Wednesday, November 22, 2006

Comptroller Hevesi warns PACB to be cautious about debt

State Comptroller Alan Hevesi yesterday warned that the Public Authorities Control Board (PACB) is moving much too fast, thus offering another potential brake on the Atlantic Yards project and many others.

Though the PACB approved an average of less than half a billion dollars in projects per meeting over the last year, it has rushed through projects totaling $11.4 billion in this month and October, Hevesi said.

In December, projects worth several billions more are expected to reach the PACB, which requires unanimity from its three voting members: Governor George Pataki, Assembly Speaker Sheldon Silver, and Senate Majority Leader Joseph Bruno.

Part of that December total could be related to the Atlantic Yards project, which cannot be voted on until the Empire State Development Corporation (ESDC) approves the project. The ESDC and developer Forest City Ratner seek rapid approval, under the administration of departing Governor Pataki, while Silver is under pressure to delay the vote and the project until the administration of incoming Governor Eliot Spitzer, a fellow Democrat.

I queried Hevesi's press office and got this response:
"The enacted budget does include two appropriation lines ($33 million each) for what seems to be Atlantic Yards related items. How these would fit into the larger project known as Atlantic Yards is unknown. This funding is part of the $603 million in economic development added in this year's enacted budget and included in the DASNY [Dormitory Authority of the State of New York] $2 billion proposal.
Atlantic Yards Railway
Redevelopment .............. 33,000,000
Atlantic Yards Railway -
Nets Project ............... 33,000,000."

Those sums are almost certainly part of the $100 million pledged by the state toward infrastructure for the project.

[Update: the PACB may also have to address a much larger issue: bonding for the project.]

Note that the Comptroller, who faces investigation and possible removal because of his use of state employees to drive his wife, seems to be reasserting his statutory role. To Albany Times-Union political reporter Elizabeth Benjamin, Hevesi is getting revenge on Pataki, who just authorized a special prosecutor to gain subpoena powers in investigating Hevesi. A Pataki spokesman blamed Hevesi and Silver for delaying projects.

The rest is from Hevesi's press release.

Too much of a rush

“New York State is already suffering under huge amounts of debt, and now in the last days of the current administration, there is a rush to push through billions of dollars of projects that will load the State with billions more in debt, in many cases without getting a proper review,” Hevesi said.

“The State should take the proper amount of time to make certain that it is entering into sound fiscal commitments that have been thoroughly vetted and analyzed with the PACB as the last step in the process of reviewing a final and complete plan. Also, the Spitzer administration should be given the opportunity to include these projects in a comprehensive plan. This is especially important since Governor-elect Spitzer has said economic development is a priority and much of this financing is for that purpose."

“I’m not suggesting that any of these projects are not worthy or should be blocked. But when they are rushed through in a long list, it is impossible to know if they are as good as they can be,” Hevesi said.


Complex financing

“Many of the projects being considered are complex financing agreements that would benefit from more, not less public debate. For example, in April 2005, my Office raised many questions about the Ridge Hill project in Yonkers. As a result, when it was eventually passed, it was revised to provide an annual revenue stream of $6.5 million for more than 70 years for the taxpayers and the people of Yonkers.”

[Ridge Hill is a project of Forest City Ratner.]

Hevesi said the rush is particularly questionable since many of these projects may not start for years. Some of the projects slated to be approved by the PACB were included in the 2006-07 enacted budget, which added an enormous $16.4 billion to the State’s debt, including $11.8 billion for which the State is directly responsible. Total State-funded debt is projected to increase to nearly $65 billion by 2010-11, or a 33 percent rise over five years.

“The PACB was created to provide oversight over the financial transactions and issuance of debt by 11 public authorities, particularly debt for which the State would be responsible to repay. As such, its final approvals should be completed as close as possible to the time the debt will be issued and only after agencies have developed full financial and operational plans for the funds that they have shared with the Board,” Hevesi said. “By authorizing these projects so early in the process, the PACB is in many cases abdicating its responsibility.”


A busy PACB agenda

The PACB agenda for October included $4.7 billion in projects, of which $3.7 billion was State debt and the remainder was for a mix of grants, loans and private debt financings. All were approved. (The Moynihan Station project which was voted down is not included in the $4.7 billion.)

For the November meeting, which was scheduled for last week but postponed, the agenda includes $6.7 billion, of which $3.9 billion is new State debt, $1.7 billion is refunding of State debt and most of the remainder is private debt. By comparison, PACB authorized an average of $469 million per meeting between September 2005 and September 2006, and had only two meetings where the agenda barely exceeded $1 billion.


Market conditions change

Hevesi raised concern about the amount of debt being authorized at the end of an administration, particularly, he said, because many projects for which funding is being approved are not going to start in the near term and because market conditions are not favorable for all of the refundings being authorized. For example, the PACB has been asked to authorize the Dormitory Authority to issue more than $700 million to refund personal income tax bonds, but under current market conditions only about $65 million of bonds can be refunded and produce actual savings.

“Rushing these projects through before the clock strikes midnight will make it very difficult to put New York back on the right track,” Hevesi said. “The PACB plays a potentially important role in ensuring that the state’s debt is issued at the right time for the right purposes. Now is not the time to write blank checks to public authorities that the new administration will be unable to revise or cancel.”

Comptroller Hevesi’s comprehensive debt reform program, issued in February 2005, would limit the State’s issuance of debt. It includes reforms to the PACB that would require more transparency and accountability. For example, it would require PACB approval for all State public authorities, increasing the number of authorities being reviewed from 11 to 200. It would also require substantially more reporting on all debt deals approved.

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