N.Y. Sets Competitive $448M Issue Amid Budget Struggles

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New York plans to competitively price $448 million of new-money general obligation bonds on Thursday as the state grapples with closing a sizeable budget gap.

The state will offer the bonds in three series: tax-exempt Series 2010A with a par of $211.3 million; traditional taxable Series 2010B with a par of $51.3 million; and taxable Build America Bonds Series with a par of $185.7 million. The bonds will be sold with serial maturities out to 2040. Proceeds will finance capital transportation and clean water and clean air projects.

State Comptroller Thomas DiNapoli’s office will accept bids through Ipreo’s BiDCOMP/Parity system. Attorney General Andrew Cuomo is bond counsel and Public Resources Advisory Group is financial adviser.

New York typically sells new-money GOs once a year, preferring to market most of its debt through public authorities, primarily on its personal income tax credit.

Moody’s Investors Service rates the state’s outstanding GO Aa3 with a stable outlook. Standard & Poor’s rates it AA with stable outlook and Fitch Ratings assigns its AA-minus rating to state GO.

The deal comes as the state is looking to close a $7.4 billion deficit in fiscal 2011, which begins April 1. Gov. David Paterson proposed a $134 billion all funds budget in January that would make unpopular cuts to health care, schools and local aid at a time when he is perceived as politically weak.

Dysfunction is old news in Albany, but some have questioned whether New York is up to the task dealing with the recession. 

“Over a number of years, as the state has tried to deal with financial problems and it’s always found it very difficult because of that lack of political will to deal on a timely comprehensive basis with the state’s problems,” said Mitchell Savader, chief executive officer of Savader Asset Advisors. He said New York’s credit ratings may not accurately reflect its risk.

“Given it’s high credit rating, it’s probably more of a candidate for a downgrade than California,” he said. “Those high ratings don’t necessarily jibe with the situation on the ground because things are pretty bad ... we think there could be some more losses in value as the state’s problems become more and more acute.”

With all lawmakers in both houses of the Legislature up for reelection this year, the prospect of redistricting next year, and a possible primary challenge to Paterson from Cuomo, the state may be headed for gridlock.

“You don’t know what can pass both houses of the Legislature,” said Carol Kellermann, of the Citizens Budget Commission, a business-oriented fiscal watchdog organization. “What [Paterson] proposed is at least a good start on trying to get control over spending but it requires tough decisions and it remains to be seen whether anyone who is up for election in the Legislature is going to be willing to make these tough decisions.”

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