Amid charges of mismanagement and abuse at public authorities in several states, the New York State budget division last week criticized the financial practices of some of the New York's bonding agencies, while commending the policies of others.
In a wide-ranging report - the first of its kind, according to state officials - the budget division recommended significant changes in the way some state authorities issue bonds and manage other authority business.
In the past three years, New York State authorities - some of the most prolific debt issuers in the nation - have sold 302 tax-exempt bond issues totaling $33.6 billion, the report says. Two authorities accounted for 25% of the sales, with the Dormitory Authority selling 75 issues totaling $3.4 billion and the Housing Finance Agency selling 35 issues totaling $41.7 billion.
The report also examines the salaries of high-ranking authority officials, as well as other expense-related issues affecting the management of the state's authority system.
Public authorities have been referred to as the nation's "shadow government." Although the state agencies perform vital economic and public policy functions, they are often run by unselected officials appointed by governors and sometimes approved by state lawmakers.
In recent months, authorities have come under heightened scrutiny following allegations of corruption with a New Jersey Turnpike Authority bond sale and alleged bond market abuses at authorities in Massachusetts and other states.
Earlier this week, the chairman of the New York State Dormitory Authority, William D. Hassett, announced he will resign from his post amid conflict-of-interest concerns regarding his private fund-raising activities.
Richard M. Flynn resigned his position as chairman of the state Power Authority in November after reports of mismanagement at the agency.
Responding to concerns about these issues, the New York State budget division in June began an extensive examination of the 24 public state authorities that issue debt. New York State Gov. Mario M. Cuomo underscored the ongoing scrutiny in July by issuing an executive order calling for all state authorities to provide officials with information concerning their operations and management.
The budget division's report, released on Dec. 8, summarizes both examinations and calls on state authorities to adopt policies that "assure proper control in the selection" of firms that provide financial services.
"In the wake of allegations of improper practices in the issuance of debt that have recently been leveled against authorities in other states, these disparities are cause for concern," the report says.
Specifically, the report recommends that each public authority in the state adopt policies "that encourage competition and assure proper control in the selection of financial services firms." The report says authorities should file these policies with the budget division by March 1, 1994.
"Clearly, we would hope that the authorities all read this report and measure their activities in the context of what happens in other places and use the report to improve," said the state's budget director, Rudy F. Runko. "This report does not end our involvement with public authorities. We will continue to work with them and review their activities."
In response, authority officials said the report accurately reflects agency practices, though no authorities officials interviewed would be quoted by name.
Several, however, said they had reservations about the increased bureaucratic scrutiny from the budget division, which reports directly to the governor.
"For the most part, I have no objections" to the report or the budget division's increased scrutiny, said one authority official. "But there is another side. Authorities were created outside government to produce efficiencies" in work traditionally done by government.
Among its findings, the report says that of the top 10 issuers of debt by volume, five authorities - the State of New York Mortgage Agency, the Thruway Authority, the Energy Research and Development Authority, the Urban Development Corp., and the Local Government Assistance Corp. - do not have written procedures to determine if bonds should be issued through a competitive bid or a negotiated sale.
During the past three years, 35 issues totaling $2.4 billion were sold competitively, while 276 issues totaling $31.2 billion were sold through negotiated sale, the report says.
"Many authorities appear to have given little or no consideration to the use of competitive bid sales." the report says. Competitive bids have gained popularity in recent months as a way to avoid conflicts of interest between public officials who select underwriting syndicates and bond underwriters who supply campaign contributions. For example, Gov. Jim Florio of New Jersey earlier this year banned most state and state authority negotiated sales in the wake of the municipal bond scandal that rocked the state.
The report says that "only five authorities" in the state - the Dormitory Authority, the Housing Finance Agency, the Municipal Bond Bank Authority, the Medical Care Facilities Finance Agency, and the Port Authority of New York and New Jersey - "make reference to the use of competitive-bid sales."
Only the Dormitory Authority and the Port Authority of New York and New Jersey have guidelines that favor competitive sales. The three other authorities have guidelines that are neutral.
Sixteen authorities have neither guidelines nor clear policy statements regarding the method of sale, the report said.
State budget director Runko, who is also a member of Local Government Assistance Corp.'s board of directors, an authority cited as not having a policy on competitive bidding said: "I'm kind of new on the LGAC board. I'm not sure if the issues were previously discussed. [LGAC] will look at the report, and on March 1 [the corporation will comply] like everybody else."
Runko, in August, replaced Patrick J. Bulgaro as budget director.
The report also finds that the budget division rated the top 10 authority issuers of debt by volume "satisfactory or strong in underwriter selection."
Seven authorities have "detailed, board-adopted policies regarding of underwriters."
The report says three other authorities select underwriters through a request for proposal process that is both advertised and approved by the authorities board.
The report also says that only one of the major issuers of authority debt, the New York Power Authority, "had no policies or procedures" for the selection of underwriters. The authority yesterday announced that it had developed formal guidelines regarding underwriter selections.
Another finding of the report is that most authorities "could improve their use of minority- or women-owned firms as bond underwriters."
The report says every authority "claims to have" policies for using firms owned by minorities and women. But, the report says, only four authorities "have made actual progress in procuring" the firms. The authorities are: the state's Housing Finance Agency; the state's Municipal Bond Bank Agency; Medical Care Facilities Finance Agency; and the State of New York Mortgage Agency.
The report acknowledges that the state's use of minority or women-owned firms has been "an issue" for years. Market executives say the vast majority of these firms do not have substantial capital positions to underwrite deals.
But the report, without providing specifics, urges authorities to find "creative ways to provide opportunities for minority and women-owned firms."
The report also finds that the chief executives of the Metropolitan Transportation Authority and its related agencies receive housing allowances and other benefits not available to state employees, while the highest salary among authority officials went to the chief executive of the state Power authority, who is paid $178,481 a year.
Of the authority executives reported salaries, 26% are paid more than $100,000 per year, 50% of whom work at the MTA.
"It is apparent that many authorities lack formal board policies and systems to effectively review management compensation," the report says.