Martin Z. Braun and Sri Taylor
4 min read
In This Article:
(Bloomberg) -- New York City mayoral hopeful Zohran Mamdani has rattled Wall Street with his plans to raise taxes on the rich, freeze rents and boost spending to pay for free childcare and education at the city’s public universities.
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Still, bond investors are tempering concerns for now. That’s because many of Mamdani’s core polices — like hiking levies on corporations, providing free bus service and borrowing an additional $70 billion for affordable housing — are outside of his direct jurisdiction, requiring approval from state or local leaders that have a range of ideologies.
“While he has big plans, the practical realities of governance, legal constraints, market reactions, and political opposition are likely to temper the extent to which his agenda can be realized and, therefore, limit the fallout such full realization would have on credit quality,” said Richard Schwam, a municipal credit analyst at AllianceBernstein Holding LP, which holds New York City bonds.
There’s also the general election in November where Mamdani, who is poised to win the Democratic nomination for mayor, will have to beat Republican and Independent candidates, including current mayor Eric Adams.
Those hurdles are limiting investors’ concern that Mamdani’s agenda will materially impact the city’s credit quality. Plans for aggressive new debt or drastic fiscal changes could spark concern over ratings downgrades or higher borrowing costs.
The risk premium on New York City’s debt barely budged following the election results. Spreads on the city’s general obligation bonds maturing in 10 years widened by 2 basis points Wednesday, according to data compiled by Bloomberg. The city, which spends about $7.7 billion annually for debt service, had about $104 billion of outstanding debt as of June 30, 2024.
Not all markets were as placid. Shares of companies linked to real estate in the city fell on the same day as analysts fear Mamdani’s agenda could stifle corporate investment and hiring, reducing demand for office leasing. Meanwhile, a rent-freeze may force property owners to put off maintenance, hastening disrepair.
Budget Picture
New York City and state are facing billions of dollars in federal spending cuts for programs like Medicaid, housing vouchers and food stamps, and their ability to keep funding those programs at current levels, much less spend more, will be challenging. The city also has to comply with a state law mandating smaller class sizes, which may require spending an additional $1.9 billion for teachers and billions more for new class rooms.
