The race for New York City comptroller is getting more attention than usual as the Sept. 15 Democratic primary nears, with four two-term City Council members vying to take fellow Democrat William Thompson Jr.'s place as the city's fiscal watchdog.
Thompson has chosen to run against Michael Bloomberg for the mayor's office. Bloomberg is an independent running on the Republican line.
Joseph Mendola is running as the Republican candidate for comptroller, but it's likely that whoever wins the Democratic primary will go on to win in November.
Last week The Bond Buyer spoke to three of the four Democratic candidates - John Liu, David Weprin and David Yassky - about their views on a range of fiscal issues. A spokesman for candidate Melinda Katz said she was unavailable.
A Quinnipiac University poll published last week showed "undecided" leading the pack with 45% of respondents having not made a decision. Liu had a slight lead over the rest, 17%, closely trailed by Yassky and Katz at 16% and Weprin at a distant 5%. Liu also leads in campaign funds, having raised $2.9 million compared to $2.4 million for Katz and $1.7 million each for Yassky and Weprin. The Republican Mendola has raised just $7,420.
But last week Yassky received the New York Times' endorsement while Liu found himself fending off questions about the veracity of campaign ads that described his working in a sweatshop as a child.
New York City is among the nation's largest issuers of debt, selling $5.92 billion of bonds in the first six months of 2009 through the city's general obligation credit, the New York City Transitional Finance Authority and the New York City Municipal Water Finance Authority, according to Thomson Reuters. The city's deals are run jointly by the comptroller's office and the mayor's office of management and budget, meaning that the next comptroller could be involved in selling tens of billions of dollars of debt.
New York's debt issuance and outstanding debt have been rising steadily for decades, as has the cost to the city. Annual debt service is projected to rise to $5.3 billion by fiscal 2013 compared to $4.1 billion in the current fiscal year, according to budget documents. Outstanding debt is projected to rise during that time to $64.99 billion from $57.17 billion.
Is the city borrowing too much? The candidates essentially say "yes, but ..."
"It's always good to do more pay as you go as much as you can, but the advantage of borrowing is we're still talking about historically low interest rates," said Weprin, a public finance investment banker at Sterne, Agee & Leach Inc. who chairs the City Council's finance committee. "We're still at historically low interest rates now and we have to consider that and take advantage of the low interest rates. We should also be looking to do more refundings."
In August 1989, the 20-bond GO index was at 7.16% and has trended downward in the intervening years, hitting 4.53% last week. The index has gone even lower during that time, hitting 4.03% in 2005.
Weprin also said the city's request for proposal process for underwriters is too slow and inflexible. Earlier this month the city selected underwriters in response to an RFP issued in March. Three firms selected as co-managers have the opportunity to senior manage deals, but Weprin said all firms, including those in the selling group, should get the chance to move between brackets.
"There's no reason why the entire group shouldn't have the opportunity if they can show exceptional performance," he said.
Yassky, who chairs the council's small business committee and worked as a corporate lawyer and as counsel to Sen. Charles Schumer, said "now would be the wrong time to cut back on capital spending."
"When the economy gets back on track I want to move as quickly as possible to more pay-as-you-go capital," Yassky said. "Long term we do need to be worried about the level of debt the city has incurred and we have to both make hard choices about what we can afford and can't afford."
He also criticized rating agencies' dual scale for evaluating municipal versus corporate credits as being unfair.
"There's a modest but not trivial opportunity to reduce our cost of borrowing by having the rating agencies rate us on the same scale that they do corporate issuers," Yassky said. He also said that New York state laws that require level amortization should be changed because they limit the city's ability to refinance debt.
"State public finance law does have a number of old and outdated restrictions that hamper our ability to use modern finance techniques to reduce our cost of borrowing," Yassky said.
Liu, who managed a team of actuaries at PricewaterhouseCoopers and chairs the City Council's transportation committee, said that ideally New York should be scaling back on its borrowing. "But even in a fiscal crisis we have infrastructure that's crumbling and people just don't want to have a return to days where the city was falling apart," he said.
The city comptroller oversees five pension funds valued at $85.88 billion. Richard Ravitch, former Metropolitan Transportation Authority chairman and, depending on the outcome of a legal case, possibly the state's lieutenant governor, has talked about the state pension funds getting involved in providing bond insurance, possibly creating a new insurer. The idea has been pitched to the city comptroller's office as well.
Liu was skeptical about the idea and said he'd need to see a specific proposal.
"Just because it's a large pool of money and could withstand some of the risks doesn't mean that would deliver a superior risk-adjusted rate of return for the pensioners," he said.
Weprin said he was open to the idea but would want to build consensus among the pension boards.
"It's not something I would recommend doing without having everyone on the same page, but I wouldn't rule that out as a potential investment," Weprin said. "Obviously there's a need for bond insurers."
Yassky said providing bond insurance was an interesting idea worth exploring.
"That's clearly been a profitable business," he said. "The money we're spending on bond insurance is money that otherwise could fund additional capital improvements. Having that go to the pension funds kind of keeps it within the family."
Liu has proposed investing pension funds in taxable Build America Bonds as way to achieve the dual goals of financing city capital projects and obtaining the best investment value for the funds.
But he said "political and social aims must not detract from the fiduciary responsibility of safeguarding and maximizing your returns on the pension funds."
Weprin said he would add transparency to how the pension funds were invested, posting asset allocation on the Internet on a frequent basis.
The state has been considering public-private partnerships, design-build-operate, or long-term leasing concessions, but as yet the model has not caught on.
Yassky said P3s were a potential way to "use the private sector's ability to keep costs under control and keep projects on budget and on time in service of public projects," and suggested the model might work for city sewage treatment plants.
"We can look at parts of the water system, which really function like utilities," Yassky said. "We have to be open to some new ideas."
Weprin said the P3 universe was broad and worthy of further examination.
"There are a lot of private sector entities that would like to be more involved with government, participate more," he said.
Liu said he would "be on the constant search for opportunities" to use P3s. "I would pursue them and support pursuing them but only with ... a clarity as to how the public would benefit," he said.
The comptroller is an ex-officio member of many of the city's bond-issuing agencies, including the New York City Industrial Development Agency and the Capital Resources Corp. All the candidates said the agencies need to be more transparent.
"These are a couple of the most opaque agencies that the public knows very little about and yet are the conduit through which potentially hundreds of millions of dollars of subsidies are channeled through, and there is not always a clear correlation of benefit for taxpayers," Liu said. He said there should be clawbacks of subsidies on economic development projects that didn't deliver promised public benefits.
Yassky said that rigorous standards were needed to protect the public.
"My general principle here is to be skeptical negotiating with a private party," he said. "The private party will have top-quality representation and be energized to get every advantage, and too often the government as negotiator does not act that way."
Weprin, though, warned against reflexive IDA-bashing.
"You want to see job creation, we want to see economic development, and the best thing we can see is transparency so we can actually evaluate whether we're getting the best bang for our incentives and our money," he said.