NYC Bonds

To Our Investor Community:

The first three months of 2017 have seen four bond sales by New York City and its related issuers.  All four bond issues refinanced outstanding debt and generated in total over $328 million in savings to benefit City taxpayers and water and sewer ratepayers.   The City budget cycle also entered an intensive phase, with the Mayor’s January Budget and Financial Plan update and the Governor’s State Budget proposal both announced. The Comptroller’s office issued a detailed report on the Mayor’s January update and also published its Quarterly Cash report for the second quarter of FY 2017, showing continued healthy cash balances.

Bond Sales

TSASC, Inc., which sells bonds backed by a portion of the City’s share of tobacco settlement revenues, refunded all its outstanding bonds in January and put in place a new, more robust debt structure supported by TSASC’s existing pledged revenues.  The $1.103 billion refunding is expected to generate savings to the City once the bonds are fully repaid, relative to projected revenues under the prior bond structure. These future savings are not included in the total of $328 million savings noted above.

New York City General Obligation. Kicking off the month of February, the City sold $900 million of fixed rate tax-exempt general obligation refunding bonds over a three day period.  During a two-day retail order period for the bonds, the City received $621 million of orders from individual investors – the largest amount of such orders in recent years.  Given this strong individual investor demand, the refunding was upsized by $100 million from the original $800 million size. The refunding provides more than $133 million in budget savings to City taxpayers over the life of the bonds.

New York City Municipal Water Finance Authority (NYW).  As the month of February drew to a close, NYW entered the market with a $392 million refunding bond sale. NYW’s bond issues typically feature longer maturities, which are more attractive to institutional buyers. A diverse array of institutions placed more $950 million of priority orders.  The refunding achieved budgetary savings of more than $96 million over the life of the bonds, benefitting water and sewer ratepayers.

New York City Transitional Finance Authority (TFA).  During the week March 6th the TFA sold almost $795 million of Future Tax Secured (FTS) refunding bonds, backed primarily by the City’s personal income tax revenues.  Demand from individual investors was again strong, with over $452 million of orders received over the two-day retail order period.  Institutions also stepped up and TFA received over $1 billion of priority orders, representing more 3 times the bonds offered for sale to institutional investors. Total budget savings to City taxpayers from this transaction exceed $99 million over the life of the bonds.

New York City Budget News

Mayor’s January Financial Plan. On January 24th, the Mayor released his Financial Plan covering Fiscal Years 2017-21. This included revisions to the current FY 2017 budget and the projected FY 2018 budget, each of which needed to be shown as balanced according to GAAP, and revisions to the Financial Plan “out years” that now include FY 2021 for the first time. Full information on the Mayor’s January Financial Plan is available on the NYC Office of Management and Budget website.

Comptroller’s Comments.  On March 2, 2017, as required by City Charter, the Comptroller released a report and testified at the New York City Council Committee on Finance presenting his comments and analysis on the Mayor’s January update.  The report concludes that the City has enjoyed strong growth, and the current expansion is one of the strongest in recent history, but there may be challenging times ahead that we need to prepare for. Below are some highlights from the Comptroller’s testimony:

• The New York City economy grew 2.9 percent in 2016, outperforming the nation for the sixth time in seven years.
• The City has added more than 635,000 private-sector jobs since 2009, including 84,900 in 2016.
• Across the five boroughs, unemployment rates are the lowest they’ve been since before the recession.
• The City’s economic expansion is expected to continue over the financial plan period, but the rate of growth will continue to slow down.
• Spending in 2018, adjusting for prepayments, is set to rise 2.2 percent. The City projects total expenditures to grow by 3 percent per year on average, reaching $95.6 billion by FY 2021.  Total revenues are expected to grow more slowly, at an average rate of 2.5 percent.
• The federal budget represents the biggest risk to New York City. The President’s proposal (as of the report date) to cut non-defense discretionary spending by 9% could open a hole equaling $670 million in the City’s budget.

Our office is currently reviewing the President’s budget plan announced March 16th which proposed the elimination of several programs that provide a total of at least $440 million to New York City agencies, but was short on detail and silent on a number of other major federal grant-in-aid programs.

New York City Cash Report. On March 3rd, the Comptroller’s Office Bureau of Budget, Division of Financial Analysis released its most recent Cash Report. At the end of the second quarter of Fiscal Year 2017, the City recorded an unrestricted cash balance of $10.349 billion, down $1.255 billion compared to the prior year. The average daily balance for the second quarter was $8.234 billion versus $8.831 billion a year prior. However, the City’s liquidity position continues to be strong.

Looking Ahead

The City’s bond sale plans for the month of April have not yet been finalized. Information on New York City bonds and upcoming transactions is available on the Comptroller’s website.  You can also 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