New York City plans to call off the competitive sale of $200 million of debt, raising questions among some market participants about the city's commitment to selling debt competitively.
The sale, scheduled to take place this month, was designed to fill a $200 million gap in the city's capital spending needs for fiscal 1994, which ends June 30. The city chose a competitive sale because of the relatively small size of the proposed issue, and the absence of derivative products or other complicated financing techniques in the proposed financing.
Several municipal analysts said the change of plans my foreshadow a lack of commitment on the part of city officials to sell debt competitively. In the past, these city officials have publicly supported competitive sales.
However, aides working for one such official, city comptroller Alan G. Hevesi, offered a different reason.
"It's unlikely that we will do that sale," said deputy city comptroller for finance Patrice I. Mitchell. "We don't have the need for additional money for this fiscal year."
The decision, the aides say, does not reflect any change on the controversy surrounding competitive bidding for the issuance of city debt.
New York City has traditionally sold the lion's share of its debt through negotiated sales, where investment bankers earn fees for premarketing, structuring offerings, and selling the debt.
But during his election campaign, Hevesi pledged to sell more of the city's debt through competitive sales.
Hevesi criticized his opponent in the 1993 comptroller's race, incumbent comptroller Elizabeth Holtzman, for having a conflict of interest since many of the same bankers she recommended for the city's bond syndicates were also large contributors to her campaign. The comptroller's office negotiates bond selling decisions with finance aides working for the mayor.
Unlike Hevesi, New York City Mayor Rudolph W. Giuliani has remained neutral in the bond sale debate. But Giuliani's budget director, Abraham Lackman, has not.
In 1992, for example, Lackman, then a key finance official with the New York State Senate, met with city officials to persuade the city to issue more bonds competitively.
The meeting came as the Senate temporarily blocked legislation that would allow the city to issue bonds through a negotiated sale. The city needs to obtain this authority each year.
"We've done some research on this, and we believe that the city can save money doing some of its bond issuance through competitive bidding," Lackman told The Bond Buyer in July of 1992.
Lackman could not be reached for comment on Friday. His deputy in charge of bond sales, Mark Page, also did not return a telephone call.
Several market observers say the city may be missing a prime opportunity to issue competitively sold bonds, and questioned the city's commitment to the issue.
Michael Shamosh, a municipal market strategist at Cowen & Co., said issuance of New York area bonds has dropped off significantly in recent weeks because of the delay in passing the state's budget. As a result, Wall Street firms would savor the opportunity to bids on these tax-exempt issues.
"This is the perfect time to sell bond competitively," Shamosh said. "The street would be all over it."
Mitchell, for her part, said the comptroller's office is currently studying the issue of selling more city bonds competitively.
Some on Wall Street called this move a tactical delay to curry favor with large investment houses who make more money on negotiated sales of debt.
Mitchell, however, said the city comptroller's office will recommend competitive sales when appropriate before developing a formal policy on the subject. "We're researching it, we're looking at it, and trying to figure out how to do" competitive sales. "Obviously you can't do a billion dollar complicated refunding" competitively.
