State Comptroller Edward V. Regan yesterday raised a red flag on the eve of New York City's $600 million bond sale, warning in a report that the city's ability to end fiscal 1991 with a balanced budget is "still far from assured."

In a statement released with yesterday's report, Mr. Regan said, "The city is approaching the end of the year without its customary financial cushion.

"This means that if some of the other substantial risks associated with the [city's financial] plan materialize, there may be little left for the city to pull out of its hat that would not make the already formidable task of balancing fiscal year 1992 even harder."

Mr. Regan released the report just one day after two major rating agencies affirmed their ratings on outstanding city bonds, with both saying the city has the ability to achieve budget balance for fiscal 1991, which ends June 30.

Moody's Investors Service affirmed its Baal, and Standard & Poor's Corp., which some observers had speculated might drop its rating, affirmed its A-minus rating with a negative outlook.

Two weeks ago, city Comptroller Elizabeth Holtzman said the city had made substantial progress in closing its budget gap for fiscal 1991, by lowring it to $100 million from the $630 million her office had projected.

"I feel comfortable saying that the city has the ability, based on the analysis we've done to date, to balance its budget for fiscal 1991," she said.

If the city has a budget gap of $100 million at the end of its fiscal year, it could trigger a takeover by the New York State Financial Control Board, a state fiscal monitor created to oversee the city's finances during its fiscal crisis in the mid-1970s. The board has been dormant since June 1986.

City officials from the mayor's budget office have projected a $465 million gap for fiscal 1991 and have outlined a number of steps to deal with it. For fiscal 1992, the city has projected a $3.5 billion gap.

City officials could not be reached for comment on Mr. Regan's report.

Municipal market participants said the report should not hurt the city bond sale. Market sources said the preliminary pricing scale listed yields on tax-exempt city bonds ranging from 7.25% in 1992 to 8.62% in 2020. The taxable portion of the deal is likely to include bonds ranging yield from 9% in 1993 in 11.37% in 2014. The scale did not include bond insurance, although city officials were still negotiating with bond insurers yesterday.

Mr. Regan noted in the statement that Mayor David N. Dinkins's latest financial plan modification, released on May 17, "has left itself with virtually no margin for error."

The comptroller also said there are "serious problems facing the city for fiscal 1992."

Mayor Dinkins has proposed $2.2 billion of service reductions, layoffs, and productivity measures, and has planned for $1.1 billion in taxes and fees that require approval from the state Legislature and the city council.

Mr. Regan observed that the entire tax package may not be approved and "attainment of the full amounts [of service reductions, layoffs, and productivity measures] from agency initiatives will be extremely difficult."

The 1992 financial plan falls about $200 million short of the minimum funding requirements under the Stavisky-Goodman Act, a state law passed during the city's last fiscal crisis that established a strict funding formula for the city's Board of Education. Mr. Regan said the city could be required to reallocate $200 million from other city agencies to the board.

The mayor's latest financial plan shows only $40 million left in the general reserve for fiscal 1991, which was boosted to $150 million earlier in the year, and "we think all of that will be needed to cover shortfalls in tax revenues in May and June," the report says.

The comptroller's report noted that the "greatest risk involves the potential for further shortfalls in non-property tax collections beyond those we currently project."

The comptroller estimates that $1.7 billion will be collected in May and June, but added that "clearly, just a slight variance from this forecast cas translate into a large revenue surplus or shortfall, and each of last three fiscal years has ended in revenue shortfalls."

Mr. Regan says non-property tax revenues are likely to be $42 million lower than forecast by the city, due to projected shortfalls of $55 million in personal income tax and $20 million in sales tax, which in turn are offset in part by higher collections from business taxes, real estate taxes, and miscellaneous revenues.

The report notes that the city's expenditure estimates for fiscal 1992 "are generally reasonable," but warns that "it is troubling that the plan relies on a number of assumptions whose outcome will not be known for at least several weeks."

Mayor Dinkin's financial plan also assumes budget-balancing actions that may not materialize, such as the sales of certain mortgage assets and use of proceeds from an upcoming long-term bond offering to pay interest costs, the state comptroller's report says.

In its gap-closing plan for fiscal 1991, the city included about $50 million of bond proceeds to pay interest costs on outstanding debt. But the bond sale proposal for paying interest appears to be hitting major snags. Recently, a spokesman for the city comptroller said bonds proceeds would not be used for such a purpose. Ms. Holtzman, whose approval is required for the interest payment scheme, has come down squarely against it in previous reviews and statements on the city's fiscal plans.

But officials from the city's Office of Management and Budget are still counting on the tactic and say it is still on the negotiating table.

In addition, the city still plans to back date the bonds sold today to raise money for fiscal 1991 budget balancing. The city will collect accrued interest from investors buying the bonds.

Mark Page, deputy director and council with the OMB, said Monday that the offering will be assigned an issuance date of May 1, instead of tomorrow's pricing date.

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