New York City Comptroller Elizabeth Holtzman yesterday called for a moratorium on all lease-financing transactions until officials can review the impact of these deals on the city's financial health.
In a letter to Mayor David N. Dinkins, Holtzman said the city should put the breaks on these deals until finance officials have determined what effect they might have on the city's credit rating and if these transactions are cost-effective.
The letter, written Friday and later obtained by The Bond Buyer, cited a $12 million lease financing sold this summer for the Health and Hospitals Corp. to finance a parking garage, a proposed $8 million financing for the city Human Resources Administration to finance a shelter for pregnant women, and a proposed $2.7 billion state-mandated program to repair and construct court facilities.
The city has $501.3 million outstanding in lease debt for the 1992 fiscal year. which ended June 30, compared with $515 million for the previous fiscal year, according to the comptroller's office. "I write to express concern with a spate of proposals to use off-budget city financing transactions that I fear can be used to undermine the integrity of the city's capital budget and its general obligation financing program," Holtzman wrote.
Holtzman termed the city's practice of entering into lease deals "ad hoc" and "not fiscally prudent." She added that these deals escape oversight from her office, the City Council, and the city's Office of Management and Budget.
A spokesman for Dinkins did not return telephone calls.
In addition to the mayor, the letter was mailed to Barry Sullivan, deputy mayor for finance and economic development; Peter Vallone, speaker of the City Council; and Herbert Berman, chairman of the council's finance committee.
Lease deals have become a source of concern for bondholders around the country. In New York State, Comptroller Edward V. Regan criticized a lease deal completed by Troy that was used to finance repairs to city buildings and to help finance a budget deficit. The state comptroller said last month the deal was too costly and ran counter to his office's interpretation of state law on the use of certificates of participation.
Last week, the Brevard County Commission in Florida voted to hold a referendum in March on whether to terminate annual lease payments on a certificate of participation issue.
Holtzman's letter has also emerged as city officials and officials from the New York State Dormitory Authority are negotiating the details of the state-mandated program to repair and construct court facilities in the five boroughs.
In September, the city agreed in a memorandum of understanding to finance $2.7 billion of these improvements through the authority by leasing its court facilities to the state public benefit corporation.
Under the agreement, the city would make lease payments to the authority that cover debt service on the bonds. By issuing the debt through the authority, the city is also entitled to a state interest rate subsidy and can make level debt service payments, which are unavailable on city general obligation bonds.
But according to Holtzman, the Dinkins administration should reconsider the the authority's role in the court program.
Holtzman said she "is concerned" that the use of the authority could expose the city to "excessive costs." She said the city will lose control over structuring of the deal's debt service and other costs associated with the program. She said "fees for a selection of underwriters, attorneys, and other advisers would be determined solely by the authority. "
Holtzman also cited several environmental reasons for her concern of the Dormitory Authority's role in the court projects. She said the authority may be used to circumvent the city's zoning and land use requirements.
Thomas A. Devane, the authority's deputy executive director for planning and financial analysis, said he had not seen the letter, but stated that the authority would comply with all city zoning and environment regulations.
Devane also said the authority has involved city finance officials with key aspects of the court-bonding program, including structuring the first bond deal to reduce capitalized interest as well as the selection of underwriters for the program's first deal.
In late November, the authority mailed requests for proposals to the municipal bond community that will be used to pick a bond syndicate for all state-mandated court projects. City officials have discussed selecting underwriters from this group to float bonds for the city court improvements.
"A key element of this plan is that we are not going to run over the city of New York," Devane said. "No decision will be made without the city's participation."