Cuomo Budget Has N.Y. Set for Best Rating Since ’72: Muni CreditFreeman Klopott and Brian Chappatta
Get that leisure suit out of the closet and start practicing the Hustle. New York state is going back to the 1970s -- at least in terms of fiscal stewardship.
A deal unveiled this weekend by Governor Andrew Cuomo and lawmakers has New York headed for its fourth consecutive on-time budget, the first time that’s happened in 37 years. Almost two years ago, Standard & Poor’s said that if New York produced on-time balanced spending plans through 2014, it would probably raise the state’s rating from AA, third-highest. That would be the Empire State’s best grade since it was cut from AAA in 1972, when Nelson Rockefeller was governor.
Cuomo, a 56-year-old Democrat who faces re-election in November, set out a five-year plan to spend a more than $2.2 billion surplus on property and corporate tax cuts. When he introduced the budget in January, the governor was projecting the state would end the current fiscal year with a $300 million surplus after he closed more than $13 billion in budget gaps since taking office in 2011. The new fiscal year starts April 1.
“The budget used to be late regardless of the economy,” said Howard Cure, director of muni research in New York at Evercore Wealth Management LLC, which oversees about $4.9 billion. “Things have settled down, and it shows the political strength of the governor.”
Investors in New York’s debt are responding. State bonds maturing in March 2029 traded March 20 at an average yield of 3.11 percent, down about 1 percentage point from the start of the year, data compiled by Bloomberg show. By comparison, benchmark 15-year muni yields have declined by about 0.6 percentage point.
Cuomo has said the on-time spending plans show Albany has moved past the dysfunction that previously defined it. In 2010, the budget process didn’t finish until August, the tardiest since lawmakers took a record 133 days into the 2004 fiscal period to approve a plan.
“Getting the agreement reached and the bills produced was a great accomplishment,” Cuomo said in a March 29 conference call with reporters. “The state budget maintains the fiscal discipline the state government has shown.”
The first three deals Cuomo brokered closed deficits in part by getting the state’s largest unions to agree to wage freezes. This year posed a different challenge as the governor sought to lay out a multiyear plan that spends a surplus on tax cuts before the state has the cash on hand.
He also had to fend off pressure from New York City Mayor Bill de Blasio, who won a landslide election in November on the promise he’d raise taxes on the city’s wealthy to fund a universal pre-kindergarten program. The fight led to an agreement to give the city $300 million to get the classes for 4-year-olds started, quashing de Blasio’s tax increase.
The budget accord sets up a vote today on the spending plan that’ll go into effect tomorrow. S&P cited the state’s newly discovered timeliness when it raised its outlook to positive from stable in August 2012.
“It’s going to take a while to take a careful look through the budget before we take any rating action, if we chose to do that,” David Hitchcock, an S&P analyst, said when reached by phone yesterday.
Some New York obligations are trading better than AAA securities. Bonds due in March 2020 traded March 27 at an average yield of 1.46 percent, or about 0.26 percentage point less than benchmark munis.
Like other U.S. states, New York has gained from the growing economy and rising stock market, easing the crises that arose after the 18-month recession that began in 2007. Across the nation, state tax collections during the first half of 2013 jumped about 9 percent from a year earlier, according to the Nelson A. Rockefeller Institute of Government in Albany.
As the state’s revenue grows, Cuomo will face pressure to increase spending, said Charles Grande, head of muni research in New York at UBS Global Asset Management, which oversees about $14 billion.
“It’s like there’s barbarians at the gate; everyone wants a piece of a much bigger pie,” Grande said. “The state has to continue demonstrating the consistency in terms of financial performance and legislative balance that got it here.”
Even so, New York’s budget performance also needs to be kept in perspective, said Cure of Evercore.
“Most places get on-time budgets,” he said. “It shouldn’t be the exception; it should be the rule.”