NYC mayor, comptroller clash on TFA debt capacity hike

A proposal to raise the debt capacity of the New York City Transitional Finance Authority seems to have raised the ire of the city comptroller.

The proposal to raise the bonding limit by $19 billion was included as part of the preliminary offering statement issued by the Mayor’s Office of Management and Budget ahead of a $1.2 billion sale of TFA bonds next week.

A statement included in the POS said the administration of Mayor Eric Adams intends to seek state legislation to increase by $19 billion the amount of debt the TFA is allowed to issue, more than doubling the current authorization of $13.5 billion.

City Comptroller Brad Lander said Wednesday the request for additional bonding capacity was not necessary or fiscally prudent at this time and he will oppose the request.

Before seeking an increase, Lander said, the city must first determine what needs can be addressed through the federal infrastructure bill, better assess the pandemic’s long-term impact on property values and the budget, and reform capital project management practices.

“It is premature for the mayor to seek a $19 billion increase to our debt capacity so early in the new term,” Lander said in a statement Wednesday. “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 mayor’s office said uncertainty around the current economic landscape makes the proposal viable now.

“Telling Albany not to increase the city’s borrowing capacity is irresponsible, especially in light of uncertainty around COVID-19, and a slowing economy,” a City Hall spokesperson told The Bond Buyer. “We must keep building and maintaining hospitals, schools and roads, and cannot slow investments that will protect communities from the impact of climate change and severe weather. The state has raised the debt ceiling multiple times over the past 25 years and there is no good reason to risk progress and our recovery.”

The comptroller countered there is time to decide on the best course of action.

“We simply do not have an urgent need to rush into this large increase,” Lander said. “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.”

The comptroller’s office said the city’s June 30 projections show that in fiscal 2025 the city’s borrowing authority will fall to $4.7 billion. Current debt capacity has been estimated at around $43 billion.

Current law says any TFA future tax secured bonds outstanding in an amount over $13.5 billion are subject to the city’s constitutional debt limit, together with its outstanding city GOs. If the increased authorization being sought is enacted into law by the state Legislature, the TFA would be able to have a total of $32.5 billion of bonds outstanding excluding the city’s GOs.

Citizens Budget Commission President Andrew Rein said the city should proceed with caution before looking to raise the TFA's debt capacity.

"These decisions should be made prudently, based on good fiscal analysis with every effort made to run government well," Rein said.

"The city has a high debt load and increasing the city's debt capacity should only be done with extreme caution — and it needs to be based on solid analysis and reforms in our capital planning and execution process," he said.

In a few years, the city will approach its debt cap and could potentially turn into a problem, Rein said.

"However, we're not hitting it right now and there is time to see both how the capital execution proceeds as well as to improve and reform our capital planning and execution processes.

"The cap is there for a reason — we need to make sure it's affordable," he said.

The NYC TFA was created by the state in 1997 as a public benefit corporation to provide an alternative to the city’s GO financing at a time when the city’s debt limit dropped sharply due to declining property values. 

Next week, the TFA will offer about $1.2 billion of future tax secured subordinate Fiscal 2022 Series C bonds. Proceeds will be used to fund capital projects.

The offering is comprised of $950 million of Subseries C1 tax-exempt fixed-rate bonds and $250 million of taxable fixed-rate bonds comprised of $180.995 million Subseries C2 taxables and $69.005 million of Subseries C3 taxables.

Book-running lead manager J.P. Morgan Securities is expected to price the tax-exempts on Thursday, Jan. 20, after a two-day retail order period starting on Tuesday, Jan. 18.

The TFA expects to competitively sell around $250 million of the taxable fixed-rate bonds on Jan. 20.

BofA Securities, Citigroup (C), Jefferies, Loop Capital Markets, Ramirez & Co., RBC Capital Markets, Siebert Williams Shank, and Wells Fargo (WFC), Academy Securities, Barclays (BCS), Blaylock Van, BNY Mellon Capital Markets, Cabrera Capital Markets, Drexel Hamilton, Fidelity Capital Markets, Goldman Sachs (GS), Great Pacific Securities, Janney, Morgan Stanley (MS), Oppenheimer & co., Raymond James, Rice Financial Products Co., Roosevelt & Cross, Stern Brothers & Co., Stifel, TD Securities and UBS are all co-managers.

Co-municipal advisors are PRAG and Frasca & Associates LLC. Co-bond counsel are Norton Rose Fulbright and Bryant Rabbino.

Since 2011, the TFA has sold more than $58 billion of bonds with the largest issuance occurring in 2018 when it offered $7.8 billion of debt. It sold the least amount, $3.2 billion, in 2013.

Outstanding TFA subordinated bonds are rated Aa1 by Moody’s Investors Service, and AAA by S&P Global Ratings and Fitch Ratings.