Tag Archives: game of chicken

Mamdani’s Property Tax Hike Proposal

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ABC News interviewed me in New York Mayor Mamdani’s Property Tax Hike Proposal Puts Pressure on Taxing Millionaires. It reads, in part,

David Reiss, a clinical professor of law at Cornell Law School, told ABC News that it was inevitable that Mamdani’s progressive policies would be met with initial resistance by moderates in a highly contested election year, but the debate over taxation will be one that resonates across the country as affordability takes center stage at the ballot box.

“I have no doubt this will be a flashpoint for national elections and state and local elections as well,” Reiss said.

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A Political Game of Chicken Not Limited to NYC

Reiss, who used to chair New York City’s Rent Guidelines Board, told ABC News that taxation has always been the big factor in elections, with Republicans previously running on a stance of no new taxes on Americans.

This year’s election season will be different, he noted, given Mamdani’s rise to national prominence, as well as that of progressive candidates who have been championing policies to help Americans make ends meet, such as improved child care and rent relief.

“You will see people say, ‘We want to increase revenues to support progressive issues,'” Reiss said.

Reiss said that Mamdani is “planting the flag” in a manner that is important to him and his supporters by making a property tax hike warning a part of his negotiations with the City Council and Albany.

Reiss further said that dangling a worst-case scenario this early puts the conversation on affordability and government fiscal priorities front and center, instead of it being buried under other issues that will surface as election season kicks off.

“You’re seeing a very popular mayor to use the bully pulpit for some change with a politically middle-of-the-road state government,” he said. “It really is a political game of chicken.”

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Reiss noted that the public push for more cost relief has seen leaders become more open to considering progressive policies.

Since Mamdani won the mayoral election, Hochul has been more open to some of his proposals to help New Yorkers, including expanding state funding for child care options for children aged two and older.

On Monday, the governor, whom Mamdani has endorsed, announced that the state would invest $1.5 billion in the city over the next two years for various services and programs, such as public health and youth services.

“It seems from a political perspective a logical strategy for a popular mayor to take, but it’s not without its risks,” Reiss said.

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Lawmakers across the country are facing growing calls from their constituents to address income inequality and the wealth gap, Reiss said, noting a proposed wealth tax in California on billionaires that has prompted some corporations threaten to leave the state.

“It’s the lightning rod, and it sets the terms of the debate,” Reiss said of Mamdani’s budget negotiation proposal. “But we’ll see if it compels other partners in government to go along or to resist it.”

Watt’s Happening with Fannie and Freddie?

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FHFA Director Watt

Federal Housing Finance Agency Director Watt testified before the House Committee on Financial Services today and gave a good overview of the decade-long conservatorship of Fannie and Freddie.  He also gave some sense of the urgency of coming up with at least a stopgap measure before the two companies’ capital buffer drops to zero at the end of the year pursuant to the terms of the Senior Preferred Stock Purchase Agreements (PSPAs) that govern the two companies’ relationship with the Treasury. He stated that it would

be a serious misconception for members of this Committee, or for anyone else, to consider any actions FHFA may take as conservator to avoid additional draws of taxpayer support either as interference with the prerogatives of Congress, as an effort to influence the outcome of housing finance reform, or as a step toward recap and release. FHFA’s actions would be taken solely to avoid a draw during conservatorship.

This signifies to me that he is planning on doing something other than reducing the capital buffer to $0.  As far as I can tell, Watt is playing a game of chicken with Congress — if you do not act, I will.

It is not clear to me clear how much authority Watt has or thinks he has to change the rules relating to the capital buffer. Does he think that he could act inconsistent with the PSPAa and withhold capital?  I have not seen a legal argument that says he could.  Is he willing to do it and be sued by Treasury?  These are speculative questions, but I do think that he has laid the groundwork for taking action if Congress and Treasury do not.

It does not seem to me that he was much wiggle room according to the terms of the PSPAs themselves, except perhaps to delay making the net worth sweep at the end of this year by converting it to an annual sweep or by some other mechanism.  That will be a short-term fix.

Given his strong language — “FHFA’s actions would be taken solely to avoid a draw during conservatorship” — I think he might be prepared to take an action that is inconsistent with the plain language of the PSPAs in order to act in a way that he thinks is consistent with his duty as the conservator.  This is less risky than it sounds because the only party that would seem to have standing to sue would be the Treasury, the counter-party to the PSPAs.  One could imagine that the Treasury would prefer to negotiate a response with the FHFA or await Watt’s departure rather than to have a judge decide the issue.  One could also imagine that Treasury would go along with the FHFA without explicitly condoning its actions, particularly if its actions soothed a turbulent market for Fannie and Freddie mortgage-backed securities.

Watt has consistently signaled that he will act if no other responsible party does and he emphasized that again today.