Cuomo Borrowing Most Since 2006 Shows Fiscal Muscle: Muni CreditFreeman Klopott
With New York poised for its best credit rating in four decades, Governor Andrew Cuomo is authorizing the most borrowing since 2006 as he boosts investments in schools, roads and health care.
The $7.6 billion in new obligations in the budget approved in March will be spread out over at least five years. It includes $2 billion for school technology, the first bond referendum on the ballot since 2005; $1.2 billion to rehab health-care facilities; and about $1 billion for economic development.
The state has more room to issue bonds after its debt load shrank the past two years -- something that hasn’t happened in five decades. Officials also project faster growth in personal income, which is used to calculate the ceiling. Meanwhile, New York may win its highest grade from Standard & Poor’s since 1972 after four consecutive on-time budgets.
“Nothing speaks better to the state benefiting from a positive economy than its willingness to further leverage itself,” said Charles Grande, head of muni research in New York at UBS Global Asset Management, which oversees about $14 billion.
Cuomo, a 56-year-old Democrat, is placing an election-year bet that the economy of the third-most populous state will grow fast enough to afford the new debt. The borrowing plan, tapping interest rates close to generational lows, coincides with an improving financial picture for the state. When the fiscal year ended March 31, New York put money into its rainy-day fund for the first time since 2008.
This year’s authorized borrowing is the most since $13.2 billion in fiscal 2006, according to data from state Comptroller Thomas DiNapoli.
New York is one of 16 states to have regained the jobs that businesses cut during the 18-month recession that ended in 2009, according to the state Labor Department. Its 6.9 percent jobless rate in March, close to the lowest since 2008, compared with 6.7 percent nationally.
The state would be issuing into a strengthening market for its debt. New York securities are outperforming the rest of the $3.7 trillion municipal market.
Tax-exempt state bonds maturing in March 2020 traded last month at an average yield as low as 1.29 percent, the lowest in a year, data compiled by Bloomberg show. The rate yesterday was about 0.27 percentage point less than benchmark munis, even though New York’s credit grade is two steps below the top.
“Even with the new bonding authorization, in every year of the capital plan our debt-to-personal-income ratio is expected to be the lowest level the state has recorded in decades as a result of very prudent debt management and the growing economy,” Morris Peters, a spokesman for Cuomo’s budget division, said by e-mail.
One stumbling block is that the outlook for the state of almost 20 million depends on prospects for the national economy, which is showing signs of slowing.
The U.S. economy grew at a 0.1 percent annualized rate last quarter, down from 2.6 percent the previous three months as the harsh winter led to slumps in business investment and home construction. State tax collections in the first quarter rose at the slowest pace since the recession, the Nelson A. Rockefeller Institute of Government in Albany, New York, said this week.
Though unemployment rates in every New York region have dropped, some areas are trailing.
The Buffalo-Niagara Falls area had a 7.1 percent rate in March. In 2010, Cuomo lost the eight-county area surrounding Buffalo in western New York, the base of Carl Paladino, his Republican opponent that year. With $680 million of borrowing for Buffalo, the budget fulfills a promise to provide $1 billion to help the city’s economy.
In Utica-Rome, the central New York area where the governor is investing in the region’s growing nano-technology industry by borrowing $180 million, the unemployment rate was 7.6 percent.
“While the economy is improving, certain weaknesses remain,” DiNapoli said in an April 21 report on Cuomo’s budget.
States and municipalities have been pulling back on borrowing in 2014. Nationwide, issuance is almost 30 percent off last year’s pace, helping drive benchmark interest rates to a 10-month low.
New York’s bond authorizations could be a turning point or an anomaly, said Scott Pattison, executive director of the National Association of State Budget Officers in Washington.
“States are at a crossroads,” Pattison said. “We’re seeing revenue pick up a bit, and as states feel more comfortable, we may start to see more interest in borrowing and the capacity to do so, but that hasn’t happened yet.”