Officials in the New York State Comptroller's office say the stern tone of their denunciation this week of a Troy, N.Y., lease revenue bond deal should "deter" other municipalities from copying the controversial financing technique.
The consensus from the comptroller's office was echoed by the bond lawyer involved in the transaction, who said the report would likely have "a chilling effect" on municipalities considering similar deals.
The nine-page report, released Monday, criticized the $35 million sale of lease revenue bonds by the Troy Industrial Development Authority, charging that the deal did not comply with the comptroller's interpretation of state municipal law and was too expensive.
Cynthia Munk, a spokeswoman for state Comptroller Edward V. Regan, said on Wednesday the report and some of its conclusions will deter other municipalities from doing the same thing."
The report termed the deal "an elaborate and purposeful circumvention of state law and policy," and " not in the best interests of the taxpayers of Troy. "
The document also said the city could have saved money issuing general obligation bonds, instead of the unrated lease revenue bonds that do not reflect the full faith and credit of the city.
The report, for example, called on Troy City Manager Steven G. Dworsky to ask the state Legislature to validate certain aspects of this transaction" and impose oversight requirements on the city.
City officials say they have no plans to ask the Legislature to validate the deal.
The comptroller's office issued the report after it determined that city officials used proceeds of the bond sale to help close a projected $4 million deficit in the city's fiscal 1992 budget. The fiscal year ends Dec. 31.
City officials have said the deal is legal, and its structure helped prevent a tax increase that would have occurred if the city sold GO bonds.
But Joel Moser, a partner at the New York City law firm of Moser & Moser and the city's bond counsel, said the report and its conclusions will have a "chilling effect" on a possible wider use of the Troy deficit financing technique.
So far, Suffolk and Rensselaer counties have withdrawn plans to use this financing method to address budget problims following comments by state comptroller Regan, who publicly denounced the Troy deal.
"As a practical matter, the report closed the book on this technique," Moser said. "But as a matter of law, this may need an amendment."
Moser continues to defend the legality of the deal. He said, for example, that the contents of the report fall to support its conclusion that the Troy deal "does not comport with state law. "
Instead, he said, the report addresses only the issue of legislative intent." He said the report's findings say only that Troy violated the intent of a state law governing the use of sale and leaseback transactions.
The report's statewide implications could become an important factor during the upcoming legislative session. Regan has said as many as 30 municipalities may experience budget gaps in the coming year due to continued deterioration in the state economy.
Officials in the comptroller's office want to prevent these local governments from turning to the Troy financing technique, Munk said.
Munk said the comptroller's office has no immediate plans to draft legislation that would outlaw municipalities from using sale and leaseback transactions to cover budget gaps.
But she added that the comptroller has submitted the report to the Assembly Ways and Means Committee, the state Senate Finance Committee, and the office of Gov. Mario M. Cuomo. Press officials from the Assembly and the governor's office said they had no comment on the report; a Senate spokesman did not return telephone calls.
Sources in Albany have said that both houses in the Legislature are developing plans to provide oversight for municipalities that experience deficits.
The comptroller's report on the Troy transaction may help in that process, Munk said.
