New York's Empire State Development Corp. will offer $715 million of new personal income tax bonds on Dec. 13.
The fixed-rate bonds include $550 million of tax-exempts and $165 million of taxables.
The ESDC is a branch of the state government. The so-called PIT bonds will be sold competitively.
"The state is committed to selling a certain amount of its bonds on a competitive basis," said Frances Walton, the agency's chief financial officer. Bonds will be sold on a serial basis and will mature at dates starting in March 15, 2012, and ending in 2041. The bonds will be callable in 2021.
Fitch Ratings rated them AA with a positive outlook. Standard & Poor's had not rated the deal by press time, but it had rated PIT bonds from another New York credit, the Dormitory Authority of the State of New York, that were issued Dec. 1 at AAA. The rating took into account New York's plans to issue the ESDC's PIT bonds in mid-December. Moody's Investors Service doesn't rate the credit.
The bond proceeds are earmarked for capital spending. Specifically, $245 million will go to capital spending at correctional facilities, $240 million to economic development, and $115 million to housing capital programs, said state Division of Budget spokesman Morris Peters.
The housing programs "support the development and rehabilitation of housing opportunities for low- and moderate-income families," he said.
The state bonds are being issued at a time when the governor and legislature have been struggling with the budget.
New York passed a fiscal 2012 budget on time in March for the first time in five years. The enacted budget was published in early May and was somewhat different from the one that was passed, because the enacted budget takes into account updates about anticipated revenues made in April, Peters said. The enacted budget was $131.7 billion, a 2.3% decrease from the previous fiscal year's enacted budget.
However, the figure does not encompass off-budget capital spending like some spending for the ESDC or other New York authorities, Peters said. Including that amount raises the total to $133.4 billion, a 2.1% decline from the previous year.
The off-budget spending is "related to programs which are financed directly from bond proceeds that are on deposit at various public authorities rather than from a short-term loan from the short-term investment pool or cash from the general fund," according to New York's fiscal 2012 mid-year update.
Except for a $2.6 million sliver, the ESDC bonds for sale on Dec. 13 are considered on-budget, Peters said.
In the wake of this year's budget, two large state employee unions, the Public Employees Federation and the Civil Service Employees Association, agreed to contract concessions to avert thousands of layoffs.
Public school teachers were affected by substantial cuts in state aid for local school districts. A survey by the New York State Council of School Superintendents in August and September found that districts have, on average, reduced total workforce by nearly 5% for the current school year.
As a result of the budget cuts in June, Gov. Andrew Cuomo announced the closure of seven state prisons. The Office of Children and Family Services also announced that it would close four youth detention facilities and downsize four others.
The prisons being closed employed 1,531 people. Some of those workers will be offered other jobs in other prisons, the New York Times reported.
The prison capital spending found in the ESDC bonds will be used for rehabilitation. Examples of such projects would include replacement of roofs and furnaces, Peters said.
New York's budget environment continues to be difficult. As of mid-November, the state was predicting a $350 million shortfall during the current fiscal year, mainly because tax revenues are coming in lower than expected.
For the next fiscal year, the state is facing a deficit of $3 billion to $3.5 billion, up from an earlier projection of $2.4 billion.
"The news is grim," Cuomo said, according to the Times. "The results over the past few months have not been good."
Public Financial Management is the ESDC's financial advisor on the bond sale. Hawkins, Delafield & Wood LLP is the bond counsel. The preliminary official statement will be available from the corporation Monday.
As of Sept. 30, the ESDC had $9.03 billion of outstanding debt. As of March 31, New York had $56.075 billion of state-related debt. State-supported debt service as a percentage of all-funds receipts was 4.2% in fiscal 2010, Peters said.
Laura Porter, managing director of public finance at Fitch, said: "Underlying the AA rating on the PIT bonds is the importance of the PIT to state finances (historically about 60% of tax receipts), the set-aside of PIT revenues for debt service, the trapping of funds if appropriation is not made, and the two times additional bonds test."
"Due to these strengths, the rating on PIT bonds is equal to that assigned to New York's general obligation debt despite the appropriation requirement," Porter said.
S&P said DASNY's AAA stemmed from "very strong 4.01 times coverage of future maximum-annual debt service, by the most recent fiscal year's historical pledged PIT revenues; solid bond covenants mirroring a revenue bond structure, not an appropriation credit structure, which include a strong 2 times additional parity bonds test; and the historical strength of the PIT and its significance as a revenue source for an economically diverse state of 19.5 million."
