October 17, 2013
CONTACT: Morris Peters


Despite Uncertainty in the Financial Markets, High Demand for New York's Sales Tax Revenue Bonds Leads to Favorable Pricing

The New York State Division of Budget today announced results of the initial sale of $959,795,000 in New York State Sales Tax Revenue Bonds. In spite of uncertainty in the financial markets due to the political brinksmanship and governmental dysfunction in Washington D.C., investors continue to show their confidence in New York. 

Legislation enacted with the FY 2014 Budget created the new Sales Tax Revenue Bond program. The success of the sale showed the bonds to be an attractive option for investors while providing the State with very favorable yields. The program is being used interchangeably with the PIT Revenue Bond program to finance State capital needs and provide a vehicle to end the use of older, higher cost debt structures.  Every dollar of bonds issued under the Sales Tax and PIT Revenue Bond programs must be approved by the State legislature.

“Investors recognize that New York’s finances are as strong now as they have been in a very long time,” said State Budget Director Robert Megna. “After years of politics and dysfunction, we now have on-time budgets and rational long-term fiscal planning. The results of this sale show that what is good for the people of New York also makes us attractive to investors.”

The bonds were issued on behalf of the State by the Dormitory Authority of the State of New York (DASNY), and were lead managed by J.P. Morgan.  The bonds are tax-exempt, had a True Interest Cost (TIC) of 4.214%, and are expected to be delivered on October 24, 2013.

The market’s confidence in New York stands in contrast to, and in spite of, the recent turbulence in the financial markets resulting from the threat of federal default. The temporary increase to the federal debt ceiling has not fully mollified financial markets that react unfavorably to uncertainty, but New York bonds continue to sell very favorably.

This strong reaction by the market to New York’s bond offering follows the positive reception from the rating agencies. Standard and Poor’s gave the bonds their highest rating, AAA. Fitch Ratings cited New York’s strong financial planning and reporting practices, and moderate liability burden. “The Positive Outlook reflects the improved fiscal management practices of recent years that are resulting in timelier, more sustainable budget-making,” said Fitch’s bond rating. “Notable recurring actions were taken to close budget gaps in the downturn, and in the recovery the state has limited the growth in spending.”

The consolidation of New York’s debt issuances into higher-rated credits with reduced yields, made possible by this new program, will increase efficiencies and lower the State’s cost of borrowing. Without changing the composition of the State’s capital plan improvements, the successful sale of these new bonds reduces the cost of financing the plan.

The State’s Capital Plan includes $9.4 billion in FY 2014 capital infrastructure spending, appropriately financed through a combination of bonds and pay-as-you-go, as approved by the State Legislature. Improved debt practices under Governor Andrew M. Cuomo include coordinated capital planning through the NY Works Task Force and the creation of the first-ever 10-year Statewide Capital Plan.
New York State will continue to remain within its debt limit, and measures of debt affordability are steadily improving:

  • In every year of the Capital Plan, the debt to personal income ratio is expected to improve, representing the lowest level the State has recorded in decades.
  • State-related debt outstanding as a percentage of personal income declined from 5.9 percent in FY 2011 to 5.4 percent in FY 2013, and is expected to decrease further to 4.5 percent by FY 2018.
  • Debt outstanding actually declined from FY 2012 to FY 2013.

Investors look favorably at New York’s three consecutive on-time budgets, the implementation of spending controls and movement toward structurally balanced budgets. Among the spending controls in place is the linkage of School aid to the growth of statewide personal income, and the tying future Medicaid growth to the 10-year rolling average of the Medical Consumer Price Index. These controls replaced unaffordable inflators with sustainable growth, eliminating over $70 billion in budget gaps.