In Lieu of IDA Bond Financing, New York Issuers Seek Alternatives

The expiration two years ago of the law allowing the 116 industrial development agencies in New York to sell bonds on behalf of nonprofits is changing the landscape for borrowers and issuers.

Gov. David Paterson has called on the Legislature to enact a law that would allow the Dormitory Authority of the State of New York to sell bonds on behalf of charter schools as part of a package intended to access $700 million of federal education funding. Charter schools seeking tax-exempt bonds have turned to IDAs in the past.

In a letter to lawmakers yesterday, Paterson urged passage of a program bill in time to meet a Jan. 19 deadline for a competitive federal program called “Race to the Top.” The bill would also lift a 200-school cap on the number of charter schools allowed in the state.

Last year DASNY expanded its security guidelines to allow lower-rated nonprofits to use tax-exempt bond financing and the authority’s leadership has long expressed a desire to expand the kind of financing it can do into IDA territory.

In an interview with The Bond Buyer last month, Paterson said he was supportive of the idea. 

“The Dormitory Authority might benefit very well from conducting that kind of financing,” the governor said. “It would be a sort of unique and innovative way to come up with available capital and we have not made that a plan, but we’re strongly considering it and I’m favorable.”

On the local end of the spectrum, a modified plan to allow the New York City Capital Resource Corp., a sister issuer to the New York City Industrial Development Agency, to sell bonds on behalf of nonprofits appears to be on the agenda again. The CRC can only sell bonds for projects that the IDA can finance, though it is not subject to the $20 million per issue cap that exists for IDA nonprofit civic facility financings.

The CRC will consider changes to its charter at its board meeting next month, the corporation announced yesterday. CRC chairman Seth Pinsky declined to elaborate on the changes the scope and language of which he said was under negotiation. The impetus for the potential change was to aid a “specific project that under the current CRC charter would not be permitted,” Pinsky said.

The CRC canceled a special meeting the last week of December to consider changes because the language wasn’t ready yet, CRC executive director Kyle Kimball said.

In 2008, the CRC proposed changing its certificate of incorporation to allow it to sell bonds on behalf of nonprofits without coupling its authorization to the IDA’s. That was defeated by former New York City Comptroller William Thompson Jr., who objected that the issuer would not have to abide to changes to IDA laws that were then under discussion.

With city Comptroller John Liu in office since Jan. 1, the CRC is in talks with his office about making changes again, though possibly of a more limited scope than those proposed in 2008.

“There’s been a change in the comptroller’s office, obviously, and the conversation needs to restart,” Pinsky said.

Though Pinsky declined to identify the nonprofit that the proposed changes are intended to help, St. Mary’s Healthcare System for Children, a nonprofit pediatric hospital in Queens, is seeking about $90 million of financing for a new building expected to cost in excess of $100 million, according to its chief financial officer Pincus Zagelbaum.

The hospital is looking at financing options through the IDA, CRC, and DASNY, as well as the U.S. Department of Housing and Urban Development, Zagelbaum said.

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