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De Blasio Budget Gaps ‘Credit Negative,’ Moody’s Says

May 12 (Bloomberg) -- New York Mayor Bill de Blasio’s budget is “credit negative” because it increases the city’s projected deficits by more than $5 billion over three years to pay for union wage increases, Moody’s Investors Service said.

The $73.9 billion spending plan proposed last week includes the costs for an agreement de Blasio struck with the city’s 110,000-member teachers union May 1 that raised pay by 10 percentage points through fiscal 2018. It also projects that other unions with outstanding contracts will strike similar deals under a system called pattern bargaining, according to the New York-based ratings company.

“The plan is credit negative because it shows how personnel costs drive the city’s budget and challenge its finances, even in a strong economy,” Moody’s said today in a report. “If all unions negotiating do not agree to the pattern settlement, the budget gaps and the city’s challenges to close them would intensify.”

De Blasio, 53, a self-described progressive and the first Democrat elected to run New York in 20 years, committed to $17.8 billion in raises for workers through 2021 as his budget projected deficits totaling $7.4 billion from fiscal 2016 through 2018. In his February preliminary budget, crafted before the teachers deal was announced, de Blasio projected a gap of less than $2 billion.

City Responds

Moody’s rates New York City’s debt Aa2, its third-highest ranking, with a stable outlook.

“There has been no change in the city’s credit rating whatsoever,” Amy Spitalnick, a de Blasio spokeswoman, said by e-mail. “In a document unrelated to the city’s formal credit-rating process, an analyst at Moody’s pointed out that we added expenses for the contract settlements -- just as they also pointed out the prior week that those same settlements eliminated a major risk from the city’s financial plan.”

New York bonds remained in demand, with investors accepting less additional yield compared with top-rated municipals. General-obligation bonds maturing August 2027 traded May 9 with an average yield of 2.7 percent, the lowest level this year, and 0.83 percentage point above benchmark munis -- the smallest yield gap this year -- data compiled by Bloomberg show.

To contact the reporter on this story: Freeman Klopott in Albany at fklopott@bloomberg.net

To contact the editors responsible for this story: Stephen Merelman at smerelman@bloomberg.net Mark Schoifet, Alan Goldstein

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