As New York City prepares to sell nearly $680 million of bonds Wednesday, investors are unlikely to see much short-term risk: Its coffers are flush with cash.
(Bloomberg) — As New York City prepares to sell nearly $680 million of bonds Wednesday, investors are unlikely to see much short-term risk: Its coffers are flush with cash.
The city’s cash balance, which includes reserves, stood at $14.6 billion in early February, twice as much as the same time a year earlier, according to the Comptroller. Although Wall Street bonus payments are projected to decline 20%, personal-income-tax revenue withheld from worker paychecks in January was almost 7% higher than the same month last year, showing that the city is still gaining from the strong labor market.
“The city’s financial position is much stronger than it was before the pandemic,” said Vikram Rai, head of Citigroup Inc.’s municipal bond strategy group.
It’s the first offering of general-obligation bonds since October and comes as the city’s standing rises on Wall Street. On Feb. 17, Fitch Ratings raised the city’s credit rating one level to AA, its third-highest grade, reflecting its improved finances. A bond maturing in August 2028 was offered to institutional investors, with yield of 2.88%, or 31 basis points more than AAA rated munis of the same maturity, according to people familiar with the matter.
The city has recovered about 90% of the jobs lost during the pandemic and is projected to end the current fiscal year with a record $8.3 billion in reserves.
Those reserves will help the city weather any coming downturn after the Federal Reserve’s aggressive interest-rate hikes ended the pandemic boom on Wall Street. That’s left officials projecting that personal-income-tax revenue will decline 8.5% this fiscal year and another 3% in the one beginning July 1.
Meanwhile, settling labor contracts with employees could cost $16.3 billion over the next five years, according to an offering document for the bond sale.
The outlook for New York City is also clouded by the slow return of commuters and uncertainty about how the long-term impact of remote work will affect the real estate market. The impact on commercial real estate tax revenue will take longer to become clear, however, because lease terms typically run as long as 10 years. Office properties account for approximately 18% of the property tax levy, according to Fitch Ratings.
Despite weakness in the commercial real estate market, the city’s Department of Finance projects overall property value to rise about 6%, boosted by single-family home prices. Citywide assessed values, which determine the value of property for tax purposes, are projected to rise 4.4% to $286.8 billion.
Officials are projecting a $3.2 billion deficit for the 2025 fiscal year, with the gap widening to $6.5 billion by fiscal 2027. The independent budget monitor, which forecasts higher revenue collections, pegs the deficit in 2025 at $2.8 billion, widening to $2.9 billion by fiscal 2027.
However, the forecasts don’t include the fiscal impact of settling labor contracts with employees.
Last week, Mayor Eric Adams said the city reached a five-year contract agreement with its largest union at a cost of $4.4 billion through fiscal year 2027.
The labor agreement, which still must be ratified by the union’s members, provides 3% annual raises for the first four years and a 3.25% increase in the fifth year. If that settlement is ratified and the pattern of wage increases is applied to the remaining employees, it would cost the city $16.3 billion.
New York also faces a $4 billion tab to temporarily house asylum seekers from Central and South America and more spending for the beleaguered Metropolitan Transportation Authority.
But Governor Kathy Hochul’s proposed budget would reimburse as much as $1 billion of the city’s costs for asylum seekers over the next two years. Citigroup’s Rai said it was very likely that the federal government will also provide aid to the city for housing migrants.
(Adds yields on NYC bonds in fourth paragraph)
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