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October 1, 2013

The wonderful world of non- voter approved debt

E.J. McMahon

Governor Andrew Cuomo and the Budget Division are spreading the word via Twitter that Standard & Poor’s has given its top AAA rating to the state’s $1 billion sales tax revenue bond issue.

However, the rating can be seen as less as an endorsement of New York’s fiscal practices than an expression of market confidence in borrowing secured by a pledge of up to 25 percent of the state’s nearly $16 billion in annual sales and use tax revenues. Under new budget legislation authorizing sales tax revenue bonds, a “locked box” mechanism essentially will force the Legislature to repay the debt. As coverage ratios go, it doesn’t get much better than that for tax-exempt bond buyers.

The new sales tax bonds are modeled after the state’s personal income tax (PIT) bonds, which also are popular in a marketplace heavily populated by high-income investors looking for a way to avoid high New York taxes.

From the Bloomberg wire:

The bonds, which won’t require voter approval, will provide a new credit in a market hungering for New York borrowings, said Howard Cure, director of muni research at Evercore Wealth Management LLC, which oversees about $4.7 billion. Issuers in the state have sold 34 percent less debt in 2013 than at the same time last year, on pace for the steepest slowdown in at least a decade, data compiled by Bloomberg show.

“With New York state, anytime there’s a new structure for debt, it’s an opportunity to diversify your portfolio, and it should be very well received,” said Cure, who’s based in Manhattan. “It’s another example of New York being creative in devising mechanisms to circumvent voter approval,” which is needed for general-obligation debt.

New York’s general obligation bonds, requiring approval from those pesky voters, currently carry a rating of AA from S&P — which, to be sure, upgraded the state’s outlook from “stable” to “positive” last year.

Filed under: Debt, Uncategorized


  1. This is a mere drop in the bucket compared to the very real unfunded, voter unapproved debt for OPEB obligations ( post employment health care being the principal driver), which just for State employees is more the $ 50 billion.

    Gotta love this state.

    Comment by Michael Kolesar — October 1, 2013 @ 1:34 pm

  2. “It’s another example of New York being creative in devising mechanisms to circumvent voter approval,” which is needed for general-obligation debt.

    Did he really say that?

    Comment by mark alesse — October 1, 2013 @ 3:51 pm

  3. All over New York State, school districts, counties, municipalities beg Albany to pay for unlimited spending incurred by Albany, unfunded by Albany, and hidden by Albany in their local budgets. If that spending were in the state budget, the astronomical total would be visible, would shock voters, and would need to be paid for by the Albany spenders. Instead, they force towns, school, and counties to pay Albany’s tab without their approval.
    Albany’s mandate spending is unlimited, because Albany’s tax cap doesn’t apply to Albany’s mandated spending lines in local budgets - the tax cap just curtails the spending lines controlled by local governments who are then forced to limit their spending excessively to compensate for Albany’s spending lines not subject to the tax cap limit. Do Obamacare waivers bother you? Albany’s version is a funding waiver to itself through mandated spending.
    Contrast this new bond program. Albany, to increase NYS debt, funds the repayment. Mandates: Albany spends through local budgets and doesn’t fund its spending. These Bonds: Albany borrows and enables the borrowing by funding the repayment. And then Albany and Gov Cuomo take credit while hiding their role in worsening NYS’s financial condition. Albany and Gov Cuomo claim credit for their tax cap on property taxes, when their uncapped mandated spending is the biggest cause of escalating local budgets and property taxes. And now Gov Cuomo trumpets an AAA rating for a locked in funding stream which, if fiscal responsibility ruled, would be allocated to unfundated mandated spending already incurred on the books of local governments.

    Gov Cuomo and the Albany Legislature disguise and camouflage their fiscal irresponsibility as fiscal responsibility. This is not the way to change New York from a state that businesses, high income earners, retirees, and young people leave and avoid, to a state they flock to.

    Comment by Howland Robinson — October 1, 2013 @ 4:27 pm

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