NYC’s Adams Wants $19 Billion Boost to City Borrowing Power

(Bloomberg) -- New York City Mayor Eric Adams plans to seek state legislation to boost the city’s borrowing capacity by $19 billion, a move opposed by City Comptroller Brad Lander, a fellow Democrat. 

The city wants to raise the amount of bonds issued by the Transitional Finance Authority that won’t count against the city’s general debt limit to $32.5 billion, according to an offering statement for a $1.2 billion bond sale slated for this month. The TFA was set up in 1997 to help the city avoid exceeding its debt limit. The mayor’s request would give a significant boost to New York’s debt capacity, which is now around $43 billion and is projected to tumble in coming years.

Lander, who shares management of debt issuance with City Hall, said the move by the Adams administration wasn’t necessary or fiscally prudent. New York City also needs more clarity on how much it will receive from the federal infrastructure bill, he added. 

“It is premature for the Mayor to seek a $19 billion increase to our debt capacity so early in the new term,” Lander, who took office this month, said in a statement. “The Mayor’s team needs to develop and present a fuller picture of our infrastructure needs in the coming years, before we seek a $19 billion increase in debt to pay for them.” 

The city’s debt capacity is projected to fall to about $4.7 billion for fiscal 2025, from about $43.3 billion as of Dec. 31, according to the TFA’s bond-offering documents. The state constitution limits city debt, with certain exceptions, to 10% of the average full taxable value of real estate for the most recent five years. The debt limit was $123 billion as of June 30, according to the city’s annual financial report.

New York City projects a budget gap of almost $3 billion for the fiscal year beginning July 1, reflecting the scar on its finances from the pandemic. The coronavirus has hobbled tourism and left the future of the office market in doubt. The nation’s most-populous city has recovered roughly half of the more than 900,000 private-sector jobs lost when the pandemic began. 

Property-Value Question

The city should get a better understanding of the pandemic’s impact on property values, which determine the debt limit, before arbitrarily raising the TFA’s debt cap, Lander said. It also needs to better manage the construction of schools, sewers, roads and bridges, which are notorious for being late and over-budget, he said. 

A spokesman for the mayor said Lander was irresponsible for telling state lawmakers not to increase the city’s borrowing capacity, especially in view of the uncertainty with Covid-19 and a slowing economy. 

“We must keep building and maintaining hospitals, schools, and roads, and cannot slow investments that will protect communities from the impact of climate change and severe weather,” said Jonah Allon, a spokesman for Adams. “The state has raised the debt ceiling multiple times over the past 25 years, and there is no good reason to risk progress and our recovery.”

Ultimately, it would be up to the state legislature to decide on the mayor’s request, which could go forward despite opposition from the city comptroller.

When the TFA was created it had authority to issue $7.5 billion, but after several legislative changes the limit was increased to $13.5 billion. The city exhausted the limit in fiscal 2007 and in 2009 the state legislature authorized the TFA to issue debt beyond the $13.5 billion. However, the additional borrowing would be subject to the city’s general debt limit. 

New York City has issued $27.6 billion of TFA bonds above the authorized cap as of June 30, 2021, according to the city comptroller. 

The authority’s securities are insulated from New York City’s budget deficits because state law doesn’t allow the TFA to file for bankruptcy. The agency’s debt is backed by the city’s income tax and, if needed, its sales tax -- a source of security that allows New York to borrow at low interest rates. The state collects the taxes and transfers it to the bond trustee, so the revenue is unavailable to pay for city operations. 

TFA bonds are rated AAA by S&P Global Ratings and Fitch Ratings, and Aa1 by Moody’s Investors Service, second-highest.

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