Without Extension, N.Y.C. Faces Loss Of Its Ability to Borrow by Negotiation

New York City will lose its authorization to sell notes and bonds through negotiation at midnight tonight unless the deadlocked New York State Senate reconvenes and passes an extension bill.

The city will still be able to sell debt competitively, but local finance law 54.10, which allows the city to do negotiated sales, is set to expire. The Assembly already passed a routine bill, A. 8616, that would extend the law's sunset until June 30, 2010, but with the Senate deadlocked it looks unlikely that the bill will be headed to Gov. David Paterson's desk for a signature any time soon.

"If it goes on another week or two I don't think it's a big deal. Obviously if the Senate situation goes on a couple of months, then it could be a problem," said City Council member and finance committee chairman David Weprin. "They could do competitive deals, [but] with certainly the larger-size deals and with timing the market, they're better off going negotiated."

The city plans to sell $6.45 billion of general obligation bonds in the fiscal year that begins July 1, marketing roughly $1.6 billion each quarter, according to the adopted budget. The city sells most of its bonds through negotiation, though it has sold competitively in each of the past 10 years. Of the $45.17 billion of GO bonds the city has sold since 2000, $3.27 billion were sold competitively, according to Thomson Reuters.

"We expect to borrow again over the summer," said New York City director of investor relations Raymond Orlando in an e-mail. "We are hopeful that by the time we do issue we will have received the authority to do negotiated sales."

The sunset would also prevent the Transitional Finance Authority from selling bonds through negotiation. However, that agency has reached its debt limit for bond sales that are not for school construction. A bill that would allow the TFA to sell more debt passed the Assembly, but has not been taken up by the Senate.

The potential that the city will no longer be able to sell negotiated GO bonds does not affect its credit rating, said Standard & Poor's analyst Robin Prunty.

"It's not really an issue," Prunty said. "Whether its competitive or negotiated is really an issuer's decision."

A coup by Senate Republicans and two Democrats earlier this month to seize control of the chamber from Democrats and an ongoing leadership struggle has thrown New York into turmoil as routine extender bills authorizing noncontroversial measures such as sales tax extensions for counties now face the possibility of expiration.

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