DASNY Set to Sell $1B of Personal Income Tax Bonds

bb071312dasney-600.jpg

In one of the largest deals scheduled for next week, the Dormitory Authority of the State of New York is expected to sell $1 billion of personal income tax bonds in two series.

The bonds will be offered via competitive bid on Tuesday.

Proceeds from the $982.5 million Series 2012B bonds will finance capital projects of the State University of New York, including construction of a new business school in Albany, expansion of the Institute for Human Performance in Syracuse, and south campus renovation in Buffalo, according to a SUNY spokesperson.

The Series B bonds will also help finance projects for senior and community college facilities at the City University of New York, capital grants under the Healthcare Efficiency and Affordability Law for New Yorkers Capital Grant Program, contributions to the costs of the remediation of hazardous waste sites, and environmental infrastructure projects

The bonds will mature in 2014 through 2042, and will be callable.

The $61.9 million Series C bonds will be federally taxable, with maturities from 2014 through 2022, and no call option.

Proceeds from the Series C bonds will also finance capital projects for SUNY, as well as certain required state matching contributions made to the water pollution control revolving fund.

Hawkins Delafield & Wood LLP and Bryant Burgher Jaffe LLP are co-bond counsel. Public Financial Management Inc. is financial advisor.

DASNY, created in 1944, finances and builds facilities for higher education, health care providers, nonprofit institutions and public agencies.

The agency is one of five authorized by 2001 legislation to issue personal income tax bonds in New York.

The other agencies are the Empire State Development Corp., the New York State Housing Finance Agency, the New York State Thruway Authority and the New York State Environmental Facilities Corp.

“PIT revenues have been fundamentally strong throughout New York State’s history, despite periods of volatility,” Standard & Poor’s analysts said in a report.

The agency assigned the bonds a AAA rating with a stable outlook, citing strong debt-service coverage and bond covenants.

The bonds are secured by a pledge of payments, which come from a revenue bond tax fund that receives a statutory allocation of 25% of state PIT receipts.

Under New York’s constitution, state funds, including those in the revenue bond tax fund, require appropriation from the Legislature at least every two years.

However, in the event of non-appropriation, the revenue bond tax fund would still continue to accumulate tax receipts, until the fund reaches $6 billion, or 25% of the PIT, whichever is greater.

“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,” Standard & Poor’s said.

Fitch Ratings, which assigned a AA rating with a positive outlook, also cited the strong structure, which eliminates non-appropriation risk.

Fitch’s rating is linked to New York’s general obligation rating of AA, and is based on the importance of the personal income tax to the state’s finances.

“The PIT makes up about 60% of state tax receipts, and the additional bonds test is adequate to offset volatility in the revenue stream,” Fitch said.

For 2012-13, PIT receipts are projected to be $40.3 billion and revenue bond tax-fund receipts are pegged at $10.1 billion. Estimates are based on the 2012-13 enacted budget financial plan.

According to bond documents, the available fund receipts of $9.8 billion represents about 4.2 times the maximum annual debt service for all outstanding state PIT revenue bonds, including the bonds being issued next week.

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