Mayor Bill de Blasio's preliminary contract agreement with the city's largest teachers union on Friday left out some key details, according to strategists who were trying to figure out how the plan will affect New York City financially.
The contract with the United Federation of Teachers will provide an 18% wage increase over the course of nine years, and intends to provide more than $1 billion in healthcare cost savings over the next four years, according to a press release on Nyc.gov.
"We have a bit of concern because the $1.3 billion in reduced healthcare costs is not really explained at this time," Dan Heckman, senior fixed income strategist at U.S. Bank, said in an interview.
The press release says that the city and the UFT have identified potential cost control measures including "more efficient" purchasing of services.
"We would like to see some more concrete detail," Heckman said. "Whether it will ultimately save a billion or not, it's hard to tell at this point."
The agreement also intends to compensate teachers for wages New York City municipal workers were given that teachers were excluded from under the Bloomberg administration.
The new contract intends to compensate the teachers' union members who were not included in the wage increases at the time retroactively and also provide them with future wage increases.
"The preliminary agreement the City of New York and the United Federation of Teachers reached reduces the uncertainty surrounding the city's potential retro-active payment liability," said S&P Ratings analyst Lindsay Wilhelm. "We will continue to analyze how the UTF and future agreements will affect the city's fiscal 2015 budget, long term financial plan and contingent liability burden given the combination of wage increases and health care efficiency savings."
Heckman said he's worried that the retroactive payments "would set precedent, set an environment where municipalities have more trouble negotiating with unions, unions might hold out thinking will get retroactive pay. It might be somewhat more difficult in going to negotiation table. Unions may say, 'we're going to get paid retroactively anyway, let's hold out for a longer period of time'."
When Moody's assigned an Aa2 rating to New York City's latest general obligation issuance totaling $200 million, Moody's said in its March 21 global credit research report that the city's budget could increase based on its ability to settles expired contracts with its labor unions.
"Depending on when and how those are resolved and what the costs are could be the source of budget strain and could create negative rating pressure," Moody's said.
Yields on the City of New York general obligations with a 5% coupon maturing in 2032 fell by 11 basis points on Friday to 3.16%, according to data provided by Bloomberg. Trading volume for all City of New York bonds was 4.6% below its 100-day average.
Municipal bond yields in the intermediate part of the curve experience a two basis point cut for five to six-year maturities, and a one basis point rise for seven year maturities, according to Municipal Market Data's Triple-A scale. The rest of the curve held steady.
The two-year, 10-year, and 30-year bonds' yields held steady at 0.38%, 2.23%, and 3.61% respectively, according to Municipal Market Advisors.
Treasuries were mixed Friday, with the 30-year yields falling four basis points to 3.37% and the10-year benchmark slipping two basis points to 2.60%. The two-year notes rose one basis point to 0.43%.
