New York City Comptroller Alan G. Hevesi said Friday that a slump in property values could dramatically reduce the city's ability to issue general obligation debt in the near future.

"We are faced with what could be a serious threat to our capacity to issue general obligation debt in the upcoming years," Hevesi said in a press release that accompanied his annual report on capital debt and obligations.

"We should look carefully at the need to scale back and reprioritize our capital program in order to diminish the city's future dependence on funds generated through debt issues," Hevesi added.

Property values play a key role in city debt issuance. Under the state constitution, the city's debt limit is based on a formula that ties city general obligation bond sales to taxable real property values

The formula goes like this: "The city is permitted to issue debt in an amount not greater than 10% of the average full value of taxable real estate for the previous five years."

What all this means is that the decrease in taxable real property values during the late 1980s and early 1990s is starting to reduce the city's ability to issue general obligation bonds. The city is the nation's largest issuer of debt in recent years, and growing capital needs will mean that the city must issue more bonds in the future.

But because property values have fallen recently, the city may be forced to dramatically reduce its general obligation bond sales, or develop alternatives.

Like Hevesi's staff, officials in Mayor Rudolph W. Giuliani's Office of Management and Budget have tracked property-value trends for years, eyeing the impact on the city's ability to issue GO debt.

Hevesi's report, in fact, highlighted warnings made by the city in its latest official statement about debtcap problems that could begin to appear in the city's 1998 fiscal year. In fact, Mark Page, deputy budget director for the Office of Management and Budget, said his office has begun to develop a plan to deal with such a debt-cap problem. In 1998, the city may fall $1 billion to $2 billion short of its debt limit, he said.

But Page said the problem may not be as thorny as Hevesi suggests.

Taxable real property values, he said, have stabilized. And with modifications to the city's capital budget, including the possible use of authorities to issue more debt, the city can manage the problem.

"I don't know what the final solution is, but it's something we are thinking about and concerned about," Page said. "It's something we will continue to address."

Hevesi's report also said that the city faces another problem associated with its bond sales: rising debt-service costs. By the 1998 fiscal year, the city will dedicate a whopping 19.5% of its tax revenues to paying debt service.

Wall Street credit agencies have cited the city's large debt-service burden as a key factor in the city's depressed bond rating. The city is rated A-minus with a negative outlook by Standard & Poor's Corp., Baal by Moody's Investors Service, and A-minus by Fitch Investors Service.

"Between 1995 and 1998, debt service will increase markedly, consuming approximately 116.1 percent of cumulative annual growth in tax revenues," Hevesi's report said.

Like the city's debt-cap problems, the rise in debt service is also being monitored by the mayor's budget office. Recently, budget director Abraham Lackman asked city agencies to plan reductions in their capital expenditures in light of the city's budget problems.

The city faces billions of dollars of budget gaps through the life of its four-year financial plan.

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