A standoff between New York City and the Port Authority of New york and New Jersey has forced the agency to accelerate the retirement of some of its bonds and limit the maturity of future issues.
The announcement comes as the administration of city Mayor Rudolph Giuliani launches its first audit of the Port Authority in 10 years. Observers view the audit as an attempt to pressure the agency to pay more rent on Kennedy and LaGuardia airports.
The bistate agency leases the land under the airports from the city. At the moment, the authority and the city have stopped talking about extending the lease, which expires in 20 years.
The Giuliani Administration wants the authority to pay $75 million a year rent on the two properties; the authority is offering to pay about $45 million. Negotiations have broken off between the two parties involving a longterm lease for the authority that extends beyond 20 years.
As a result, the authority issued a statement from chief financial officer Barry Weintrob to calm the fears of bondholders whose securities are tied to airport revenues.
Bondholders are concerned that if the authority cannot extend the lease beyond 20 years, it cannot repay its long-term debt that matures after that time.
The authority said it will accelerate the retirement of $1.8 billion of debt that mature after 2015. So far, the authority has retired $25 million of its debt, and expects to spend $40 million by the end of 1994.
"This action is a good faith effort by the authority to minimize any uncertainty regarding those bonds which are secured in part with airport revenues," Weintrob said in a press release.
In 1995, the authority will reduce the maturity of its debt issued for airport construction to 20 years from 35 years. "This shorter life should diminish bondholders'security concerns and enable us to continue to make significant improvements at Kennedy and La Guardia airports," Weintrob said.
In a telephone interview, Weintrob called the move to buy back bonds amid the stalled negotiations "a case study that will go to Harvard."
"The Port Authority is responding before it has to respond," he added. "We'll start with $40 million this year and $40 million next, and before you know it we'll reach $1.8 billion. And if there is an agreement, we'll stop."
Weintrob said the authority should be commended for addressing bondholders' concerns early, just in case the city and the authority fail to reach a long-term lease agreement.
In recent days, the battle between Giuliani and the authority has prompted several high-ranking city officials to call for a privatization of the airports. The move would curtail the authority's efforts to issue long term debt.
While the Port Authority takes pains to improve its finances, the New york State Financial Control Board issued a stern warning about the city's finances.
In a press release, the control board private members said they are "extremely concerned" about the current legal dispute between Giuliani and the city council.
The dispute, which is before a state Supreme Court judge, will determine who has ultimate control over city finances amid billions of dollars in projected budget gaps. The mayor says he does; the council says budgeting is a shared responsibility.
In the statement, the members said they do not believe efforts by the council to reallocate funding is good for the city's budget. But the statement went on to say "the process of resolving this issue ... should not deter the city's elected officials from taking actions necessary to solve the city's known budgetary problems."