Relates to bonds issued by the New York City transitional finance authority

Title of bill

An act to amend the public authorities law, in relation to bonds issued by the New York city transitional finance authority

Summary of provisions

The proposed bill will allow the City more efficient and cost effective access to financial markets. Specifically the bill would:

(1) place outstanding TFA debt (beyond the amount authorized by Public Authorities Law §2799(gg)) under the existing New York City General Obligation (GO) cap in the Local Finance Law and make the existing statutory cap on TFA borrowing for general capital purposes applicable to outstanding debt of the TFA rather than all debt issued by the TFA;

(2) continue to exempt Recovery Bonds and Building Aid Bonds from the TFA's general debt limit and continue to provide that the amount of variable rate bonds outstanding for general capital purposes be limited to the current twenty percent of the TFA's general debt limit, with provisions for customary exclusions.

Reasons for support

These amendments to the Transitional Finance Authority Act ("TFA Act") will significantly reduce City debt service costs at a time when the City is facing budget gaps ranging from $4.4 billion to $7 billion over the next three fiscal years. It will also contribute to the City's ability to continue to finance necessary capital improvements while maintaining crucial public services during these times of economic distress in the national and local economy.

During these times of economic crisis, the City needs to be able to utilize its highest-rated, most cost-effective borrowing vehicle, the Transitional Finance Authority.

Throughout its existence, the TFA has proven its value in helping to reduce City debt service costs and permitting access to a broad base of investors for access to capital to finance the City's infrastructure needs. However, for the last two years the City has been unable to utilize TFA bonds for general capital purposes because it has reached its statutory bonding limit. Limiting the TFA's ability to issue bonds artificially inflates the City's overall cost of borrowing, restricts its flexibility in debt structuring opportunities, and constrains its ability to take advantage of tax-exempt borrowing. As a result, the City's debt will cost more, making less money available to meet critical budgetary and infrastructure requirements.

If this bill is enacted, the City would be able to finance half of its capital program with TFA bonds and the remaining half with general obligation bonds. The recent TFA bond refinancing indicated that TFA debt service on newly issued debt would be up to 65 basis points cheaper than City general obligation bonds. Due to this differential in interest rates between the general obligation bonds and TFA's bonds, coupled with the increasing market saturation facing the City in the continued issuance of its general obligation debt to finance its capital program, the City estimates that it would save $20 million in fiscal year 2010 if the statutory limit on TFA bonds were revised as provided in this bill.

Accordingly, the Mayor urges the earliest possible favorable consideration of this proposal by the Legislature.