Felix G. Rohatyn, chairman of the Municipal Assistance Corporation for the City of New York, yesterday warned Mayor David N. Dinkins not to use the $1 billion of the corporation's funds included in a revised four-year financial plan to plug budget gaps.
Mayor Dinkins, who expressed confidence on Wednesday that his revised financial plan for fiscal 1993 through 1996 meets the criteria of structural balance, included $1 billion of the corporation's funds to balance the budgets for fiscal 1993 and 1994.
In a phone interview yesterday, Mr. Rohatyn said, "The use of the funds is clearly not consistent with everything we have been saying and with a position we have been making" all along.
"Since we have to borrow these funds, they cannot use them as one-shot gap closers," Mr. Rohatyn said. The MAC board has proposed that the money be used to finance: school construction; a rainy day fund; or transitional funding for proposed city authorities for surface transportation and sanitation. The corporation was created during New York City's fiscal crisis in the 1970sto sell bonds because the city could not tap the capital markets.
In addition, Mr. Rohatyn said technical problems have been created for the refunding because Mayor Dinkins is proposing to use the money in only two of the four years outlined in the revised plan.
When mr. Rohatyn and the MAC board first proposed to refund $1 billion of outstanding first resolution bonds, now due in 1995, they planned to turn over the proceeds over four years beginning in fiscal 1992, which began July 1.
Mr. Rohatyn declined to elaborate on the technical issues because he said he does not know if the refunding will even take place because larger questions have been raised about the viability of the plan.
The solutions to the problems are likely to require approval for changes by the state Legislature, one official said. First, New York law requires the corporation to seek the approval of state lawmakers for a refunding done at a present value loss, instead of a present value savings. MAC officials have said the refunding was not designed to reap present value savings.
Second, because city officials have now proposed to use the revenues from the refunding in fiscal 1993 and 1994, rather than the previously proposed four-year period, the corporation must also seek legislative approval to hold onto the surplus funds that would be generated by the refunding in fiscal 1992. A law passed in 1990 requires MAC to turnover any surplus funds it has to the city, unless the corporation decides to use the money to pay down its own debt.
MAC wants to do the refunding in 1992 because it has to do it before Feb. 1 for the city to gain the full $1 billion benefit. If not, MAC has to make a large debt service payment later that month and it would reduce the size of the refunding and the city's eventual take.
One state source, however, said, "These are technical issues, they are not necessarily deal stoppers." Legislation has not yet been submitted for these items.
Commenting on the overall plan, Mr. Rohatyn, who has delayed the refunding until it is determined a credible financial plan does indeed exist, did say, "In general, the approach the mayor is taking is correct."
That approach includes reducing the city's workforce by 31,000 by fiscal 1996 and gradually turning over the city's Medicaid expenses to the state, he noted. But Mr. Rohatyn added, "With respect to details of the plan, we don't know yet. What we see is pretty sketchy at this point."
In a published report in The New York Times yesterday, Mr. Rohatyn said, based upon his cursory perusal, Mayor Dinkins's proposals "fall short of a structural change in city finances and operations."
As for the refunding, Mr. Rohatyn said, "One of the considerations without which we couldn't proceed, would be assurance from the Financial Control Board that the city has a" structurally balanced financial plan.
The control board is still reviewing the plan.
Mr. Rohatyn said board approval also relies on the rating agencies. "On that score, we have a significant problem, which was confirmed by" Standard & Poor's Corp., he said.
In a statement released on Wednesday, Standard & Poor's said, "The use of debt refinancing by MAC for a two-year tax freeze would be little more than deficit financing, and negative for the city's current A-minus rating."
Other fiscal monitors and observers of the city's budget process have also expressed concern about the financial plan.
State Comptroller Edward V. Regan blasted the refunding and said the city will be burdened with heavy debt service payments beginning in 1996 because of it.
The MAC refunding could be structured to stretch the repayment of its bonds from 1996 to 2008, the legal maturity limit the corporation's bonds can reach. The bonding will cost the city between $100 million and $120 million annually during that period. By one estimate, using a true interest cost of 7.25%, the total cost of the refunding to the city would be about $1. billion in interest and principal payments over a 13-year period.
The city did not include any repayment of the corporation's bonds in its fiscal 1996 plan, although a number of state and city sources have said the city will most likely have to pay something, perhaps between $50 million and $70 million, in that year to give MAC debt service coverage on the bonds.
But if the city starts repaying in fiscal 1997 and not 1996, then its annual payments could jumt to as high as $128 million a year, one official said.