New York State's chief fiscal officer yesterday endorsed a bill that would dramatically alter New York City's bond-selling policy and force the city to issue much more of its debt through a competitive bidding process.
In a statement, state Comptroller H. Carl McCall said he supports "the main thrust" of a bill introduced yesterday by assemblymen Alan G. Hevest, D-Queens, and Sheldon Silver, D-Manhattan, that would force city officials to sell more bonds through a competitive process.
In such a process, an issuer selects underwriters based on how much a firm is willing to pay for the bonds.
Under the terms of the bill, the city must sell its massive debt load through competitive bids unless it can prove that the process would increase costs and produce a "substantial loss" for the city.
The city sells the vast majority of its debt by negotiating prices with underwriters, and must receive state legislative approval each year to sell bonds through a negotiated underwriting. That authority expired yesterday.
"The legislation focuses on the need for cimpetitive bidding, but it also provides the flexibility to use negotiated sales in circumstances that require such to get the best product at the best price," McCall said in a press release.
In recent weeks, the negotiated underwriting system has come under sharp criticism, amid charges that the process is used to award politically connected bond firms with lucrative underwriting opportunities.
Ironically, Silver, who is chairman of the Assembly Ways and Means Committee, and Hevesi, a committee member, have supported the city in past battles with the Republican-controlled Senate over the way the city sells debt.
But this year, Hevesi is opposing New York City Comptroller Elizabeth Holtzman in the Democratic primary for city comptroller. In a telephone interview, Hevesi said his change of heart emerged after press reports detailed political abuses in the municipal bond industry, including revelations that Holtzman received a $455,000 loan from Fleet Bank. The bank's securities affiliate was recently elevated to a city underwriting slot and then dropped by the mayor after the loan was disclosed.
Hevesi said the bill will probably pass the Assembly, and has the support of Assembly Speaker Saul Weprin, D-Queens. Claudia Hutton, a spokeswoman for the state budget division, said Gov. Mario M. Cuomo has no position on the legislation at the moment.
But the bill, in its current form, will probably be rejected by the state Senate, according to spokesman William Stevens. While agreeing that the city must sell more of its debt through competitive bids, the Senate opposes language in the bill that would force all bidders of city debt to "meet minimum minority- and woman-owned business enterprise participation goals."
Stevens said this clause would have the effect of reducing the number of competitive bidders on city debt, because many firms would not meet these employment "quotas." Stevens said the Senate has introduced its own bill, that mirrors the Assembly's effort, but leaves out the minority-participation clause.
Hevesi, for his part, said potential bidders on city bonds can also meet this diversity standard by setting up "Joint partnerships" with minority- or woman-owned firms.
In 1992, the state Senate initially refused to renew the city's negotiated underwriting authority for 1993. The Senate later approved the bill after the Assembly threatened to reject legislation that allowed Nassau and Suffolk counties to sell deficit bonds.
Despite the expiration of the city's negotiated authority, officials are hoping to regain negotiated powers before their next bond deal, scheduled for pricing on July 19. Hevesi said the Assembly may pass his bill along with the negotiated authority legislation last night.
The city pushed back the pricing of its deal by a week in an effort to meet with investors and better explain its current budget problems, which include large structural gaps projected over the next three fiscal years -- a problem flagged by Standard & Poor's Corp. The credit agency rates city debt A-minus with a negative outlook. Moody's Investor's Service rates city bonds Baal.
The city is the municipal bond market's largest issuer. Officials with Holtzman and Mayor David N. Dinkins say the city saves money by choosing bond underwriters to sell city debt through a negotiated pricing system.
Officials from the city comptroller's office did not return telephone calls. Michael Geffrard, director of the Dinkins administration's Office of Public Finance, said the city is studying the bill. He said that the city would prefer a bill that gives equal merit to both competitive and negotiated underwritings.
He also said the bill contains a "number of ambiguities," and it may prevent the city from completing foreign-denominated bond sales, its NYC Bonds program for retail investors, and the sale of vartable-rate debt and derivatives. City officials say these bonding programs, which often account for about half of a typical city bond sale, save money and require a negotiated sale.
"We will work with the Legislature to come up with something," Geffrard said. "But if we couldn't do these sales" the city would oppose the legislation.