Independent Thinking^®

Changes at the Top: the New York Muni Outlook

Editor’s note: This article is extracted and updated from “Another Governor for New York: The Muni Outlook,” also by Howard Cure, published by Evercore Wealth Management in August 2021. For bondholders, the transition of power in both New York State and New York City shouldn’t be much cause for concern. Kathy Hochul, who replaced Andrew Cuomo as Governor, is the former Lieutenant Governor. Eric Adams, the presumptive next Mayor of New York City, has significant state and local government experience as well as serving, with distinction, as a NYC police officer.
 
Both face big challenges, however. Staffing, managing all the issues associated with the coronavirus pandemic, infrastructure spending, and running for office will likely be top of mind for Ms. Hochul. Mr. Adams hopes to improve relations between the city and state, and revive the city’s economy while providing opportunities for all people to share in the growth.
 
The Metropolitan Transportation Authority, or MTA, is among the most pressing issues. The MTA has lost about half of its riders since the pandemic started; emergency federal aid has bolstered the authority against a huge operating deficit. However, budget gaps are on the horizon, as soon as 2025. Fortunately, the state is providing increased financial resources for both operations and capital expenditures.
 
On a related note, implementing congestion pricing in New York City, which is expected to generate $1 billion a year, is also a challenge. The revenue from congestion pricing – a charge on driving in certain traffic-prone areas – was meant to help fund the MTA’s $51 billion, five-year capital program. Congestion pricing needs to reasonably maximize revenues while determining possible exemptions to the fee. It remains to be seen if capital priorities will change under a new administration.
 
The relationship between Mr. Cuomo and outgoing New York City Mayor Bill DeBlasio always seemed particularly adversarial, even by New York standards. The city needs state approval for most tax reforms or implementing important programmatic changes, and a constructive relationship between Ms. Hochul and Mr. Adams could result in real benefits.
 
New York State and New York City have proven their resiliency time and again. A transition to a new leadership, while challenging, does not diminish our confidence in the state’s or city’s credits.
 
In New York, as with all of our state and local bonds, we continue to focus on credit issues that have a broad revenue base and strong legal pledge, such as New York State general obligation, personal income tax and sales tax bonds, as well as essential purpose revenue systems such as water, sewer and public power issues. At the same time, we are more cautious and selective when it comes to sectors more severely impeded by the pandemic, such as transportation bonds and the healthcare sector.
 
Howard Cure is a Partner at Evercore Wealth Management and the Director of Municipal Bond Research. He can be contacted at [email protected].