N.Y. Passes Final Budget Piece; PIT Bonds Can Move Forward

bb080510ny.jpg

The passage of the final piece of New York’s budget on Tuesday night clears the way for almost  $2 billion of personal income tax bond deals to move forward next month.

Four months after the April 1 start of the fiscal year, lawmakers passed the revenue portion of the state’s $136 billion budget during a difficult fiscal climate that produced a $9.2 billion deficit.

Citing the need to update disclosure documents reflecting the final budget, the state delayed a $1.2 billion PIT deal to be sold through the Dormitory Authority of the State of New York that was originally expected to price in May. The timing of a PIT deal worth up to $600 million through the New York State Thruway Authority was also uncertain.

“We’re still evaluating our sale schedule, but generally we expect to issue these bonds during September,” Division of Budget spokesman Erik Kriss said in an e-mail.

The state planned to sell $5.9 billion of bonds in fiscal 2011 to finance part of $10.8 billion of capital spending but the issuance may be revised downward to $5.4 billion, Kriss said. The PIT credit is the state’s main vehicle for issuing debt. 

Gov. David Paterson touted the fact that the operating budget was balanced through cuts and revenue-raising measures. “It was a very meaningful budget in that, in spite of all of the discussion earlier in the year, there was no borrowing — we didn’t borrow a dime,” he said in a conference call with reporters. The governor, who is not running for reelection this year, said the budget “will put us on the road to recovery.”

Much of the budget was passed through emergency spending bills after the state began the fiscal year without a fully enacted budget.

The recession has hurt the state’s revenue and created cash-flow problems. In response, Paterson ordered delays in payments to municipalities and borrowing from state funds. The passage of a revenue budget alleviates the situations, but challenges remain.

“We still have to manage cash carefully and cautiously,” Kriss said.

The Legislature on Tuesday passed a contingency plan in case Congress doesn’t pass an extension of Federal Medical Assistance Percentages funding worth $1.09 billion to the state. On Wednesday, it seemed likely that the FMAP funding would come through following a key Senate vote, but if it doesn’t, New York’s contingency plan would cut spending and allow the state to delay school aid payments due Sept. 1 to the end of that month.

“That was done to ensure we don’t run out of money before having to make that payment,” Kriss said.

“Certainly, having a balanced budget is much better for the cash position than a budget that is unbalanced from the start,” said Moody’s Investors Service analyst Emily Raimes. “It’s important to note the state is not a note borrower for cash-flow purposes. … Most of the payment delays that it has done to improve its cash position have been repaid fairly quickly.”

The revenue budget includes $1 billion of new taxes and fees. It also reduces the income tax exemption wealthy individuals can claim on charitable donations. The bill temporarily repealed a sales tax exemption for clothing purchases under $110, which is expected to generate $330 million and would be phased out in two years. Paterson said he accepted the sales tax in order to get the budget done but said it would hurt low-income residents. The budget also raises taxes on tobacco products.

“The fact that they have met that spending with recurring revenue is better than if they had done it with finding some one-time revenues,” Raimes said.

The budget included a measure to give relief to state and local government employers that will see their contributions to the state pension fund increase this year. Government employers, such as counties and municipalities, now have the option to amortize the increase over 10 years, though they would pay 5% interest on the payments.

For reprint and licensing requests for this article, click here.
New York
MORE FROM BOND BUYER