As New York's 2009 legislative session kicks into high gear the state's largest issuers are looking for support for their annual wish lists.
From dealing with troubles arising from recent bond market turmoil to greater authority to do certain types of deals, issuers are talking to Gov. David Paterson's office to get legislation introduced as part of his program bills.
The Dormitory Authority of the State of New York is looking for legislative changes that would position it as an alternative to local industrial development agencies on certain deals. It also wants to sell bonds backed by grant money for nonprofits affiliated with the State University of New York.
DASNY sells bonds for hospitals, nursing homes, and higher education institutions, but it can sell bonds for private primary and secondary schools, museums, and libraries only on a case by case that requires specific legislation. DASNY is seeking a blanket authorization that would allow it to sell bonds to these types of institutions without the borrowers having to go through the Legislature.
The proposal "would address a gap in options for a number of different types of clients out there that we don't now have the capability to finance," DASNY executive director Paul Williams Jr. said. The change would help nonprofits who can't borrow through local industrial development agencies because the law authorizing IDAs to sell those types of bonds has expired and if that law is extended, then borrowers will have a choice in issuers, Williams said.
The proposal includes the creation of a subsidiary that could issue bonds with lower rated credits that don't meet DASNY's borrowing guidelines, but Williams said that how the authority will deal with lower rated credits in the future is "an ongoing discussion."
In the past, borrowers whose underlying rating did not meet DASNY's guidelines could use bond insurance, but that has become less of an option as many bond insurers have been downgraded.
But competition between DASNY and IDAs would be good for borrowers because the issuers would have to compete on costs and the time it takes to put deals together, said Brian McMahon, president of the New York State Economic Development Council, a nonprofit that lobbies on behalf of economic development professionals.
"It's a significant departure from what the Dormitory Authority was established to do," McMahon said. "We don't necessarily have an objection to the Dormitory Authority having the authority to finance those projects as long as IDAs are given the same authority ... If there is only a single issuer that [the borrower] can go to, costs will be driven up.
McMahon said that lawmakers have told him they are interested in resolving the IDA issue this year.
Legislation that allowed IDAs to sell bonds on behalf of nonprofits expired on Jan. 30, 2008 and has not been renewed. Democratic lawmakers in the Assembly and Republican lawmakers in the Senate have been deadlocked over a number of issues concerning the law's renewal, including a provision in a Democratic bill that would have required prevailing wages to be paid on IDA financed construction projects.
The Democratic takeover the Senate following the November elections has changed the equation now that they control both houses of the Legislature but it's not yet clear how the shift in the Senate majority will play out legislatively.
DASNY is also seeking authorization to sell bonds for capital projects on behalf of nonprofits affiliated with the SUNY system that would be backed by research grants that the nonprofits receive.
"The affiliated not for profit would be the recipient of grants for various research undertakings and portions of those grants could be allocated for security for debt service," Williams said.
The University of Buffalo has a plan to develop a new campus in downtown Buffalo with medical and scientific facilities that anticipates using this kind of financing through DASNY, Williams said.
In the housing sector, the State of New York Mortgage Agency is seeking authorization to buy its own bonds. Market turmoil in the fall led some investors to put hundreds of millions of dollars of SONYMA bonds back to liquidity providers.
Although the bonds were eventually remarketed, had they not been, the issuer would have faced a termination event that would have led to an accelerated repayment schedule and the authority having to pay a penalty rate.
Currently SONYMA would have to refund the bonds if it wanted to purchase its bonds, but the new option would allow the agency to buy its bonds and hold them until market conditions become favorable to resell the bonds without the threat of the bonds being termed out.
The New York State Housing Authority is seeking authorization to do private placements on its housing deals. SONYMA executive vice president for housing programs and policy Marian Zucker said the agency has heard from some developers of large projects that financial institutions have expressed interest in private placements, which would obviate the need for liquidity providers at a time when that type of enhancement is costly.
The New York State Thruway Authority is seeking legislation that would allow it to sell general revenue bonds on behalf of the New York State Canal Corp.
When the state department of transportation transferred the responsibility and day-to-day operations of the Erie Canal to the authority in 1992, the authority got an authorization to issue its revenue bonds for general canal capital projects and it also got an emergency bond cap of $10 million. The first authorization was quickly used up but the emergency bond cap authorization wasn't fully used up until a flood in 2006 required repairs to the system.
Thruway Authority chief financial officer John Bryan said the authority has no set plans on how it would use the bonding authority but that with declining federal support of the canal system it would be a help.
"It would be a nice tool to have in the tool box in case we decided at some future point that it would be appropriate to use bond financing for canal capital projects," he said.
The Empire State Development Corp. has not presented to the governor's office a bond related agenda, spokesman Warner Johnson said, but possible changes are afoot. The governor proposed in his executive budget in December the consolidation the ESDC with the Department of Economic Development and and New York State Foundation for Science, Technology and Innovation to reduce duplicative services and save the state money..
