Paying for It

To riff on an old meme, what doth capital? Specifically, the capital of the outlay: how governments get the money they spend. Do we know this CapEx face of capital, with its coursing currents of borrowing and lending, the infrastruktur of infrastructure? As socialists take executive office at the municipal level and attempt to realize their ambitions for the working class, they have had to grapple with this often misunderstood arena of subnational public finance easily dismissible by those claiming to traffic in cold, hard facts.

See Zohran Mamdani, the Democratic nominee for mayor of New York City, and the launch of his Green, Healthy Schools initiative during the primary. This platform, with its accompanying policy paper, got a headline in The Nation—rare for a sustainability in education proposal—with more glowing coverage than typical for Jacobin. In response, centrists centristed: a typical news item in Politico characterized this policy among several others proposed by the campaign as a “free for all,” for which the democratic socialist would have a “tough time paying the tab.” (The cost of green, healthy schools was one target among several of Mamdani’s proposals in the hit piece, alongside free buses and public housing construction.)

But what stands as the unhelpful free-for-all in this situation? Is it the Mamdani campaign’s proposal to make schools healthier and safer or the regime in place that is supposed to finance public infrastructure? In New York City, and pretty much everywhere else, 75 percent of all said infrastructure is funded through securities sold on the municipal bond market, whose stated purpose is to use the efficiency of market competition to allocate credit to state and local governments for capital needs. Valued at $4 trillion, the market has more than 90,000 state and local government issuers selling over a million unique securities in the United States, purchased by investors the world over (compare that to the corporate bond market, where there are only 4,000 issuers).

Mamdani’s schools proposal would depend on one such bond called a building aid revenue bond. BARBs are sold by the New York City Transitional Finance Authority (NYCTFA), a semiautonomous entity with its own leadership through which the city issues debt to pay for its infrastructure. A recent bond statement from the NYCTFA selling nearly $1.4 billion in BARBs is revealing. In 2026, the city will have to pay $157 million in debt service for them. According to the deal structure decided by groups of lawyers, consultants, and city wonks—very few of whom are elected—that number will go up to $600 million in 2027. As part of those payments, about $22 million will go toward interest on these loans in the first year of repayment and approximately $68 million the following. That’s $90 million spent just on interest in two years.

These numbers compose a small slice of the $3.4 billion in yearly debt payments the New York City Department of Education made for its 2025–26 budget, around 8 percent of its entire budget, and roughly the cost of Mamdani’s schools proposal. At $3.8 billion, his initiative would run into the state government’s statutory limits on the city’s outstanding debt; the cap, in the case of BARBs, is $9.4 billion, of which some $7.2 billion is already outstanding. This occurs under the threat of a credit rating downgrade, making the borrowing all the more punitive. These bonds get a credit rating, decided by the same agencies that gave permissive ratings to toxic mortgage debt and ushered in the 2008 financial crisis. BARBs have a lower credit rating than other forms of city debt, making them more expensive per dollar borrowed than others.

All of this money goes to investors and private banks, the latter of which are listed at the front of the publicly available (but not publicly comprehensible) bond statement as underwriters. In the case of the NYCTFA’s recent BARBs, many of the names will be familiar to those of us who have campaigned against finance capital (Bank of America, RBC Capital Markets, Barclays, Morgan Stanley); others may be less familiar (Ramirez & Co., Inc.; Blaylock Van, LLC; Academy Securities, Inc.). These underwriters and their investors must be paid back before any other funds are spent—before teachers are paid, before mold is remediated, before the city government can do what it’s promised. If the city were to get into fiscal trouble and face a decision between paying teachers and paying bondholders, it would have to pay bondholders.

With straps consisting of credit ratings and debt limits, relatively autonomous borrowing authorities and bondholder supremacy, this straitjacket is a national arrangement impacting every municipality that wants to build something or offer public provisions, socialist or otherwise. If Mamdani is elected mayor, the administration will have to put on the jacket, as every mayor before him had to, and as any socialist taking up the executive branch on a local level will have to. To do anything, they need to sell, repay using tax money, and refinance bonds through a shadow government of unelected technocrats, manipulating a market so complex that barely anyone understands it (the most advanced research on the subject calls the situation “opaque”) for the benefit not of the public but those holding the bonds.

I should confess that I myself am a bondholder. It was an experiment. After having to give up a public pension (due to changing jobs) and needing to decide what to do with the money, I decided to invest in the municipal bond market to see what it was like. The aforementioned NYCTFA was selling several twenty-year bonds for general capital expenditures, like bridge maintenance. I could feel good about putting my little investment into a loan to my city to help pay for the infrastructure that I cross to get around, making a tidy little return with the roughly 4.5 percent yield. That return is fixed, so while I knew I’d make that return, it also wouldn’t get higher than that, which it might if I put the money in the stock market. That being said, that money wouldn’t be taxed as income by the federal government. With some caveats of course, speaking in broad terms, a billion-dollar bond with a 4.5 percent yield would make investors $45 million in tax-free income.

But I also knew that a chunk of my money wouldn’t go to the city for its bridges or other public infrastructure. It would rather go to Moody’s for the service of rating the bond, to the lawyers making sure the bond was legal, and then to some mixture of the more than twenty-five banks acting as underwriters in the fiscal architecture. I also knew that my mayor and city council, no matter how socialist, would have little leverage over the protocols and practices set up by the NYCTFA, some of whose managers are unelected. We know from the same bond statement referenced above that the authority is “administered” by five directors like the City Council speaker and comptroller, but, perhaps more important for its day-to-day work, is run by its own set of officers and staff members that are appointed by the directors, serving in crisscrossing roles throughout the city’s public finance apparatus: David M. Womack is the executive director but is also the deputy director of financing policy and coordination at the Office of Management and Budget of the City. Womack’s career has taken him from Citigroup to Rice Financial Products to Blaylock Van LLC, all finance deal desks, the last of which is one of the city’s main underwriters.

While at Citigroup, in 2003, it was important to Womack to push through a relatively risky bond to finance a $45 million charter school affiliated with the infamous education management organization Edison Schools for Washington, D.C., a paradigm case of antidemocratic public financing for private institutions, which whole school districts, like Philadelphia, had fought to prevent from taking over.

There are few rights that residents have in the face of bondholder demands. Most importantly, perhaps, the officials put in charge of governing the city by the supposedly sovereign people have little recourse or room to maneuver in the face of their power. Take Chicago, for example. A former teacher, teacher union organizer, and Cook County commissioner, Brandon Johnson was elected mayor in 2023. He ran a successful campaign against Paul Vallas, former budget director under mayor Richard Daley who, after leading the charge of selling toxic swaps to finance city programs, oversaw the charterization of a third of Philadelphia’s schools. Vallas became a master of disaster capitalism, charterizing the entirety of New Orleans’ public schools in the wake of Hurricane Katrina and then exporting those protocols domestically to Bridgeport, Connecticut, and then abroad to Haiti and Chile.

Chicago wanted something different and saw a new horizon with Johnson. Like Mamdani, he came out of an ascendant left coalition of organizers, unionists, and socialists of all kinds. Johnson’s victory was seen as a defeat of neoliberalism and austerity, just as Mamdani’s promises to be. Yet despite ideological and political alignments across the mayor’s office, Board of Education, and union leadership, Johnson had to put on the straitjacket, inheriting a perennial budget crisis where bonds played a crucial role.

According to the mayor’s office, this crisis was brought about in part by a problematic $175 million pension contribution payment. The pension, serving school support staff, had for years been covered by the city of Chicago, paid from the city’s budget. To lessen the pressure of her own budget woes, a few years before Johnson took office in 2019, the previous mayor Lori Lightfoot put an intergovernmental cost-sharing agreement in place, forcing the district to reimburse the city. This move elicited outrage from the school district and the increasingly powerful Chicago Teachers Union, where Johnson had been an organizer. By the time Johnson was mayor, backed by the CTU and communities around schools, there was pressure on him to have the city cover this rogue pension payment Lightfoot had saddled the schools with. Yet Johnson had to ask the schools to pay this reimbursement to the city, since it had already budgeted the payment, making the same arguments as his predecessor, whom he’d heavily critiqued. Without that reimbursement, it’d be harder for Johnson to finance his agenda. When educational leaders asked how the schools, facing their own budget crunch, were supposed to make the pension payment reimbursement, Johnson recommended that the school district sell an emergency bond to help repay the city. The school district would have to take on new debt, paying millions more in interest, fees, and underwriters’ discounts on top of the principal it’ll have to pay back down the line.

With the way municipal finance works in this country, it was either debt or more austerity for the city and the schools. The school board, many of whose members Johnson had appointed himself after a mass resignation of the previous board, chose austerity and voted against the new debt. Without the new bond from the schools to pay the city back, Johnson was left with a $1.15 billion deficit to escape from, which he now has to wriggle out of as Trump calls for him to be imprisoned, and his approval ratings struggle to get above 30 percent. The straitjacket is only getting tighter.

A common refrain in the past decade and more is that we should tax the rich to provide for the people. Again, Chicago proves instructive: as Mamdani has proposed to tax the wealthiest New Yorkers, Johnson attempted to pass a new real estate transfer tax that would apply to properties over $1 million in the city. Called Bring Chicago Home, the initiative would have made the flat real estate tax on property sales a progressive one; whereas the city had taken $3.75 for every $500 of a property sale, Johnson’s tax would decrease the rate for properties under $1 million to $3 and increase it to $10 for properties above a million. The new tax went to a referendum. Voters defeated the proposal, with 52 percent voting no; organizers, reflecting on the campaign, noted that the real estate industry was able to effectively lie in the public debate about what the tax would do, where the money would come from, and how it would address things like crime and homelessness.

But let’s say the referendum had passed and the proposed Bring Chicago Home Board was in charge of disbursing the revenues brought in by the transfer tax. Where would those revenues go? Rather than a simple matter of taxing the real estate transactions and spending it to house the homeless, the city would have to issue bonds through the Chicago Housing Authority, which is how it funds its housing development agenda, meaning that such revenue would be redirected in large part to pay off the debt. Similarly, in New York, taxing the city’s wealthiest would send some of the people’s money circulating through private credit markets directly back to the taxed. There are entire ruling class industries (financial consultants, credit raters, bond counsel, underwriters, bond insurance sales) on the market side, and committees and subcommittees and consultants on the government side, working hand in hand—often populated by the same people, like in the case of Womack—that take in billions of public dollars to make that opaque and fragmented regime of credit allocation function.

This is not an argument against taxing the rich, of course: it will help pay off the debt, and provide more public programs, as the new millionaire’s tax does in Massachusetts. But that a non-negligible percentage of that money will be returned to the millionaires rankles. (Experts largely don’t know the full amount here, but we can do some guesswork about exactly how much leaks out.) With interest rates from half a point to 4 to 5 percent and costs of issuance ranging from 1 to 10 percent of the loan’s principal, states and localities are constantly forced to squeeze savings from potential lower rates or novel reimbursement programs. A grab bag of different instruments have evolved for local governments to contort themselves and get drips out of the stingy and Byzantine spigot available to them for public infrastructure: anticipation notes, revenue bonds, certificates of participation. Even if a socialist mayoral administration wins a bitter fight to tax the rich, it won’t be fully free as long as this bond regime is in place.

How to escape the straitjacket? The federal government could do any number of things to dismantle the municipal bond market regime, including the provision of no-cost loans directly lent through the Federal Reserve and Treasury, institutionalizing the same functions these bodies used to provide liquidity during the pandemic shutdowns. On a bigger scale, there could be a national investment authority to protect and develop the collective good of public infrastructure, a third federal body alongside the Fed and Treasury meant to provide the long-term capital needed for collective goods that the markets are too impatient to provide.

At smaller scales, the Biden administration used the Inflation Reduction Act to create a nigh-bottomless well of tax credits for green infrastructure available directly to municipalities, which got the federal government to help reimburse up to 60 percent of costs associated with capital projects. Maybe even more exciting, the IRA capitalized green banks to the tune of $27 billion. Green banks are one of the more hopeful structures available to us: they are like reverse charter schools, mobilizing private capital for public purposes like decarbonization, making private investment public. They’re an actually-existing multi-criterial investment fund, not merely seeking profits but also justice of various forms.

But after what John Ganz calls Biden’s “abortive social democracy,” the second Trump administration has dismantled those promising programs and made any of the bigger solutions impossible. Further, they’ve used the tax credit structure to publicly finance private schools and hobble public school districts while defunding health care provisions and any public programs seen as woke. The budget cycle coming downstream from the Trump administration’s new budget is already creating a bleak outlook for New York State, threatening a potential $10 billion shortfall just as debt payments on BARBs for New York City nearly triple. Mamdani will have to put on this straitjacket, just as other mayors have before him, but this time under threat of losing significant federal support: Russel Vought, director of the United States Office of Budget and Management and current grim reaper of federal spending, has already infamously cancelled $18 billion for New York City infrastructure projects as part of MAGA’s federal spending massacre. That money was going to repay bonds the city has already sold. Someone’s going to have to pay them—the voters and taxpayers who want to see Mamdani’s vision become a reality.

This is what awaits the Democratic nominee if he wins: a cabal of capitalists holding out the municipal finance straitjacket, like an award from some hellish golf tournament, belting his administration’s arms behind their backs. Maybe this is why James Carville, Bill Clinton’s chief advisor, famously said that he wanted to die and be reincarnated as the bond market. “You can intimidate everyone,” he said. The Mamdani administration shouldn’t be excessively scared, but they should be aware what’s awaiting them. Houdini once got himself out of a straitjacket while suspended upside down above Times Square. The voters of America’s biggest city may have to place their hopes on a similarly miraculous escape—of course, however, as Mamdani echoed Nelson Mandela when he won the primary, “It always seems impossible until it is done.”