Joseph Krist
Publisher
NYC
The irony involved in noting that Zohran Mamdani was elected just past 50 years to the day of the Urban Development Corporation default that triggered the 1970’s financial crisis in New York City cannot be lost on anyone. For those who grew up in it or lived through it, the thought of a return to the days of the rebuilding of the City’s finances is unacceptable. It accounts for the post-election hysteria over the City’s short-term future.
Let’s put some things on the table right away. The City is not going to default, the revenues for the GO bonds are segregated, and the City remains at the center of an economy larger than that of all but several countries. At the same time, the agenda proposed by the Mayor-elect is not all under his control. The State Legislature will have much to say about the City’s taxing and spending power. It will be interesting to see how the actual mechanics of free bus service play out. After all, the MTA farebox bonds are based on gross revenues as security. That will require a significant new expenditure for the City.
Notice that the Mayor-elect is not talking about shifting the tax burden away from individuals. The new tax proposals are not designed to replace but to expand the total of revenues available for the new planned spending. The debate will likely be robust and there are strong arguments to be made for a variety of approaches. The Mayor-elect will not get much of what he wants.
What has not helped is the real lack of detail regarding how to finance what would be a massive expansion of government even in NYC. That may be because some of his tactics will be contradictory. There are 4 million apartment dwellers in NYC – 25% of them are in rent stabilized units. That puts some 3 million at risk of seeing a cost shift as landlords deal with general inflation and pressures to maintain all housing stock. The cost of maintaining revenue constrained properties will be shifted to market rate payers.
One puzzlement is given the Mayor-elect’s “equity” platform, why will there not be a means test for free bus service or child care?
ILLINOIS VETO SESSION
The Regional Transportation Authority, Chicago Transit Agency, Metra commuter rail and Pace Suburban Bus collectively face a $230 million funding shortfall in 2026 as pandemic relief money runs out. The funding deficit is projected to grow to $834 million in 2027 and $937 million in 2028. Generating funds for the system as it exists led to extended efforts to achieve structural reform while address the short term issues faced by the transit agencies.
Now, the General Assembly has passed a funding package to address those current needs. The bulk of the funding, $860 million, would come through redirecting sales tax revenue charged on motor fuel purchases to public transportation operations. Another estimated $200 million would come from interest growing in the Road Fund — a state fund that is typically used for road construction projects but can also be used for transportation-related purposes under the state constitution.
The plan calls for raising the existing Regional Transportation Authority sales tax by 0.25 percentage points, to 1% in Lake, McHenry, Kane, DuPage and Will counties and 1.25% in Cook County. That tax hike will generate $478 million.
Drivers of passenger vehicles on northern Illinois’ toll roads will also have to pay 45 cents more per toll as part of a plan to create a new capital program for tollway projects. It will also increase by inflation each year. That will raise up to $1 billion annually. The bill also calls for 25% of the systems’ revenue to come from fares. Historically, half of the funding was generated by the riders, but that requirement became unsustainable after the pandemic.
The controversial statewide taxes on package deliveries, streaming or event tickets that were part of previous bills were not included. That and $129 million annually to downstate transit agencies helped generate support to put the bill over the line.
The bill would create the Northern Illinois Transit Authority, which would be a stronger version of the RTA and would have the ability to establish a universal fare system and coordinate scheduling between the three service agencies. The board would be comprised of 20 members: five appointed by the mayor of Chicago, five by the Cook County Board president, five by the governor and five collectively by Lake, McHenry, DuPage, Kane and Will counties.
The bill also blocks transit agencies from transferring operating dollars to capital expenses — a controversial move Metra recently proposed in its 2026 budget that raised red flags for several state lawmakers and RTA leaders. The RTA now says it is no longer requiring the CTA, Metra and Pace to implement 10% fare increases next year. The transit bill prohibits fare hikes for the first year after the expected law goes into effect on June 1.
The General Assembly also passed an energy bill that creates grid-battery and geothermal incentives and a virtual-power-plant program. The Clean and Reliable Grid Affordability Act, or CRGA, calls for the procurement of 3 gigawatts of energy storage by 2030. The Illinois Power Agency estimates that developing and operating the storage will cost $9.7 billion over 20 years. That money will be collected from utility customers through a new charge on their electricity bills.
The bill also, for the first time, makes geothermal eligible for state renewable-energy incentives. And it lifts a decades-old moratorium on the construction of large nuclear plants. The legislature had revised the moratorium in 2023 to allow small modular reactors to be built, though this technology is still nascent.
COAL COSTS
The Trump administration’s emergency order to keep the huge J.H. Campbell coal plant on Lake Michigan operating past its planned retirement date has cost at least $80 million since May, its operator, Consumers Energy, told regulators and investors this week. It will pursue the process laid out in the U.S. Department of Energy’s order for collecting those costs: It will seek payment from ratepayers across the Midwest.
Consumers Energy will have to apply to the Federal Energy Regulatory Commission in order to pass the costs to the ratepayers, and states that oppose such a cost allocation could move to intervene in those proceedings. One issue is that the plant must be maintained. Yet, according to recent Environmental Protection Agency data, two of the three units at the Campbell plant were not operating at all for about 30 days of the 131 days from the start of the DOE order through Sept. 30. The third unit at the plant only ran for 18 days.
Consumers Energy previously stated goal of achieving net-zero carbon emissions by 2040, had projected that the retirement of the Campbell plant would save its customers $600 million over the next 20 years, or $30 million per year. Instead, running the plant for the past five months has cost close to three times that annual amount.
CHICAGO
In 2019, the City of Chicago had a budget of $8.9 billion, excluding grants from the State of Illinois and the Federal government. By 2025, expenditures had grown to $12.4 billion—a 40% increase. The Chicago budget’s increase of 40% over the period between 2019 and 2025 equates to an average annualized growth rate of 5.8%, compared to an average annualized inflation growth of 3.9% over the same timeframe.
Pensions were the largest driver of the spending, increasing by $1.5 billion over six years. This increase is due in large part to rising obligations from a combination of state-mandated and supplemental payments needed to pay down the City’s massive unfunded pension liabilities. Increased pension costs alone drove 44% of the total increase in spending. Total personnel count has slightly declined by 371, or 1%, but the City still maintained over some 4,000 vacant positions in October of 2025.
The proposed FY2026 budget reduces the supplemental pension payment by more than half, resulting in an overall decrease in pension expenditures from 2025 to 2026. Debt service makes up a considerable part of Chicago’s budget, with the City paying just over $2 billion in 2025 in interest and principal payments on bonds. This represents 16.2% of the total budget. However, debt service has only increased by 5% since 2019.
The City’s expenditures on employee benefits, which include healthcare and other types of insurance, increased significantly between 2019 and 2025. In 2019, benefits spending totaled $461 million, but by 2025 it had grown to $758 million, an increase of $296 million, or 64%. As the number of employees did not grow over that time, this cost increase was driven primarily by more expensive healthcare benefits for City employees,
CORPUS CHRISTI WATER CRISIS
In September, we noted the cancellation of a desalinization project for the City of Corpus Christi, TX. (See MCN, 9/8/25) Now, the potential for water shortages and rationing of supplies has had a credit impact. Moody’s has affirmed the Port of Corpus Christi Authority, TX’s prior lien and senior lien revenue bond ratings of Aa3 and A1, respectively. The rating action affects approximately $262 million of revenue bonds outstanding. The outlook has been revised to stable from positive.
The revision of the Port of Corpus Christi Authority’s (POCCA) outlook to stable from positive considers its regional water supply challenges. A Stage 4 drought mandate, currently forecasted by the city to occur in November 2026, that causes operational shutdowns of key industries would negatively affect port volume and revenue. Almost all of POCCA’s customers obtain their water from the City of Corpus Christi.
The port as the number one crude exporter in the United States, of oil and LNG. Although POCCA is a landlord port, revenues are highly linked to throughput volumes and can be volatile. The city and local industry are currently implementing solutions, including wastewater reuse and additional groundwater acquisition that are likely to be operational in the next 6-12 months.
INTERNATIONAL STUDENTS AND RATINGS
Moody’s revised Illinois Institute of Technology, IL’s (IIT) outlook to negative from stable and affirmed the Ba2 issuer and revenue bond ratings.
The Ba2 issuer rating reflects Illinois Tech’s sound overall wealth and good regional brand with its STEM focus and urban location. Following several years of significant enrollment progress and growth in net student charges, IIT significantly improved its operating performance and moved to budget surpluses.
However, federal policy shifts have complicated the university’s ability to enroll international students which, until fall 2025, accounted for around 50% of total FTE enrollment. Similar to the higher education sector at large, IIT experienced a significant decline in international enrollment, largely at the graduate level.
THE POWER OF PUBLIC POWER
A recent analysis from UCLA highlighted another trend—the increasingly unfavorable spread between the rates charged by investor-owned utilities and those of publicly owned electricity providers. That’s happening in many regions of the country, but especially in California, where average rates for the investor-owned utilities Pacific Gas and Electric (PG&E), Southern California Edison (SCE) and San Diego Gas and Electric (SDG&E) rose between 48 and 67 percent during that same recent four year period. Their rates are over 50 percent higher than average rates for municipal utilities like the Los Angeles Department of Water and Power (LADWP) and the Sacramento Municipal Utility District.
The California Public Utilities Commission (CPUC) voted to set the ground rules for an independent assessment of what it would cost for San Francisco to take over a portion of PG&E’s grid. This has been a goal for many and they have continued to pursue it since the company rejected their $2.5 billion offer in 2019. investor-owned utilities raise money through a mix of higher-interest bonds and borrowing money from shareholders who receive at double digit rates. IOUs also pay taxes on the profits they earn, while municipal utilities are not taxed on revenue (although some, like LADWP, pay into their cities’ general funds to replace the lost tax income).
Municipal power agencies also don’t pay into the state’s wildfire fund to reimburse damages for utility-caused fires.
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