some volatility in pricing that could present opportunities. We think the controls put in place on the city’s budgeting and tax-raising ability and the economic and financial resiliency of the city will provide stability. However, we will be monitoring developments for clues regarding future credit quality. In particular, we will want to see if debt levels increase above those of similarly rated peers.
New York City GO bonds are rated AA by S&P, Aa by Moody’s, AA by Fitch, and AA+ by KBRA; and the outlook by all rating agencies is currently stable. For example, S&P’s base case reflects “modest changes in New York City's day-to-day operations and that potential policy and budgetary changes will gradually evolve over time, resulting in no near-term impact to our general obligation rating on the city.”
The city’s high-quality AA rating reflects its large, diverse, and wealthy economic base, strong financial management, multiple levels of oversight, manageable pension position (although other post-employment benefits are above average), and strong security provisions. The rating is constrained by a high debt level and large capital needs. Transitional Finance Authority (TFA) bonds are rated AAA, reflecting the gross lien on income and sales taxes to pay bonded debt service before the remaining revenue is sent to the city.
The market reaction the day after the election was muted, with NYC bonds trading just a bit lower – meaning higher yields. According to JPMorgan, the spreads for NYC GO, TFA and NYC Municipal Water Finance Authority credits have gradually widened since about February of this year. Notably, NYC GO widened by 8 bps compared to October month-end, following the NYC election result. Currently, all three credits are trading 6–9 bps wider than their 12-year historical averages, with NYC GO cheapening the most. If income taxes are raised, one result could be greater demand for NYC tax-exempt bonds as residents seek to shelter their income from taxation.
A big fear is whether Mamdani’s proposed tax increases to a top corporate tax rate of 11.5% and an additional 2% tax on incomes over $1million will cause an exodus of high-income earners. An exodus could reduce income to cover the city’s expenses and result in a drain on credit quality.
Another concern is that freezing rents could reduce the supply of available affordable housing, with developers hesitating to commit to projects. Current building owners may not be able to invest in improvements, leading to poorer conditions in the rent-frozen buildings. Changes to or the holding back of already granted federal funding is also a concern. The city has strong reserves and regularly reviews and adjusts revenue and expenses, which helps address any unusual events. And as mentioned above, Mamdani’s proposals are constrained by previous legislated controls on budgeting and debt and the need for state approval of tax increases.
NYC is not the only municipality dealing with a high cost of living and the inability of essential workers to live in or near the town that they provide services to. That problem is endemic. It is discussed daily around the country, and various alternatives are being sought, including states overriding local zoning rules to allow smaller lots and multifamily projects to hopefully stimulate the supply of affordable housing. While NYC has very high housing and childcare costs, income is above average, too.
There is precedent for an exodus. During Covid, many NYC businesses and individuals relocated to other areas. Some Florida cities were coined “Manhattan South” or “Wall Street South.” Back then, bonds traded with the fear that NYC, with much of its revenue generated by high earners, would not be able to balance its budget. Some rating agencies had negative outlooks on the city’s AA ratings. However, as NYC ended Covid restrictions, economic activity stepped up; young people flocked to the city; and today many workers are back in the office.
Outyear budget deficits are not necessarily bad.
Strong financial management, implemented in part after the 1975 financial crisis, includes a balanced budget and long-term forecasting of revenue and expenses – which is why the news always reports that NYC projects a deficit in outyears of the financial plan. Based on the current economic forecast (which helps estimate tax and other revenue), the long-range capital plan, expected changes in federal and state funding, labor contracts, etc., it is expected that the outyears will almost always show deficits. The city’s economic forecast is a good planning tool that enables budget planners and constituents to gain information on how to manage future revenue and expense needs, including adjusting and funding the capital plan. The city is required to have a balanced budget – as are most municipalities. The city’s continued and institutionalized conservative budget practices generally result in excess funds that contribute to the following year’s budget. The city began fiscal year ending June 30, 2026, with total reserves of $8.5 billion and a $115.9 billion budget.
At Cumberland Advisors we invest in high-quality munis that have diverse economies and robust financial operations, which give them an average rating of AA. These attributes mean munis, including NYC, have more flexibility to adapt to challenges and opportunities than lower rated bonds.
Patricia Healy, CFA
SVP, Research
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