The New York city council yesterday approved a plan by the administration of Mayor Rudolph W. Giuliani to sell $215 million in delinquent property tax receivables as a way of balancing the city's fiscal 1994 budget.
The council unanimously approved the controversial budget-balancing scheme after hearing from a city official that without the sale, the city would face a fiscal 1994 deficit of more than $100 million. A deficit of that size would prompt a state-mandated takeover of city finances.
The plan calls for the city to sell its delinquent property taxes, due next year, to a trust. The trust would buy the receivables by selling certificates of participation or other securities to investors. Under state law, the city council must authorize the sale before it takes place.
The sale has sparked criticism among bond raters and the city's fiscal monitors, who have called the transaction a one-shot revenue raiser that borrows on future revenues from taxpayers to cure the city's current budget woes. City Comptroller Alan Hevesi has called the proposal "the moral equivalent" of deficit borrowing.
Recently, council members have voiced their concern. Last week Councilman Herbert Berman, chairman of the Finance Committee, said the council would approve the plan only if the city agreed to hire an independent financial adviser to monitor the sale, a move designed to ensure that "the city is getting the best deal."
The legislation approved yesterday by the council will indeed force the city to hire an adviser to oversee the issue. The vote came after several weeks of negotiations between the council's finance staff and the city's office of management and budget. The negotiations marked one of the first times in recent memory that the council's finance staff has played a role in city financing issues.
"Basically, the council expressed concern with the transaction, and the bill addresses those concerns," said Thomas McMahon, director of the city council finance staff. "Our role added a real value to the transaction through the addition of an independent financial adviser."
Deputy budget director Mark Page said that during the negotiations, the council agreed with the management and budget office that the transaction is "the appropriate thing to do." Page noted that "some form of selection process" will probably be used to appoint the adviser.