The New York State Dormitory Authority is planning to issue $570 million of revenue bonds in December as part of a state-mandated $2.8 billion overhaul of court facilities in New York City, dormitory authority and city officials say.

The authority last month proposed a $800 million issue, but scaled it back to mollify city and state budget officials, Thomas A. Devane, the authority's deputy executive director for planning and financial analysis, said yesterday.

So far, the city and state have not commented on the revised bond plan. Mr. Devane has yet to formally present the plan to the city, but state budget officials are aware of the revision.

The Dormitory Authority's bond sale would mark the first leg of the city's courthouse construction effort. Implementation of such plans is being mandated throughout the state by the Court Facilities Act of 1987.

In the case of New York City, officials chose a financing program in which the authority would issue the securities, but the city would pay interest and principal on the bonds. Under the plan, the authority would also manage the lion's share of the courthouse construction.

Mr. Devane said he believed the new plan for the sale of about $570 million in revenue bonds should alleviate the concerns expressed by and city's Office of Management of Budget and the state Division of the Budget.

In addition to reducing the amount of bonds, Mr. Devane also said the authority would reduce the amount of capitalized interest incorporated into the original bonding plan.

City officials have said that the first proposed bond issue contained too much capitalized interest, and imposed stiff debt-service costs during the early part of the next century.

"I think we have a plan that the budget division will approve," Mr. Devane said. "This plan will also take care of the city's debt-service concerns."

The Dormitory Authority, a state public benefit corporation, plans to float serial and terms bonds with maturities of up to 30 years to finance the construction of 17 court buildings and rehabilitation of 15 others in the five boroughs.

Under the plan, the city would sign a lease agreement with the authority, signing over the property to the state corporation. The city would then make lease payments covering the principal and interest on the authority's bonds.

Implementation of the plan has been stalled in recent weeks because officials from the city, the state, and the authority have failed to agree on significant details of the construction management of the facilities and the bonding program. This quagmire may threaten the sale's December target date, officials on all sides agree.

For city officials, the bonding plan for the court facilities represents a radical shift in their capital budget and possibly higher debt-service costs during the so-called out-years of the 10-year financial plan, or after 2001. To pay for the additional debt service, city officials have said that they would have to make cuts in the city's capital budget. These complaints forced Mr. Devane to reconsider the size of the authority's original bond sale.

The courthouse construction, for example, forces city finance officials to more than double the amount of money they have ear-marked for court improvements. According to the 10-year plan, the city will spend about $781 million on court improvements.

The new plan calls for more than $1.5 billion in courthouse capital spending during the next decade, and about 1.3 billion between 2001 and 2005. The city had planned to issue general obligation bonds to fund their original court improvements.

The city's capital program, the largest of any municipal issuer, however is burdened for at least the next 15 years by high debt-service costs, ranging between 15% and 20% of tax revenues, according to the New York State Financial Control Board. The city's fiscal monitors have pointed out that these costs are exacting a tremendous toll on the city's operating budget, and have forced officials to neglect other infrastructure improvements.

Last month, Mr. Devane said he and representatives from PaineWebber Inc. made a pitch to City Hall showing how the authority could employ several financing techniques to minimize the effect on the city's debt-service obligations. The plan would allow the city to complete the court projects with no effect on debt service during the 10-year plan, with some minor impact during the rest of the courthouse construction period.

For example, under current market conditions, the authority, which would trade as a New York State appropriated credit, could sell bonds at a yield 30 basis points below the city's general obligation bonds, Mr. Devane said.

The city would also receive a state interest subsidy as part of the 1987 court facilities law. The subsidy would amount to an interest savings of about 26 cents for every dollar of interest the city pays.

However, even with these benefits, city budget officials continued to fret over the impact of the plan on debt-service costs.

In the original proposal, Mr. Devane said he designed the structure of the deal so that "the backloading" of principal payments through the use of a financing technique known as capitalized interest would result in the largest debt-service costs after 2000.

According to one senior city finance official who spoke on the condition of anonymity, budget officials "got extremely contentious about the out-years."

Mr. Devane said his original plan did not increase debt-service considerably. He said the plan caused a spike in debt-service above the city's current level in "one or two years" during the next century, but nothing more.

But in an attempt to appease city officials, Mr. Devane said his office assembled a new bonding plan late last week, based on the interest rate assumption of 6.5%, less use of capitalized interest, and a smaller bond deal.

At the same time, the state Division of the Budget, the other important player in the city courthouse financing plan, also mounted an offensive on the bond sale's merits.

A representative from the office sits on the Dormitory Authority's board and serves as chairman of the Public Authorities Control Board, a state body that regulates the debt sales of state authorities. Neither the authority nor the board has officially approved the dormitory authority's plan for the city.

At the moment, state budget officials say they are concerned that the original plan of issuing $800 million of bonds designed to finance five years' worth of court design and construction might violate the control board's internal rules, said John M. Clarkson, a spokesman for the state Budget Division. The office is examining the new bond structure, he said.

Budget officials fear that the original bond sale would fund only a of portion of the design and construction some of the first 12 projects under the plan. The Budget Division also feared that the original plan may have violated federal tax law that all the project must be realistically completed during the next five years, Mr. Clarkson said.

As a result, the Budget Division has called for a significant reduction of bonds to $257 million for the first issue.

"We don't want to sell bonds if there's just going to be a hole in the ground," Mr. Clarkson said. "There may not be any money to pay for the project" in the future.

Mr. Devane said his proposed new level of bonding should fit the parameters set by the Budget Division that calls for full funding of design or construction of projects.

Mr. Devane said this new plan would pay for design and construction costs over a four-and-a-half-year period as opposed to five years contemplated under the original proposal.

Mr. Devane also said many of the projects he now includes in the first bond issue will provide full funding of either the design or construction of the projects targeted during the next four and a half years. As a result, the plan of issuing about $570 million of bonds would not violate control board's rules, he said.

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