While new-issue volume in the municipal market has plunged dramatically in 2011, New York City has not shied away from issuing debt.
The market has absorbed $11.6 billion of the Big Apple’s new-money and refunding debt so far in fiscal 2011 through its general obligation bonds, New York City Transitional Finance Authority transactions, and other city credits, Comptroller John Liu said Thursday during a luncheon address at The Bond Buyer newspaper’s New York/Tri-State Public Finance Conference in Manhattan. Liu took office in January 2010.
The city’s borrowing activity contrasts with the rest of the municipal bond market, which saw $46.9 billion of municipal issuance in the first quarter of this year, according to Thomson Reuters. That’s a 55% drop from the first three months of 2010. The last time muni issuance was this light was in the first quarter of 2000.
This is a contrast to last year, when issuers big and small headed to market to take advantage of the now-expired Build America Bond program that offered states and localities a 35% subsidy on interest costs.
“If the municipal bond market was a lot about BABs in 2010, the story in 2011 is where did all the deals go?” Liu said during his speech. “All the bankers in the room may be asking themselves the same question.”
Stronger credit ratings help, Liu noted. New York City’s GO credit carries double-A ratings and the TFA has credit ratings in the triple-A and double-A category.
The comptroller also said the city has been reaching out to the investment community to promote its bond sales. In New York City, the comptroller’s office and the Office of Management and Budget work together to bring deals to market.
“I think the concerns in the markets makes people more jittery,” Liu said in an interview after speaking to municipal bankers, lawyers, financial advisers and public officials. “But that’s why we’re out there distinguishing ourselves as a solid credit.”
The comptroller keeps an eye on the city’s overall fiscal health. Liu and his staff are also tackling the issue of rising pension costs for states and cities. He created Retirement Security NYC to explore ways the city can maintain its obligations to its employees and retirees within the context of budget constraints.
The city’s unfunded pension liability as of June 30 is $625.4 million, according to the official statement from the city’s GO bond sale in March.
While the city’s pension fund is 99.9% funded according to Government Accounting Standards Board accounting, Liu said an alternative accounting calculation places the funding at a lower ratio of 70.9%.
“Using an alternative valuation methodology, called the entry-age actuarial cost method, the system is only 70.9% funded, with an unfunded liability of $42 billion,” Liu said.
