New York’s public authorities should be “substantially restricted” from issuing bonds with principal payments heavily weighted to longest maturities, the comptroller said last week.
Thomas DiNapoli said three public authorities modified deal structures this year after a review by his office.
“Public authorities are driving up debt-service costs and forcing taxpayers and ratepayers to fork out millions of dollars in additional interest costs,” DiNapoli said in a press release. “Balloon payments are typically a bad idea for homeowners, and they’re a bad idea for taxpayers.”
Back-loading of debt can make debt service more costly and can create inequities by shifting costs to future generations for assets that may no longer be in use when the principal payment comes due. New York law prevents back-loading of state-backed debt and debt issued by municipalities and school districts, but those rules generally don’t apply to public authority revenue bonds.
The Metropolitan Transportation Authority revised the debt structure on a $503 million dedicated tax fund deal in March to have largely level debt service, the comptroller said. The initial MTA debt structure would have deferred all principal payments until 2035 with roughly half of the principal paid in 2041.
In response to DiNapoli’s concerns, the structure was changed, reducing debt-service costs to $1.1 billion from $1.44 billion over the life of the debt, a net present-value savings of $124.2 million. The deal included $59.8 million of tax-exempt bonds and $443.2 million of taxable Build America Bonds. About $348 million of the BABs mature in 2030 and 2040, with serial maturities from 2018 to 2025, according to the official statement.
The savings calculations did not take into account the 35% federal subsidy on the BABs’ interest cost because “the subsidy is still a cost to the public since it is funded by federal tax dollars.”
DiNapoli said the Long Island Power Authority and the Western Nassau County Water Authority also changed deal structures this year in response to his concerns.
