(Bloomberg) -- New York City’s finances may become a casualty of Mayor Bill de Blasio’s vow to make the largest U.S. city a bulwark against President-elect Donald Trump’s policies against undocumented immigrants and health-care cuts that could hurt women and the poor.
Or at least that’s the opinion of CreditSights Inc., which revised its near-term view on the performance of the city’s bonds to underperform, saying it hasn’t made enough progress cutting future budget gaps and citing the “inevitable conflicts” between the policies of the de Blasio administration and those advocated by Trump.
De Blasio’s status as the most prominent mayor of the so-called “sanctuary cities” could prompt Trump to cut aid or deny waivers to public hospitals, which treat 1.2 million poor and uninsured patients and face a $1.8 billion deficit in 2020, CreditSights said.
New York City plans to price $1 billion general-obligation bonds Dec. 7.
“New York City is the president-elect’s hometown, but on the other hand I think the mayor could likely be a foil given his high profile,” said Howard Sitzer, senior municipals analyst at CreditSights in New York. “The potential for some rancor between the new administration in Washington and the local administration over some of these delicate political issues I think that could very well move New York City’s bonds.”
The difference in yields between New York City 10-year bonds and top-rated debt has widened to 0.375 percentage point from 0.25 percentage point since Trump’s election and they have the potential to widen further in the next 12 to 18 months, said Sitzer. Credit spreads in the municipal bond market generally have widened as Trump’s election victory and the prospects for higher interest rates triggered a bond market selloff.
When de Blasio began his mayoral term, the yield premiums demanded on New York City bonds were about 0.55 percentage point.
De Blasio, who faces re-election in 2017, promised to resist federal efforts to deport undocumented immigrants, sue to block a U.S. government registry of Muslims if the Trump created one and block the return of “stop-and-frisk policing."
A contentious relationship between de Blasio and Trump could have big ramifications for New York City Health + Hospitals. A plan to transform the agency is relying on Medicaid waivers and more state and federal aid.
“We are confident in the city’s ability to move forward the initiatives that matter most to New Yorkers, and will be continuing to budget in the balanced and fiscally responsible manner the raters and monitors have come to expect,” Freddi Goldstein, a deputy press secretary for de Blasio, said in an e-mail.
In all, New York City is getting about $8.5 billion in federal grants in the current fiscal year, according to city’s Office of Management and Budget.
New York City also hasn’t made enough progress in closing budget gaps in fiscal 2018 and 2019, and it will be difficult to make cuts in mayoral election year, Sitzer said. The city faces a $2.2 billion gap in 2018 and $2.9 billion in 2019.