Bloomberg (the news, not the mayor) reports that the state of Illinois must pay 40 percent more than it did two months ago to borrow money in the bond markets (relative to supposedly risk-free Treasury bonds).

Illinois’ new 25-year, $300 million, taxable Build America bond issuance was priced to yield investors a whopping 7.1 percent yesterday.

Moody’s rates Illinois at A1 — showing once again that ratings are out of sync with markets. (more…)

The House has passed the White House’s request for an extension of the Build America Bond program ’till 2012, and the Senate is getting there.

Just what state, local, and the federal government need: more “cheap” debt, thanks to an implicit federal government guarantee. The program repeats Europe’s mistake in allowing fiscally profligate states to borrow cheaply under a continental umbrella — but it’s worse than that. (more…)

As reported in today’s Wall Street Journal, the state may re-enter the short-term credit markets for the first time in two decades in order to cover a cash shortfall in June.

The possibility was first raised in a forum at the Rockefeller Institute last week by Assemblyman Herman “Denny” Farrell, chairman of the Ways and Means Committee. “We are going to have to borrow, and we’re going to have to borrow in the next couple of weeks in my opinion,” Farrell said.  Even if a budget is adopted in the meantime, the state is expected to have roughly $1 billion less than the cash it needs to pay its bills in June, including a large school aid payment.

But short-term borrowing by the state is restricted under the 20-year old statute creating the Local Government Assistance Corp. (LGAC), which effectively converted the state’s rolling short-term “spring borrowing” into long-term debt.  Here’s the relevant language from the Public Authorities Law (Article 10-B, Title IV, Section 3241-A, Subdivision 2):

The state may issue in any fiscal year tax and revenue anticipation notes in an aggregate principal amount in excess of the limit on issuance set forth in subdivision one of this section [the $4.7 billion in long-term borrowing originally authorized for LGAC], if and only if there shall have first been executed in such fiscal year a written certificate signed by the governor, the temporary president of the senate and the speaker of the assembly, which shall set forth:

(a) the emergency or extraordinary factors or factors unanticipated at the time of adoption of the budget for the fiscal year in which such borrowing is to be made that gave rise to the need for the issuance of tax and revenue anticipation notes in excess of such limit, and

(b) the amount of tax and revenue anticipation notes projected to be issued in each of the three fiscal years commencing subsequent to the fiscal year in which such limit was originally exceeded, which will result in the elimination of such excess as soon as practicable but in no event later than by the end of the third fiscal year commencing subsequent to the fiscal year in which such limit was originally exceeded. [emphasis added]

In addition, that emergency certification can’t be issued for more than four consecutive years.

The possible issuance of short-term revenue anticipation notes is not to be confused with the possibility of longer-term “transitional” deficit financing, as proposed by Lt. Gov. Richard Ravitch’s long-term fiscal reform plan.  Gov. Paterson has reacted coolly to the Ravitch plan; in fact, in what surely be a first for the Empire State, the plan has inspired the governor to publish a New York Times op-ed critical of an idea floated by his own appointed lieutenant.

Lt. Gov. Richard Ravitch today formally released his five-year plan for achieving structural budget balance, including a proposal to authorize roughly $6 billion in “transitional borrowing” to help close projected budget gaps over the next three years.  The borrowing would be hard-wired, through bond covenants, to a series of changes including:

• moving the fiscal year to July 1 from April 1;
• budgeting on the basis of Generally Accepted Accounting Principles (GAAP);
• creating an “independent” Financial Review Board to determine whether the budget is balanced on a quarterly basis; and
• empowering the governor to impound spending if the board determines the budget is out of balance.

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The Senate today also passed the so-called Public Authorities Reform Act previously approved by the Assembly and backed by Governor Paterson–complete with a form of super card-check for unions seeking to organize authority-sponsored hotel and convention center development projects.

The headline on the Senate’s Majority press release announcing the bill’s passage deserves a special niche in Albany’s jam-packed Pantheon of Preposterous Claims.

What does a tiny Arab emirate have in common with the NBA’s worst team, which currently plays in New Jersey?  And why should the answer matter to a taxpayer in Buffalo or Syracuse?  Nicole connects the dots in a timely op-ed in today’s New York Post.

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Governor Paterson’s proposed budget deficit reduction plan includes a $300 million raid on the coffers of the Battery Park City Authority (BPCA), which would be required to issue new bonds and send the proceeds to Albany.   But BPCA board member Charles Urstadt and former authority spokesman Avrum Hyman have a better idea, which they describe on the op-ed page of today’s New York Times:

As two of the officials who helped carry out Gov. Nelson A. Rockefeller’s 1967 mandate to build a Lower Manhattan community on landfill in the Hudson River, and considering the unquestionable success of what he proposed evident in today’s vibrant Battery Park City, we believe that New York City, which has a little-remembered option to buy the entire property for $1, should hand over that dollar bill. Let’s finally make Battery Park City, with its 10,000 or so residents and 92 acres of businesses, housing and beautifully maintained green spaces, a part of the city to which it really belongs.

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Sometimes the credit crisis seems like last year’s news. At least, you would think so if you looked at projected Wall Street bonuses and New York City and State public spending.

But a new Moody’s report shows how the crisis continues to impact infrastructure projects. It’s a reminder that municipalities can’t rely on fancy structured finance as a way to avoid making tough decisions on how to fund critical infrastructure with taxpayer money (optimally, by cutting spending elsewhere). (more…)

State and local governments increased their borrowing by 8.3 percent on an annualized basis between April and June, according to the Fed flow of funds report. While the number isn’t eye-popping against the past decade’s history, what’s unusual is that states, cities and towns have kept on borrowing even as people have cut their own borrowing, down 1.7 percent.

In other words, people seem to have learned their lesson and have changed theirr behavior (whether voluntarily or not), while state and local governments and the people they employ haven’t yet bowed to reality.

Gov. Paterson has vetoed a bill that would have weakened oversight power of the Buffalo Fiscal Stabilization Authority.   As the Buffalo News noted in an editorial last week, this was the second legislative attempt in the past year to remove the city from “hard” control status, which in the past has included a 38-month wage freeze.  Given the potential for other municipal fiscal crises around the state, which may require the creation of other control boards, the governor’s move sends the right message and is an important and positive precedent.

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