Concern over the burgeoning deficit borrowing needs of New York municipalities has prompted the comptroller's office to seek legal authority to review all bond issues slated to finance budget shortfalls, sources say.
The state comptroller's office last week asked bond counsel Thomas M. Rothman, a lawyer with Willkie Farr & Gallagher in New York City, to come up with "boilerplate" language giving the state comptroller the authority to review all deficit financings issued by Mr. Rothman's clients.
Many municipalities in the course of seeking legislative approval for their deficit-financing plans currently ask the comptroller's office to review their proposals. The review involves examining accounting documents that verify the size of the deficit and other factors in the bonding process.
But Mr. Rothman said the comptroller's division of municipal affairs has embarked on a new policy to ensure that the comptroller is involved in the process of all deals. He said the office will try to get other bond counsel to use the same boilerplate language when seeking legislative approval for deficit financing. Several other bond counsel confirmed that the state comptroller's office has in recent weeks increased its vigilance in looking into these deals.
The language includes giving the comptroller's office authority to review a municipality's deficit as well as its financing.
Mr. Rothman, who is bond counsel for Suffolk County, said he was contacted by the comptroller's office for several reasons. He said he serves on the board of directors of the New York State Government Finance Officers Association along with several officials from the comptroller's office. The comptroller's office is also reviewing legislation written by Mr. Rothman for two of his municipal clients seeking approval for deficit financing, he added.
The comptroller's office has in recent months seen the number of requests for review of deficit bond issues increase substantially, as local governments deal with a national and regional recession that has hit the Northeast hardest, Mr. Rothman said.
Several large issuers are contemplating deficit financing for sometime this year. Nassau County, N.Y., officials last week indicated they may issue up to $100 million in general obligation bonds to cover a 1992 deficit of $130 million. And Suffolk County, N.Y., also reeling from a revenue shortfall, is discussing how to address a $55 million budget deficit projected for 1992.
The state comptroller's move was triggered in part by a deal recently sold by Troy, N.Y. The city bypassed both the state Legislature and the comptroller's office when it sold a lease deal through an industrial development authority and used a portion of the proceeds to finance a budget deficit.
The Troy deal prompted an inquiry from the comptroller's office.
"The comptroller is trying to implement a uniform procedure," Mr. Rothman said. "The comptroller's office has certain oversight responsibility to determine the size of the deficit and the amount of the bond issue."
Mr. Rothman said his efforts will help create "standardized language" for other bond counsels to use.
Kenneth W. Bond, a partner at Sullivan, Donovan, Bond & Bonner, said the comptroller's office effort is probably related to anxiety over the possible use of certificates of participation and financings other than general obligation bonds to cover budget deficits. One such issuer, he said, is the Troy Industrial Development Authority.
In 1991, the state legislature gave municipalities the ability to finance capital improvement projects on a lease purchase basis using certificates of participation. As part of the legislation, the comptroller's office was asked to issue specific rules on COPs issuance. They have yet to do so.
A spokesman for the state comptroller's office said there is "no concerted effort" to demand more oversight on the deficit-financing process. But, he added, "it seems like we have more concern for this issue in light of some of the recent situations."
State law requires municipalities to receive legislative approval for the issuance of general obligation bonds used to finance budget deficits.
In addition, most municipalities write it into their legislation that the comptroller's office will review the bond issue. A spokesman for state Comptroller Edward V. Regan said, "There is a general rule that we review the deficit situation prior to legislative approval."
But the comptroller's office, which acts as the chief auditor in the state, is not required by law to review every deficit issue in the state.