The New York city council has introduced legislation that would require the administration of Major Rudolph Giuliani to prove that a controversial budget balancing proposal is necessary.
The legislation concerns the planned sale by the city of $215 million in delinquent property tax receivable. The sale, scheduled to take place in June, will help the city balance its budget in fiscal 1994, which ends June 30. Further sales are planned to provide budget revenues in future years.
City council officials say the legislation reflects their concern with the deal, recently called the "moral equivalent" of deficit borrowing by city comptroller Alan G. Hevesi.
Under the terms of the proposal, the city will 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.
Because the city is actually advancing fiscal 1995 revenues to fiscal 1994, it must repeat the sale next year and each year thereafter or face a budget gap. The city's fiscal monitors and rating agency officials have criticized the transaction as a one-shot revenue raiser that takes assets from taxpayers in the future to finance the city's current budget woes.
According to state statute, the council must authorized the sale before it can take place. The bill, prepared by the council's finance staff, would force the city to prove to the council that the transaction is needed and that more fiscally responsible measures to drum up cash are not available.
The legislation would also force the city to hire an independent financial adviser to determine if the city is getting a good deal on the sale.
Herbert Berman, chairman of the council's finance committee, said the legislation, if approved, would give the council an opportunity to determine "if the city is getting the best deal" from the transaction.
The city's office of management and budget has proposed its own legislation, which would allow the city to complete the transaction without the council's input.
"We have to be able to determine what's best for the city," Berman said. The council will vote on the proposal in about two weeks.
City budget director Abraham Lackman said last week that he would "look carefully" at the council's bill.
Lackman would not say if the city approves of direct council involvement in the transaction's preparation, which so far has largely included aides from the city's budget office and executives from Chemical Bank. Chemical proposed the transaction.
Lackman said that the city believes the deal is necessary because the city's fiscal 1994 budget is "very tightly balanced."
Council staff members have recommended replacing the tax receivables sale with revenues from a projected fiscal 1994 budget surplus.
But officials in Giuliani Administration say the city's surplus from 1994 is less than originally estimated due to a change in the accounting treatment of money it received from the Municipal Assistance Corp. As a result, the city cannot use its surplus, originally estimated at $234 million, to replace the property tax sale. The city now says that its surplus is slightly less than $100 million.
Council aides will meet with city officials this week to discuss the transaction. Rating agency officials are in the process of preparing assessments of the financing. Under one scenario, the council's staff may ask the city to reduce the size of the deal to reflect its fiscal 1994 surplus.
Meanwhile, sources with knowledge of the deal said the city and Chemical Bank are attempting to convince bond raters that the securities sold by the trust should receive a higher rating than the city's.
The city will "overcollateralize" the trust with delinquent property taxes to bolster the issue's rating, the sources said.
