Democratic Socialist, Zohran Mamdani, was sworn in as New York City’s mayor on January 1st, 2026. The new mayor brings to office an ambitious spending agenda, with promises of free or subsidized housing, groceries, childcare, and bus services. However, the path to the implementation of campaign promises must take into account the City’s institutional guardrails—e.g., strong state oversight, debt limits, and revenue-raising constraints, as his proposed changes could test the fiscal and economic resilience of the nation’s largest city.
From a bond perspective, New York City’s credit profile benefits from having the largest tax base among U.S. cities. While its debt burden is higher than other large U.S. cities, these debt levels have come down over the last decade, providing some room for increased borrowing. That stated, the City’s credit profile could be negatively impacted by the Mayor’s policies if excessive borrowing and higher spending are not supported by appropriate funding sources.
After the election, credit spreads on tax-exempt municipal bonds issued by the City widened modestly. Looking ahead, spreads may widen further on expectations of increased supply or if investors react negatively to the Mayor’s policies. Such events may create opportunities for investors that can withstand volatility and who believe in the long-run prospects for the City.
With Whom Does the Power of the Purse Lie?
New York City is managed through a bureaucracy that includes a mayor, city council, city comptroller, an independent budget office, a separate control board, a series of policies established by the City’s charter, and the New York State Legislature. While the mayor has the ability to set agendas and influence both policy and public opinion, city council’s 51 members can wield significant power. This includes passing or blocking laws and budgets, or even overriding the mayor’s veto powers.
In the 1970s, NYC’s fiscal crisis ushered in reforms—now codified into state law—that fortify its financial strength by requiring, among other things, a balanced budget and a multi‑year financial planning process. On top of this, the State created an independent, fully staffed body, known as the Financial Control Board, to have greater oversight over the City’s finances. Although the Board is dormant, it can be activated if, among other reasons, the City fails to balance its budget. To support the budgetary process, the Office of the Comptroller and the Budget Office provide the City with independent forecasts and audits, while the State Comptroller adds external monitoring to its financial affairs. These checks and balances transcend mayoral preferences and anchor the City’s credit stability.
The Books Must Be Balanced
Last November, over 2.2 million New Yorkers cast their ballot for mayor, making it the highest mayoral election turnout in over 50 years. In a decisive election win, Mamdani’s bid garnered 50.8% of the votes.1 His focus on affordability for everyday New Yorkers clearly resonated with voters. The policies he proposed include free or reduced costs for services that could have a positive impact on their quality of life. However, the estimated recurring costs associated with these proposals exceed $23 billion per year (Exhibit 1) on an existing annual city budget of $110 billion.
Exhibit 1
Mayor Mamdani’s Proposed Policies
Mamdani’s affordability agenda requires additional revenue. While funding for some of the Mayor’s initiatives may come from the State,2 Mamdani proposes raising taxes on corporations and city residents earning more than $1 million per year to pay for his agenda. However, these tax increases would only raise $9 billion annually, falling short of the estimated $23 billion needed to cover his proposed cost increases. Failure to match increased costs with recurring revenues would result in fiscal imbalance and growing budget gaps. The City would have to adjust expenditures for other budget items or find alternative revenue sources. Either way, the potential exists for some departments to see declines in necessary funding.
In addition, raising taxes in New York City is not a power granted to the mayor alone. Although the mayor and city council have broad local autonomy over property tax increases, their ability to increase personal and corporate income tax rates is limited, as it requires enabling legislation and the approval of both the governor and state legislature in Albany. Currently, Governor Hochul’s 2027 state budget proposal does not include any new taxes on personal income and only extends a corporate tax surcharge that was set to expire at the end of the year.
We are not confident that Governor Hochul supports Mamdani’s revenue proposals, especially as Hochul is up for re-election this November. Supporting higher taxes on millionaires may open the Governor up to criticism from challengers. However, Hochul understands the popularity of Mamdani’s agenda and his improving statewide favorability rating, which reached 46% in December 2025.3 Therefore, we believe investors should watch for a potential pivot from the Governor, similar to what was seen when Hochul withdrew support for congestion pricing in the City prior to the 2024 general elections only to reinstate support for it afterwards.
A Note on the Potential for “Tax Flight”
We often hear concerns that higher taxes will erode the City’s financial stability if high-income residents were to move or if businesses pulled back on hiring. New York is particularly vulnerable to this concern given that they currently tax high earnings at one of the highest rates in the U.S., with a state tax rate of 10.9% and an additional city income tax of 3.9%. However, research from 2016 regarding “tax flight” from high tax states demonstrate only a marginal influence of higher taxes on out-migration trends, especially among millionaires.4 In fact, social considerations such as the proximity of high earners to family, friends and professional colleagues, disincentivize individuals from uprooting their lives solely for tax purposes.5
That stated, our view is that the impact of higher taxes cannot be ignored. The COVID-19 pandemic demonstrated that wealthy residents are willing to relocate.6 In addition, data from the IRS and the U.S. Department of the Treasury suggest that New York State’s share of income from millionaires has fallen almost every year for more than a decade, from 12.7% of the national total in 2010 to 8.7% in 2022.7 While the State and City are likely to remain financially resilient in the face of potential higher taxes from Mayor Mamdani, higher tax rates may have diminishing marginal returns.
The Sky is not the Limit for NYC Debt
Among Mayor Mamdani’s more expensive ideas is a proposal to spend $100 billion over the next 10 years to build 200,000 affordable, rent-stabilized apartment units. While the Mayor has said that up to $70 billion of municipal debt may be issued to achieve this goal, the issuance of new municipal debt is constrained by several legal requirements.
Notably, New York City’s debt is subject to limits imposed by the State’s Constitution. Specifically, the total amount of NYC tax-exempt general obligation (GO) bonds and NYC Transitional Finance Authority (TFA) debt outstanding is capped at 10% of the five-year rolling average of its full taxable values. Currently, the City has $47 billion in GO bonds and $56 billion in TFA-dedicated tax bonds outstanding. In aggregate, these are equivalent to 6.8% of the total taxable base. Based on limits imposed by the State, we estimate that the City currently has room to issue just $44 billion of new debt. That stated, in connection with the City’s budget and 10-year capital plan, authorizations already exist for the issuance of an additional $44 billion under its debt cap.
Note: TFA debt is further bound by legal covenants which do not allow additional debt unless debt service coverage exceeds 3.0x. On the upside, the City has ample room under this constraint given that its fiscal 2025 debt service coverage exceeded 6.5x. However, the City is incentivized to not borrow excessively through TFA, as it relies on unused TFA pledged revenues to fund annual operating costs.
Fortunately, the City’s debt burden has been declining for a decade (Exhibit 2). The improved debt burden has been driven by growth in the taxable value of the City’s real estate and a slower rate of debt issuance. Given the City’s deleveraging efforts over the last decade, we believe there is some room for increased borrowing while still maintaining strong credit quality.
Exhibit 2
Total NYC GO and TFA debt, as a percentage of the City’s full taxable value, has been on the decline for a decade
NYC’s Debt Burden Is High in Absolute and Relative Terms
Prior to Mamdani’s election, the City was anticipating an increase in debt. FY 2025 saw a record $16 billion in new debt issuance for the City. In addition, the independent Budget Office has projected future borrowing by the City’s to remain elevated at an average of $13 billion annually. The high debt burden relative to other large U.S. cities is often attributed to the City’s uniquely broad scope of functions—e.g., serving as a city, county, and school district (Exhibit 3). However, even after adjusting for overlapping debt of large comparison cities, we find that NYC remains highly indebted.
Exhibit 3
NYC’s Debt Burden is Higher Than Other Large Cities Given Its Broad Functions
Lessons From the City of Chicago
The first two years of Brandon Johnson’s term as mayor in Chicago may be instructive for Mayor Mamdani. The Chicago Mayor has been challenged to advance his own ambitious agenda. Despite proposing major revenue initiatives during the election and early days as Mayor (e.g., Mansion Tax, a $300 million property tax hike, corporate head tax), these efforts have failed due to state-level constraints or city council opposition. More recent attempts to have the Chicago School Board borrow $300 million for operations were also rejected over concerns about rating agency downgrades and a wider desire to avoid non-recurring budget measures. Johnson’s experience underscores how legal, political, fiscal and external constituent limits can derail policy promises.
Investment Implications & Conclusion
New York City Tax-Exempt GO bonds traded at spreads that were modestly wider after the election (Exhibit 4), underperforming generic investment-grade municipal credit. Spreads have tightened YTD due to strong retail demand and inflows into the asset class. We see potential for spreads on the City’s debt to widen modestly on increased issuance and concern about the Mayor’s policies. The City has capacity to increase borrowing given the improvement in debt burden over the past several years, but the pace of borrowing should be limited by the various checks and balances in place.
Exhibit 4
Relative to the MMD Index, spreads on NYC credits widened modestly after the election on November 4, 2025
Mayor Mamdani’s agenda targets real pressures impacting the lives of New Yorkers, but we are not convinced that Mamdani’s campaign promises are achievable in their current form. The City’s governance architecture is anchored in state law, that purposefully established controls to temper the impact any mayor can have on credit and operations. Still, we caution that an increased spending agenda that is not offset with new or increased tax revenues could create budgetary imbalance. We believe Mamdani will use debt as an avenue to pursue some of his initiatives. The City’s debt burden, while high in absolute terms, has capacity to incur some additional borrowing without a deterioration of credit quality. That stated, the pace of incremental debt issuance must be measured. Supply that is too aggressively paced could pressure leverage and the City’s cost of borrowing.
1 New York City Board of Elections. Statement and Return Report for Certification General Election 2025 - 11/04/2025, December 2025.
2 In early January, Governor Hochul and Mayor Mamdani announced free childcare for all 2-year-old children in the City. This amounts to an outlay of $498 million over the next two years and will be covered by existing state funds. However, the universal childcare program may cost as much as $1.3 billion when fully operational. Furthermore, state support is uncertain—especially for new recurring programs, as funding may not be available during economic downturns.
3 Steve Greenburg. Poll Release, Siena Research Institute, December 2025.
4 Young, Cristobal. The Myth of Millionaire Tax Flight. Stanford University Press, 2017.
5 Young, Cristobal and Lurie, Ithai. “Taxing the Rich: How Incentives and Embeddedness Shape Millionaire Tax Flight.” American Journal of Sociology, vol. 131, no. 2, 2025.
6 “The Pandemic’s Impact on New York City Migration Patterns.” Office of the NYC Comptroller, November 2021. During COVID, New York City’s net out-migration rate more than tripled with residents in the wealthiest 10% of city neighborhoods demonstrating an out-migration rate almost 5 times that of other residents. Exhibited flight from high tax states during the pandemic proved temporary with migration trends returning to pre-pandemic levels.
7 Champeny, Ana. "The Hidden Cost of New York’s Shrinking Millionaire Share." CBC NY, August 2025. 2022 is the most recent publicly available data from the IRS on adjusted gross income.
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