New York Mayor Bill de Blasio’s budget is “credit negative” because it increases the city’s projected deficits by more than $5 billion over three years to pay for union wage increases, Moody’s Investors Service said.
The $73.9 billion spending plan proposed last week includes the costs for an agreement de Blasio struck with the city’s 110,000-member teachers union May 1 that raised pay by 10 percentage points through fiscal 2018. It also projects that other unions with outstanding contracts will strike similar deals under a system called pattern bargaining, according to the New York-based ratings company.
“The plan is credit negative because it shows how personnel costs drive the city’s budget and challenge its finances, even in a strong economy,” Moody’s said today in a report. “If all unions negotiating do not agree to the pattern settlement, the budget gaps and the city’s challenges to close them would intensify.”
De Blasio, 53, a self-described progressive and the first Democrat elected to run New York in 20 years, committed to $17.8 billion in raises for workers through 2021 as his budget projected deficits totaling $7.4 billion from fiscal 2016 through 2018. In his February preliminary budget, crafted before the teachers deal was announced, de Blasio projected a gap of less than $2 billion.
New York bonds remained in demand, with investors accepting less additional yield compared with top-rated municipals. General-obligation bonds maturing August 2027 traded May 9 with an average yield of 2.7 percent, the lowest level this year, and 0.83 percentage point above benchmark munis, the smallest yield gap this year, data compiled by Bloomberg show.
Moody’s rates New York City’s debt Aa2, its third-highest ranking, with a stable outlook.
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