September 12, 2013
CONTACT: Morris Peters


Bond Market Validates the State’s Credit Quality and Recent Reforms

The New York State Division of Budget announced today results of the competitive sale of $753,055,000 in New York State Personal Income Tax Revenue Bonds. Strong investor interest resulted in nine bids for each group of bonds, with favorable bidding results and very favorable pricing for the State.

“The market’s reaction to New York’s bond sale is another strong affirmation of the progress we have made to put New York’s fiscal house in order,” said State Budget Director Robert Megna. “After years of late budgets and legislative gridlock, confidence in government is being restored. The affirmation of the markets is the ultimate test.”

The sales were conducted by the Empire State Development Corporation (ESDC) in two tranches and are scheduled to be delivered on September 26, 2013. The winning bids were as follows:

  • $271,900,000 of Series 2013C (Group A) Tax-Exempt Bonds to Goldman, Sachs & Co. with a true interest cost bid of 2.446162 percent, and
  • $481,155,000 Series 2013C (Group B) Tax-Exempt Bonds to Bank of America Merrill Lynch with a true interest cost bid of 4.438693 percent.

This strong reaction by the market to New York’s bond offering comes on the heels of Moody’s Investor Services moving New York’s outlook to positive. According to their report released August 22, 2013, New York has made “notable improvements in the state's economy, governance, financial position, and budgetary balance over the past three fiscal years.”

Among the strengths of New York’s financial position, Moody’s pointed to “a moderate combined debt and pension burden” as well as “sound debt management and frequently updated financial forecasting.”

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:

  • 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 service as a share of All Funds Receipts is expected to decline from 5.0 percent in FY 2013 to 4.8 percent in FY 2018, under the Capital Plan.
  • Debt outstanding actually declined from FY 2012 to FY 2013.

The Series 2013C Bonds are rated AAA by Standard & Poor’s Ratings Services. Rating agencies point to New York’s economic resiliency, stable rainy day reserves, modest unfunded liabilities, and a State pension system that is well funded compared to other states. Perhaps most importantly, the attractiveness of New York State bonds reflects the recent reversal from a history of political gridlock, reflected in three consecutive on-time budgets.

Investors look favorably at New York’s 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.

Bold actions were made throughout the budget to improve New York’s financial standing, including landmark collective bargaining agreements, the consolidation of back-office and non-core agency functions to the enterprise level, a cap on local property taxes, and Tier VI pension reform that will save the State and local governments more than $80B over 30 years.

The confidence in New York is reflected not just in the actions of investors, but also by employers. Since 2011, New York State has added over 300,000 new jobs, and was one of the first states in the nation to have gained back all of the private-sector jobs lost during the recession. The unemployment rate of 7.5 percent is the lowest in over four years, and the private sector job count is the highest it has ever been.

The award of these bonds through competitive sale will make critical investments in State and local transportation projects, reflecting the important link between a strong transportation infrastructure and a strong economy.