DASNY Readies $684 Million of Taxable, Tax-Exempt PIT Bonds

The Dormitory Authority of the State of New York Thursday will sell $684.2 million of tax-exempt and taxable personal-income tax revenue bonds through competitive bid.

Proceeds will help finance infrastructure projects for City University of New York schools, remediation of hazardous waste sites, and environmental infrastructure upgrades. Certain capital matching-grant programs for higher ed and health care will also receive proceeds.

Under New York law, five state issuers can sell PIT revenue bonds: DASNY, the New York State Environmental Facilities Corp., the New York State Housing Finance Agency, the New York State Thruway Authority and the New York State Urban Development Corp.

All PIT revenue bonds issued through the five agencies are on par with each other. There are $20.99 billion of total PIT bonds outstanding that were sold through the five authorities as of May 15, according to the preliminary official statement.

Standard & Poor’s and Fitch Ratings rate the $20.99 billion of outstanding debt AAA and AA, respectively. Standard & Poor’s and Fitch anticipate releasing their ratings on $653.8 million of Series 2011A tax-exempt bonds and $30.4 million of Series 2011B taxable bonds this week.

The bonds are special obligations of DASNY and are secured solely from personal income tax revenue receipts. Neither the state nor the authority is responsible for repaying the debt.

The Series 2011A and 2011B bonds offer serial maturities and term bonds ranging from 2012 through 2041.

Hawkins Delafield & Wood LLP and Bryant Burgher Jaffe & Roberts LLP are co-bond counsel on the transaction. Public Financial Management Inc. is financial adviser.

PIT bonds receive 25% of the state’s income tax revenue, with a large portion of that coming from payroll withholding taxes. Excluding refunds to taxpayers, the state comptroller directs 25% of PIT revenue collections into the pledged revenue bond tax fund each month.

Officials anticipate the fund will receive $9.8 billion of PIT receipts in fiscal 2012 from $39 billion of total budgeted PIT revenue. Fiscal 2012 began April 1. The fund collected $9.1 billion and $8.7 billion in fiscal 2011 and fiscal 2010, respectively, according to the POS.

Debt service on the PIT revenue bonds is subject to annual legislative appropriation. In the event that lawmakers fail to allocate funds towards debt service, the pledged revenue bond tax fund continues to receive PIT revenue until it reaches $6 billion, or 25% of PIT revenue collections, whichever is greater, according to Standard & Poor’s.

“The magnitude of this set-aside is significant by all measures and we believe provides a strong incentive to eliminate appropriation risk from our credit analysis,” said a Standard & Poor’s report dated Nov. 25 regarding the credit’s last bond deal with the Urban Development Corp.

That $6 billion cushion surpasses the annual combined principal and interest payments due on the $20.99 billion of outstanding PIT bonds. Debt service on outstanding bonds totals $2.03 billion in fiscal 2012, according to the POS. That amount decreases slightly each year to total $103.6 million in 2040.

Lawmakers increased the tax rate for the state’s highest earners to 8.97% from 6.85% for the 2009-2011 tax years. Beginning in the 2012 tax year, that rate will return to 6.85%. The state calculates that the temporary surcharge generated $3.6 billion of additional revenue in fiscal 2010, Standard & Poor’s said.

The Urban Development Corp. sold the most recent PIT deal, in November. The transaction included $367.2 million of tax-exempt PIT bonds that priced with yields ranging from 0.25% on a 2% coupon for debt maturing in 2011 to a 3.17% yield on a 4% coupon for debt maturing in 2020, the official statement said.

The deal also included $328.3 million of taxable PIT bonds and $413.7 million of taxable Build America Bonds.

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