N.Y. City sets debt policy for GO, TFA tax-secured bonds

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New York City on Monday released a written policy that sets guidelines for the issuance and management of general obligation debt and New York City Transitional Finance Authority future tax secured bond issuances.

According to a joint statement from the offices of the Mayor’s Office of Management and Budget and city Comptroller Scott Stringer’s office, the policy establishes guidelines consistent with state and other applicable laws.

The goal, city officials say, is achieving policy objectives of funding capital needs at the lowest possible cost and saving money through the refunding of outstanding bonds. The policy will take effect immediately.

All expenditures made with proceeds of these bonds must be for capital purposes. In addition, the city may only borrow for projects with useful lives of five years or longer, or three years or longer for projects consisting of computer hardware, software, networks, and information technology systems, and costing $35,000 or more.

Effective July 1, 2020, the minimum cost for a financed capital project will be raised from $35,000 to $50,000.

Refundings, meanwhile, must produce present-value savings of at least 3% on aggregate. Any variable-rate bonds must be calculated to be neutral on a present-value basis.

The GO debt limit, per state law, will remain at 10% of the average full value of taxable real estate in the city for the most recent five years.

The city will seek to maintain its variable-rate exposure at a maximum of 20% of debt outstanding across the GO and TFA FTS credits. Variable-rate debt enables the city to take advantage of rates on the shorter end of the yield curve for longer-term bonds and to diversify its offerings in the market.

“The policy limitation of variable rate debt in amounts no more than 20% of outstanding GO or TFA FTS bonds is viewed as prudent in light of the city’s general fund balances, which are largely invested in short-term assets and therefore serve as a hedge against rising interest rates,” the document said.

Alan Anders, deputy director of finance for the Mayor’s Office of Management and Budget, said the policy “memorializes” the extensive debt management constraints mandated under the New York State Local Finance Law, other applicable state and tax laws, and the city’s fiscal objectives.

“As one of the largest municipal issuers in the country, the city’s issuance of this written debt policy will hopefully help investors, fiscal monitors and other municipal issuers appreciate the complexity involved in managing the city’s debt portfolio,” Anders said.

Under state law and the city charter, the city comptroller — through the Bureau of Public Finance — and the mayor, through OMB — are jointly responsible for the issuance of city debt. Pursuant to a 1997 state law, the comptroller and the mayor approve TFA debt issuance.

The policy is available at the investor relations websites of OMB and the office of the comptroller at www.nyc.gov/bonds and www.comptroller.nyc.gov, respectively.

The city has $37.6 billion of GO debt and $37 billion of TFA future tax-secured debt outstanding as of March 31, according to Stringer’s office. The city plans to offer $200 million of fiscal 2014 Series D subseries D-3 GOs in a negotiated sale on Wednesday while the TFA on Tuesday is competitively selling $1.4 billion of new money tax-exempt and taxable FTS bonds that will benefit capital projects.

Moody's Investors Service on March 1 upgraded the city’s GOs to Aa1 from Aa2.

Moody’s said the upgrade, which affects about $38 billion of GO debt, “reflects continued strengthening and diversification [of the city's economy], reducing its reliance on volatile financial services. The city's competitive advantages include a young and highly skilled labor pool, access to higher education and medical centers, strong domestic and international transportation links, and low crime rates.”

According to Moody's, because the city’s financing responsibilities are broader than most local governments, its debt burden is above-average due to this operational scope.

Mayor Bill de Blasio and the City Council agreed in June on a $92.8 billion operating budget for fiscal 2020. It marked the fourth straight budget agreement ahead of schedule.

-- Chip Barnett contributed to this report.

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Budgets Bond ratings Bill de Blasio City of New York, NY Moody's New York