WASHINGTON -- New York's big-time leasing industry is expected to get even bigger as a result of a new law that greatly expands the lease financing powers of the state's towns and counties.
A bill recently signed into law by Gov. Mario Cuomo enables local governments to go beyond financing small government purchases with lease securities to financing large-scale capital construction projects, land purchases, and pooled equipment deals. The law opens the way for such long-term lease financings by increasing the maximum term for local lease contracts in the state from 15 years to 30 years.
The law was passed at the last minute before the adjournment of the Legislature this summer as part of a "mandate relief" package that also provides greater bonding powers and other financial tools for local governments. The leasing provisions, in particular, were largely drawn from proposals included in Gov. Cuomo's budget request earlier this year.
Until recently, New York's smaller jurisdictions have not played much of a role in the state's large-scale leasing enterprise. While New York last year issued more rated lease securities than any other state, according to Standard & Poor's Cor., $1.1 billion of its $1.6 billion rated volume was issued by state authorities.
Lease offerings by the state's counties, cities, towns, parishes, local districts, and local authorities have stayed well under $100 million a year since 1986, when there was one such offering that totaled $10.8 million, according to Securities Data Co./Bond Buyer.
The new law will enable local authorities not only to catch up with the state and its growing use of leasing, but with other local governments around the country that for years have had the authority to lease-finance jails, office buildings, and other big projects, local officials said.
"No one can claim credit for these being new ideas," said Joe Glazer of the New York State Association of Counties. "They just were not happening in New York. We were the only ones not doing them."
The realization that the state was behind in authorizing a wider use of leasing is one reason the Legislature approved the controversial bill, he said.
Most of the dissension stemmed from the myriad of social reform provisions originally included in the mandate relief bill the Senate passed in June, he said. The financial reforms were the least contentious part of the bill, and a last-minute decision by members of the Assembly to separate them from the rest of the bill appears to have saved them from buried this year.
"They chose to leave aside all other social services-type issues and address only the local finance issues so they could say they still made an effort toward mandate relief," he said.
While the new law authorizes a much broader use of leasing in the state, it does contain some restrictions to satisfy state officials and legislators who were concerned about possible abuses and overextention by municipalities, local officials said.
Under the new law, certificates of participation or other lease-backed securities cannot add up to more than 40% of a jurisdiction's general obligation debt limit. That limit, under the state constitution, is set at 10% of the jurisdiction's real property value.
Also, a jurisdiction's total outstanding bond and lease issues cannot exceed 115% of its debt limit, under the new law. The latter restriction provides a small incentive to issue lease securities when municipalities are nearing their debt limits, since it allows them to somewhat exceed the limits, local officials said.
While the law ties the issuance of lease securities to local debt limtis, local officials cautioned that it should not be construed as equating leases with bonded debt. In New York, as in other states, leases are not considered to be debt since they are secured only by the leased property and are not backed by the full faith and credit of the government.