DASNY Offering $800M BAB Deal Today

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The Dormitory Authority of the State of New York today plans to competitively price $800 million of taxable personal income tax Build America Bonds.

The new-money PIT issue comes to market as New York is poised to enter a third month without a budget for the fiscal year that began April 1.

A deal to close the state’s $9.2 billion deficit has eluded lawmakers. At a meeting of legislative leaders yesterday, Gov. David Paterson called on the Assembly and Senate to close the gap.

Robert Ward, deputy director of the Rockefeller Institute of Government, said: “Unless there’s a significant change soon, this will end up as one of the latest budgets.” In 2001, the state budget was not fully passed until after the Sept. 11 terrorist attacks, though most of it had been passed in piecemeal fashion before then, he said.

“The major impact is further degradation of the state’s ability to manage its problems,” Ward said. 

Underwriters can bid on the Series 2010D bonds electronically through BiDCOMP/Parity until 11 a.m., according to a notice of sale. The bonds will have maturities up to 30 years. The successful bidder may designate two or more consecutive serial maturities as term bond maturities, the notice of sale said.

Sidley Austin LLP is bond counsel and Public Financial Management Inc. is financial adviser on the deal. The state plans to use the bond proceeds to finance capital projects including facilities at State University of New York campuses.

DASNY approved the deal last week at a special board meeting in Albany. The agency also approved pricing up to $1.51 billion of PIT bonds through negotiation in a deal expected to sell next month.

Though today’s deal had been on the calendar for some time, it was not approved by the board until after the Legislature last week passed an emergency spending bill that contained an extension of DASNY’s authorization to sell PIT bonds for certain purposes.

The bonds are secured by a pledge, subject to appropriation, of 25% of New York State income tax receipts. If the Legislature fails to appropriate sufficient funds for debt service, the state comptroller is required to deposit tax receipts into a debt service account.

Standard & Poor’s rates the deal AAA with a stable outlook, citing a “very strong 4.9 times coverage of future maximum annual debt service due to the magnitude of the PIT set-aside payments directly to the trustee.” Fitch Ratings rates the credit AA with stable outlook. Moody’s Investors Service does not rate recent New York personal income tax deals.

New York has sold $17.88 billion of new-money PIT bonds since 2002, according to Thomson Reuters. The state has about $54.83 billion of debt outstanding. 

Lawmakers have deadlocked over the governor’s $135.28 billion fiscal 2011 budget proposal, seeking to restore cuts to education and local aid.

The state has been operating on emergency spending bills since the beginning of the fiscal year, but lawmakers did enact the debt-service appropriation portion of the budget before last fiscal year ended.

The Division of Budget has taken extraordinary measures to manage its cash flow as revenues have fallen. An emergency spending bill enacted Monday allows the state to delay until June 30 payments to school districts that were statutorily due on June 1.

New York is about $1 billion short of a $4 billion school aid payment due June 1. Budget Division spokesman Erik Kriss said a possible note deal to meet that shortfall was no longer being contemplated.

Paterson has been sued over payment delays, as a well as a plan to furlough state workers.

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