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New York City's new $5.5 billion contract with the teachers union and other labor deals will drive up future deficits, reported Crain's, leading the credit agency Moody's to label Mayor Bill de Blasio's executive budget as "credit negative."
The designation, released Monday, will not have any impact on the city's rating, which is still strong at "Aa2/stable outlook."
However, the uncertainty of the where the budget will stand in the future under the mayor's plan is affecting the city's ability to issue bonds to fund other capital programs, such as for infrastructure improvements.
De Blasio insists that the labors' raises will be paid for by savings they have all promised to make in their healthcare budgets.
But Moody notes that if the unions stall or back away from this promise, those deals will triple the city's future budget gaps to $7.5 billion between fiscal years 2016 and 2018, from $2 billion originally estimated in the mayor's preliminary budget in February.
"There could be some challenges in attaining those savings," Nick Samuels, vice president and lead analyst at Moody's, told Crain's. "Because it's not clear what exactly the menu of options will be."
