The end of advance refunding bonds in the federal tax bill will cost New York City more than $425 million over four years, according to First Deputy Mayor Dean Fuleihan.
Fuleihan spoke at a Citizens Budget Commission forum Wednesday morning about implications of the tax legislation on New York. The end of advance refundings is just one of many aspects of the tax overhaul that Fuleihan stressed will harm the Big Apple, including a $10,000 cap on federal income tax deductions for state and local taxes as well as capping mortgage interest deductions at $750,000.
“It will take time before all these implications in the new law are understood, worked out or felt,” said Fuleihan during opening remarks at the CBC event at the City University of New York Graduate School of Journalism. “What threatens our success at this point is not an act of nature, not an economic collapse; it’s actually our relationship with our own federal government.”
Fuleihan said he isn’t concerned about the tax changes impacting New York City’s credit health in the short-term, but added that affordable housing initiatives would take a hit if Congress decides to cut private activity bond tax-exemption benefits. New York City has general obligation bond ratings of Aa2 from Moody’s Investors Service and AA from both S&P Global Ratings and Fitch Ratings.
Howard Cure, director of municipal bond research at Evercore Wealth Management, said at the CBC event that the elimination of advance refundings is a loss for New York City and that it may lead to shorter call dates on future borrowings that allow more flexibility for responding to changing interest rate environments. Cure said his bigger concern for New York City and other municipalities is looming interest rate hikes that will drive up debt costs.
“Refundings, current or advanced, only work if interest rates are lower than when you issued those bonds,” said Cure. “Costs for borrowing generally if interest rates go up -- and that includes all the tremendous amount of infrastructure needs -- is the bigger concern than the actual demand for the bonds right now.”