NYC Bonds

To Our Investor Community:

The month of March had a lot of activity with both City debt issuance and other City-related budget news.  The New York City Transitional Finance Authority (TFA) sold $750 million of Building Aid Revenue Bonds (BARBs) that will fund school capital projects.  In budget-related matters, the Comptroller’s Bureau of Budget released a Budget Brief that shows the City collected a record amount of fines and fees in Fiscal 2015, as well as an updated Cash Letter that outlines the City’s cash projections through May 31, 2016. In addition, Comptroller Stringer testified in front of the City Council Committee on Finance regarding the Mayor’s preliminary Fiscal 2017 budget. 

We also provide updates below on a new MSRB rule requiring “best execution” on trades and on the New York State Budget.

$750 million Transitional Finance Authority Building Aid Revenue Bond (BARB) Sale
On Thursday, March 10, the TFA entered its two-day retail order period by offering over $345 million of tax-exempt bonds to individual investors. Over those two days the TFA received over $350 million of retail orders from a combination of “professional retail” (professionally managed accounts) and direct individual purchasers. Positive investor demand carried over to institutional pricing where the TFA offered the remaining $452 million of bonds.  At the conclusion, approximately $755 million of orders were received.  Final stated yields on the bonds varied by coupon and maturity, ranging from 0.64% in 2017 to 3.17% in 2043 for a 5% coupon bond, and 3.44% in 2045 for a 4% coupon bond. The bonds were sold via negotiated sale by the TFA’s underwriting syndicate, led by book-running senior manager Ramirez & Co., Inc. with Goldman, Sachs & Co. serving as co-senior manager on the transaction.

Standard & Poor’s rates the bonds at AA, Fitch Ratings rates the bonds at AA, and Moody’s Investors Service rates the bonds at Aa2. 

Comptroller’s Comments on Preliminary FY 2017 Budget

On March 1, as required by City Charter, the Comptroller released a report and testified at the New York City Council Committee on Finance presenting his analysis and comments on the Mayor’s Fiscal Year 2017 Preliminary Budget and Financial Plan for Fiscal Years 2016 to 2020.  Below are some highlights from the Comptroller’s testimony:

• New York City has had six straight years of steady economic recovery, finishing 2015 with 3.4 percent growth.
• The City has added more than 525,000 private-sector jobs since 2009.
• Across the five boroughs, unemployment rates are the lowest they’ve been since before the recession.
• After adjusting for reserves, prepayments, and other prior-year actions, City expenditures are projected to grow steadily from $83.1 billion in FY 2016 to $91.5 billion in FY 2020, at an average rate of 2.4 percent per year.
• Debt service and health insurance are projected to grow most significantly, at 8 percent and 7 percent per year, respectively. However, actual growth may be slower if interest rates and health care insurance premiums are lower than expected.
• Slower growing expenditures include Medicaid, Public Assistance and, to a lesser extent, pensions.

Fines and Fees in the New York City Budget

On March 24, the Comptroller’s Bureau of Budget released a report that analyzed the amount of fines and fees the City levied between Fiscal Years 2012 – 2015.  The City imposes fines for violations of various rules and statutes. Fees cover a broad range of municipal activities, from tuition charges paid by CUNY community college students, to those assessed for building, elevator and electrical system inspections.

The report found that fines and fees have risen by 13.3% over the past four fiscal years to $1.9 billion in Fiscal Year 2015, which is more than the Commercial Rent Tax ($787 million), Utility Tax ($398 million), Hotel Tax ($560 million), and Cigarette Tax ($50 million) combined.

New York City Cash Projection

On March 31, the Comptroller’s Office Bureau of Budget, Division of Financial Analysis released its most recent Cash Letter which outlines the City’s projected cash balance through May 31, 2016. The report shows that the City’s cash condition is very healthy. As of March 30, 2016, the City’s unrestricted cash balance stood at $13.930 billion, exceeding last year’s comparable figure by $1.641 billion. Over the past twelve months, the cash balance has averaged $10.379 billion, compared to $9.108 billion for the same period last year.

New MSRB Rule on “Best Execution” of Municipal Trades

On March 21, The Municipal Securities Rule Making Board (MSRB) Rule G-18 became effective. This new rule builds on existing MSRB fair-pricing standards to require “best execution” of purchases and sales of municipal bonds.

The best-execution rule requires brokers, dealers and municipal securities dealers to use reasonable diligence to ascertain the best market for a security and to buy or sell in that market so that the resultant price for the customer is as favorable as possible under prevailing market conditions.  There is an exception to this rule for transactions with “sophisticated municipal market professionals” as defined by the MSRB.  For more information, visit the MSRB’s website MSRB.org.

New York State budget

New York State has adopted its budget for the Fiscal Year beginning April 1.  For further information please refer to the State’s Division of Budget website or the official press release.

Looking Ahead

The City is expecting to sell tax-exempt and taxable TFA Future Tax Secured bonds via competitive bid on April 12. As such, there will be no retail order period for this sale. Information on how to buy New York City bonds is available on the Comptroller’s website.  There, you can subscribe to receive sale announcements and other City publications and reports.  The New York State Comptroller also maintains a website with a preliminary forward calendar for major State and City issuers.

As always, we appreciate your interest in New York City bonds.  Please contact us if you have any questions or suggestions as to how we can improve our investor communications.

Carol S. Kostik

Deputy Comptroller for Public Finance