De Blasio furlough call could be a marker

BY SourceMedia | MUNICIPAL | 09/16/20 12:53 PM EDT By Paul Burton

Facing a lack of further federal rescue aid and no authorization from the state for additional long-term borrowing, New York Mayor Bill de Blasio on Wednesday announced five-day furloughs for 500 mayor's office employees, including himself.

The furloughs will run from Oct. 1 through March.

"It's a step you never want to see for good, hard-working people," de Blasio told reporters at his daily briefing from the City Hall Blue Room. "[But] it's something we have to do and I have to do."

De Blasio said the move would save the city about $1 million, which only nibbles at the edge of the city's $9 billion budget gap through fiscal 2021 due to the effects of COVID-19.

"It's good to acknowledge that leadership starts at the top, but what is really needed is dramatic action to stabilize the city's fiscal situation. This is not it," said Andrew Rein, president of the watchdog Citizens Budget Commission.

The mayor could be throwing down a marker. Throughout the summer he has warned of laying off 22,000 of the city's 300,000-plus workforce.

Asked if he would extend the furloughs to the citywide workforce, he said: "Everything's on the table. We've been talking with labor about all the ways to save money. The things that we need ? the stimulus and the long-term borrowing ? are not here and time's a-wasting."

The effects of COVID-19 have ravaged city revenues and affected New York's standing in the capital markets. Moody's Investors Service (MCO) and S&P Global Ratings lowered their outlooks on the city's general obligation bonds to negative since the coronavirus escalated.

Moody's (MCO) rates city GOs Aa1. S&P Global Ratings and Fitch Ratings rate them AA. The city's Transitional Finance Authority sold $1.27 billion of future tax secured subordinated bonds on Tuesday.

According to data on the Municipal Securities Rulemaking Board's EMMA website, a block of city fiscal 2020 Series 1 tax-exempt GOs maturing in 2028 that originally priced at 131.414 cents on the dollar and a 1.06% yield, sold to a customer Wednesday at a price of 128.032 cents and a 1.283% yield.

The city pared $7 billion from its FY21 budget, agreeing July 1 on an $88.2 billion spending plan.

Throughout the crisis, de Blasio has come under fire for his oversight. Criticisms have ranged from overspending to public safety to restrictive policies to combat the coronavirus. Controversy has also engulfed the city's planned reopening of schools, with classroom sessions scheduled to return on Monday.

City business leaders have gotten antsy. The business group Partnership for New York City, in a letter to de Blasio that about 170 executives signed, cited a litany of concerns.

?There is widespread anxiety over public safety, cleanliness and other quality of life issues that are contributing to deteriorating conditions in commercial districts and neighborhoods across the five boroughs,? the letter said. ?We urge you to take immediate action to restore essential services as a necessary precursor for solving the city?s longer-term, complex, economic challenges.?

The partnership also wrote President Trump requesting further aid to the state, city and state-run Metropolitan Transportation Authority, which operates the city?s mass-transit system.

"A bit of kabuki theater is taking shape in terms of the government-business relationship," municipal bond analyst Joseph Krist said.

"The message should be clear to the mayor that he needs to come to the table with a responsible plan that reflects a willingness to accept input from the whole range of sources," he-+ said, referencing the collaboration that helped the city emerge from its 1970s fiscal crisis.

"The key to resolution of the 1970s fiscal disaster that was New York City was the involvement of both the private sector and the unions in formulating an overall plan. That sort of engagement seems to be something the mayor believes he can shun. If he keeps it up, he may wind up having to borrow for one year at a higher cost than from the Fed."

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

fir_news_article