On Tuesday, as part of a Preliminary Offering Circular issued by the New York City Transitional Finance Authority (TFA), the Mayor’s Office of Management and Budget (OMB) announced that the Adams Administration intends to pursue State legislation to increase the total amount of debt the TFA is authorized to issue outside of City’s debt limit by an additional $19 billion, more than doubling the current authorization of $13.5 billion.
New York City Comptroller Brad Lander believes that OMB’s request for additional bonding capacity is neither necessary nor fiscally prudent at this moment. While the City may need to seek an increase to its debt limit before FY25 or FY26 in order to address its infrastructure needs, the City’s projections show sufficient borrowing capacity to meet the current capital plan for the next three years. Before seeking an increase, Comptroller Lander believes that the City must first determine what infrastructure needs can be addressed through the recent Federal infrastructure bill, better assess the pandemic’s long-term impact on property values and the City’s budget, and begin to reform its capital project management practices to get the most out of existing resources. The Comptroller will oppose the request to Albany at this time.
“It is premature for the Mayor to seek a $19 billion increase to our debt capacity so early in the new term,” said“We must invest wisely in our city’s future, mindful of the risks that aging infrastructure and climate change pose to our streets, transit, and buildings. But the conversation about our debt capacity should start from an assessment of our actual infrastructure needs and the capacity to meet them over the coming years. The proposal by the Mayor’s Office of Management and Budget, expressed to investors in the offering circular published by the Transitional Finance Authority, follows no such assessment.
“First, the Federal Infrastructure Investment and Jobs Act, signed into law on November 15, 2021, represents an enormous opportunity for New York City, and we need to determine more clearly what resources will be made available to the City of New York. The Mayor’s team needs to develop and present a fuller picture of our infrastructure needs in the coming years, before we seek a $19 billion increase in debt to pay for them.
“Second, we need a clearer picture of the City’s long-term finances. The City’s debt limit is based on the five-year average of the full value of taxable real estate in the City, and the pandemic’s impact on property values has yet to settle into predictable patterns following the historic decreases caused by the COVID-19 pandemic. Rather than seek an arbitrary increase, we should look to set an investment level tied to projected revenues.
“Finally, we have a critical opportunity – one we cannot afford to waste – to reform the City’s capital project management practices, in order to maximize the limited resources we have. The City’s capital projects are notorious for going over-budget and over-time. Meanwhile, the City’s Capital Commitment Plan has historically substantially overstated the amount of actual capital commitments entered into in any given year, thereby using up less debt capacity than currently projected. Before we seek an additional $19 billion in borrowing capacity, we should make sure we are prepared to invest it more efficiently.
“We simply do not have an urgent need to rush into this large increase,”“We currently have sufficient borrowing capacity to cover our project capital investment needs for the next three years. Seeking legislative authorization for additional bonding capacity is neither necessary nor fiscally prudent at this moment. Let’s first make sure we have a plan to use these critical long-term investment resources wisely.”
The NYC TFA is a public benefit corporation created by New York State in 1997 to provide an alternative to General Obligation bond financing of the City’s capital program, at a time when the City’s debt limit had been reduced as a result of declining property values to a level that would have prevented the City from entering into new capital contracts in the near future. Current law provides that TFA Future Tax Secured bonds in excess of $13.5 billion outstanding are subject to the City’s constitutional debt limit, together with outstanding City General Obligation Bonds.
The City’s June 30, 2021 projections show that in Fiscal Year 2025, the City’s debt-incurring margin will narrow to $4.7 billion, an amount of available borrowing capacity that assumes all currently planned capital commitments are entered and financed.
Historically the City’s capital commitment rate peaked in 2019 at 63%, leaving a high likelihood that current projections will not reflect the actual amount of debt capacity under the City’s current debt limit three years out. If the increased authorization being sought is enacted into law, the TFA would be authorized to have a total of $32.5 billion of bonds outstanding outside of the City’s debt limit, increasing the City’s total debt capacity to approximately $160 billion in the current fiscal year.