NYC mayoral turmoil unlikely to affect bonds

NYC Mayoral Photography Office/Michael Appleton

New York's besieged Mayor Eric Adams' fate rests in the hands of the courts and state leaders after the Department of Justice dropped corruption charges, which led four deputy mayors to resign over the weekend and many officials to urge him to resign. 

Expect considerable upheaval regardless of whether the mayor stays or is removed from office, but analysts say the situation is unlikely to affect the city's credit ratings or bond prices.

"Support for the mayor has eroded to some degree with the coverage of the recent departures of the deputy mayors," said John Hallacy, president of John Hallacy Consulting. "Going forward, the question is whether or not the mayor will be able to build consensus on budget priorities and any cuts required to balance the budget. The [2025 mayoral] election will create many agendas out there that may be disruptive to the smooth functioning of government."

Howard Cure, director of municipal bond research at Evercore Wealth Management, agreed that the mayor's image could jeopardize his budget negotiations, and potentially prevent state support. 

But unless there's a significant breakdown in New York's finances, the city's bonds are likely still safe investments and prices are unlikely to suffer as a result of the political turmoil, Cure said.

"There's a lot of oversight for the city, and they still have to abide by … a financial control board and oversight by outside parties," Cure said.

None of the news of the past year seemed to have an effect on demand for New York's bonds, Cure noted. "Very sensitive buyers may defer more from participating, especially any foreign buyers of the taxable bonds."

The scandal started in September when Adams was indicted for corruption, including charges that he accepted more than $100,000 of illegal campaign contributions. Adams has denied all allegations.

Since Donald Trump's election as president, Adams has spent time with the president in Washington and voiced intent to cooperate with his conservative immigration agenda. 

Last week, Trump's Department of Justice moved to dismiss the case against Adams without prejudice, meaning it could be revived at a later date, prompting the U.S. Attorney for the Southern District of New York to resign in protest. The federal judge overseeing the case has scheduled a hearing on the matter for Wednesday. 

"I want to be crystal clear with New Yorkers: I never offered — nor did anyone offer on my behalf — any trade of my authority as your mayor for an end to my case. Never," Adams said in a statement last week. "Now, we must put this difficult episode behind us so that trust can be restored, New York can move forward, and we can continue delivering for the people of this city."

On Monday, four deputy mayors announced they intend to resign. The departing staff includes First Deputy Mayor Maria Torres-Springer, a veteran of the DeBlasio and Bloomberg administrations who assumed the role last year following another wave of resignations related to the indictments. 

Fitch Ratings said the current events will have no impact on the city's credit ratings. Fitch's rating report on the city's most recent GO deal said the agency expects New York to "maintain its strong budget and fiscal management practices, notwithstanding recent events surrounding the city's mayor."

"This includes continuing to achieve general fund operational stability while maintaining reserves at close to or better than current levels," the report said. "Fitch's expectations for the resumption of revenue growth, following near-term economic interruptions associated with elevated interest rates and periods of high inflation, coupled with continued careful expense management and use of budgetary tools, support these expectations."

The New York governor has the power to remove the mayor. Gov. Kathy Hochul met with a series of New York political leaders on Tuesday to discuss exercising this power, but has not yet made any decisions. 

City leaders can also convene an "inability committee" to determine if the mayor is unable to serve. The City Council would ultimately vote on whether to remove the mayor. 

City Comptroller Brad Lander, who is running against Adams for mayor, threatened to convene an inability council if Adams cannot present a plan for governing with a diminished staff. Lander declined to comment for this article. 

Removing the mayor would be uncharted territory, but there's little reason to worry it would hurt the city's credit, according to Thomas Zemetis, U.S. public finance director for S&P Global Ratings.

"Typically our view of creditworthiness incorporates policies and practices that are embedded in a government's financial, debt, and capital planning and day-to-day operations," Zemetis said, "so that they endure beyond changes in elected leaders."

There may be risks for New York if it brings in a different mayor, Cure said. Adams' support for Trump's harsh immigration policies is unusual among America's big cities and has been repudiated by many New York leaders. The mayor's stance is protecting him from federal prosecution, but it may also be protecting New York from federal retaliation.

"Depending on who takes over and their attitude toward things like migrant issues, being a sanctuary city, what happens to federal funding?" Cure asked. "How could that be threatened?"