One of the nation’s most populous states – and a top issuer of municipal bonds – is showing strong fiscal signs post-pandemic.
Soon after the onset of Covid, there was concern over a mass exodus of residents from the state and city of New York and, as a result, a possible fiscal calamity.
Now those fears appear overblown.
The fiscal health of issuers, of course, is a bedrock consideration for municipal bond investors, and we are encouraged by the recent news from New York and other state and local governments.
Population changes not ‘materially affected’
For years, residents leaving New York City outnumbered those coming in. But during the pandemic, out-migration spiked, as more people moved out of New York City than any other metro area in the country.
Many relocated to homes in nearby suburban cities and towns, seeking less expensive and less dense areas.
Now, however, the number of people moving out of New York is tapering, and it’s reversing in downtown Manhattan.
As of last October, Manhattan’s population was 3.9% higher than pre-pandemic levels.
Interestingly, some destinations where people moved, such as Philadelphia, Dallas and Austin, are now sending more people, on a net basis, to New York City.
Meantime, the migration out of New York has “yet to materially affect the finances of the city or the state of New York,” according to Lord Abbett.
MTA’s balanced five-year fiscal plan
Almost half of New York City’s revenues are derived from property taxes. Driven by a strong real estate market, however, it’s tracking above estimates so far this year.
Revenue from sales taxes, which comprise 12% of city revenues, showed a 3.7% uptick in the second quarter of this year, while the city’s financial plan last month showed a surplus of fiscal 2023 tax revenues.
Income tax collections represent 24% of the city’s revenues, and the stock market drop last year raised concerns. But through May, collections are exceeding estimates by 4.9%.
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The city’s cash levels are at record highs and ended fiscal 2023 up an estimated 53%, “providing the city with a significant cushion should a cooling economy result in lower tax collections,” according to a report by Lord Abbett.
The report also notes the improved fiscal condition of the Metropolitan Transportation Authority. Although ridership slipped from pre-pandemic levels, the state imposed a tax bump that will be used to fill MTA’s budget deficits over the next five years.
“This marks the first time in decades that the MTA has had a balanced five-year fiscal plan,” the report said.
In a vote of confidence, Moody’s revised the outlook on the MTA to positive from stable “based on the significant increase in state tax support that will offset the post-Covid ridership losses and structurally balanced projected budget gaps,” the rating agency said.
Further, state personal income taxes, which make up more than half of total revenue, fell 27.4% from a year ago, reflecting last year’s volatility in the financial markets. Additionally, total revenues dropped almost 17% from March to July of this year, though consumption and use taxes are up 5.7% so far this year.
“Due to conservative budgeting, however, state receipts through the first quarter were $450.8 million higher than expected,” according to Lord Abbett.
State reserves are climbing, as $20 billion has been added since 2020, and the state’s general fund balance ended June with a $387 million increase from last year and $1.3 billion higher than earlier forecasts.
In line with other states
Is New York a bellwether for the rest of the country? We hesitate to generalize.
But the fiscal resilience of New York is in line with other states (“States, Locals Showing Prudence Amid Economic Rumblings”).
As we have said, governments have various levers at their disposal to adjust to changing fiscal conditions, a fact well known – and appreciated – by municipal bond investors.
