Debt

The rising costs of federal debt, an impending budget showdown, and Congressional turmoil is highlighting the complex relationship between Treasury securities and municipal bonds.

The growing federal debt level may pressure lawmakers to retract or reduce the tax-exemption for munis to generate revenue, some market participants argue.

To maintain the city's good credit rating and robust fiscal health, New York City Comptroller Brad Lander is also proposing a stronger debt management policy to make sure the city keeps its debt service below 15% of tax revenues.

The bond division undertook two transactions last week to retire outstanding taxable public education capital outlay and state revolving fund bonds. The transactions used $200 million in program funds, along with additional money, to pay down $400 million in state debt.

The fiscal 2024 budget proposal leans on federal funds, better-than-expected tax collections, and a drawdown on reserves to bankroll a wide array of capital work and a boost to state employee salaries.

The bipartisan legislation offers hopes for other municipal bond industry priorities.

The Treasury Department's Bureau of Fiscal Service has suspended the sales of State and Local Government Series securities in efforts to avoid defaulting on the debt limit.