A last-minute amendment that would provide $90 million of budget relief to New York City is the biggest obstacle legislators face in hammering out a joint agreement on reforming New York's local finance law.
At issue is a provision known as 6-1 that members of the Assembly inserted in a bill to overhaul the state's local finance laws. They acted after a request by city officials seeking $90 million for fiscal 1991 and 1992.
Another version of the bill passed by the state Senate two eeks ago did not include the amendment, and a legislative observer said some senators are "concerned about the liberalness of the provision."
The amendment to the General Municipal Law would allow New York City to use the proceeds from the sale of bond-finance assets for general debt service costs rather then locking the funds up in escrow accounts for each project to retire the bonds or paying off the bonds immediately.
The current law is intended to guard against the possibility that municipal assets could be sold and the proceeds used for general purposes. Taxpayers would be liable for the debt issued to finance the assets, from which there is no longer public benefit.
The Senate bill did not include the New York City provision because "we have some misgivings on the amendment of 6-1," said John McArdle, a spokesman for state Senate majority leader Ralph Marino, R-Muttontown.
"The Assembly is pushing that as a one-shot for the city. Our misgivings are on the unanswered questions on 6-1," he said.
The amendment allows the city to sell a mortgage on bond-financed public housing. Mr. McArdle said, "We don't know who the buyer [of the mortgage] is because the city will not tell us." The Senate law-makers want this information to ensure the sale is prudent, he added.
One source close to the situation, noting the city's fiscal year is fast coming to a close, said the city is in fact still trying to find a buyer.
A source in the state Senate said there is also confusion over whether the amendment of 6-1 would be temporary or permanent, sweeping or restricted. He noted that city Comptroller Elizabeth Holtzman supports a permanent amendment with limitations. The city's Office of Management and Budget, however, is looking for permanent authorization without restrictions.
According to a memo prepared by Ms. Holtzman's office, the restriction could be accomplised by limiting the amount of cash proceeds that could be used in any year for the payment of debt to 1% of the local government's outstanding debt.
The comptroller also said she supports either amending the law on a "transaction specific basis or with a one-year sunset" and to pass long-trem reform of section 6-1 with appropriate constraints.
The amendment of 6-1 would provide budget relief to help close a projected $465 million budget gap for fiscal 1991, and a $3.5 billion budget gap for fiscal 1992. It would also allow more flexibility in using proceeds from asset sales for debt service.
State law now requires local bond issuers to comply with a complicated process of escrowing the sale proceeds of assets for debt service payments, if bonds were used to finance the purchase or rehabilitation of the asset.
If the law is amended, $90 million that would have had to be escrowed can now flow into a debt service fund, said Mark Page, deputy director of the city's Office of Management and Budget.
The money would come from the sale of two assets: $60 million in fiscal 1991 from a Mitchell-Lama mortgage on Manhattan Plaza, a public housing complex financed with bonds. Another $30 million would be garnered from the sale of low-income housing in fiscal 1992. The housing, purchased with bonds, would be sold to the city's housing authority from the city's Housing Preservation and Development Department.
The housing authority would use $65 million in federal money. If the deal, which hinges on the amendment of 6-1, does not take place, the authority will lose the $65 million because of a 1992 deadline on use of the money, Mr. Page said. If the 6-1 law is not amended, the deal would not be done because it would be a money-losing proposition, due to the escrowing requirements and issuance costs, he added.
While the amendments slows progress on the reform bill, it should not sidetrack negotiations over other parts of the two bills, said William Stevens, a Senate spokesman. "We are still working on a two-way negotiated mandate relief package." Legislative leaders from both chambers were expected to meet on Friday to work on an agreement.
Minor areas of disagreement between lawmakers are primarily focused on the Assembly's desire to establish stricter guidelines for issuing certificates of participation, structuring and selling negotiated bond offerings, and using letters of credit.
The Senate bill, sponsored by Sen. Charles D. Cook, R-Delaware, provides relief to local government's that have been seeking reforms in the state's local finance laws for the last four years, but have watched the bills languish and die.
Mr. Stevens said, "We have said we think that in this year, when clearly the state is cutting back on its support for local governments, it is very, very important to provide them with help through mandate relief."
The Senate bill contains provisions that would allow all localities to sell variable-rate bonds and notes until June 1992, authorize localities to use certificates of participation to permit installment purchases of capital improvements, and increase the maximum amount of statutory installment bonds that may be sold in private placements to $1 million from $500,000.
The bill would also permit local governments to call bonds issued before July 1, 1991 prior to maturity; establish procedures for the refunding of bonds by localities; and authorize local governments to enter into credit agreements to facilitate the sale of bonds and notes.
There are relatively few differences between the Senate and Assembly bills, according to a memo prepared by Assembly staffers. The memo says 25 of the 33 sections in the Senate bill and 31 sections of the 45 sections in the Assembly bill dealing with local finance are identical. Both bills, for example, would allow local governments to sell deep-discount and zero coupon bonds.
"We have a proposal," said a spokesman for the Assembly. "Obviously, we did not reach a two-way agreement. We have some outstanding questions but there are still discussions going on."
The Assembly package, sponsored by Assemblyman Francis Pordum, D-Erie, includes measures that would allow the state's Municipal Bond Bank Agency to issue certificates of participation on behalf of local governments, would require a 5% down payment on real property certificates of participation that are not revenue-producing, and would require guidelines for municipalities who wish to issue pooled certificates of participation.
The bill would also permit local governments to sell zero coupon bonds. However, it would only permit cities with a population over 125,000 and counties with a population over 500,000 to sell variable-rate bonds and notes.
And the Assembly bill does not increase the volume of bonds sold in a private placement to $1 million from $500,000.
New York City officials are also seeking the authority to continue to sell variable rate bonds. City Comptroller Holtzman is urging state lawmakers to extend the city variable-rate borrowing authority because it would save the city at least $10 million annually.
In December, the state Legislature permitted the city to sell variable-rate bonds until March 31. The city sold one variable-rate issue totaling $50 million and priced to yield 1.75%. The estimated savings on the deal was $2.7 million, the comptroller's office said.