“[Dubai] will not … be able to restore confidence in its solvency without support from Abu Dhabi, its oil-rich investor, neighbour and the more conservative senior partner in the United Arab Emirates. … Abu Dhabi should give whatever help is needed to bring this episode of incompetence to a close. Abu Dhabi allowed it to be believed that it was backstopping Dubai, so it should make good its promises. This will require a public guarantee of Dubai’s debts – and soon. The reputation of the whole UAE depends upon it.” — Financial Times editorial, Nov. 28, 2009

“I don’t know if I’d characterize [the state] as willing [to let Atlantic Yards' bonds default]. It’s just that the documents do not require us to make any payments.” — Jonathan Beyer, attorney, Empire State Development Corporation, Nov. 24, 2009

Fresh from a key court victory, Albany’s Empire State Development Corporation (ESDC), via its subsidiary, the Brooklyn Arena Local Development Corporation (BALDC), yesterday approved the issuance of up to $800 million in bonds for the construction of the Atlantic Yards basketball venue, sponsored by developer Bruce Ratner.

What is state and city taxpayers’ obligation here? (more…)

Governor Paterson today declared that New York State faces “an unprecedented financial emergency,” and asked the Legislature to choose between passing his deficit-reduction plan or granting him a new “executive option” to cut the budget unilaterally.  But the latter proposal specifically excludes “funds appropriated pursuant to a collective bargaining agreement” from areas that might be subject to unilateral reduction, according to a memo released by Paterson’s office. That’s a pretty big carve-out.

Time to really break glass

Maybe the governor’s counsels had some legal qualms about seeking legislative authority to unilaterally abrogate any portion of an existing employee contract.  However, it is clear that the Governor and Legislature acting together do have the statutory authority to freeze or defer scheduled employee pay increases, even during the term of an unexpired contract.

If the state is really confronting an “emergency”—and, indeed, it is—how can Paterson or the Legislature justify the continued payment of longevity “step” increases and base salary hikes to hundreds of thousands of state and local government employees, during a time of zero inflation and widespread private-sector job losses and pay cuts?

Sooner or later, Albany needs to treat a growing, statewide governmental financial crisis the same way it treated the more confined financial “emergencies” in New York City, Yonkers, Nassau County and Buffalo over the past 34 years.

Josh Barro of Manhattan Institute has a strong column at RealClearMarkets digging more deeply into the Rockefeller Institute’s report on quarterly state tax collections.  Key take-away: “states without income taxes are generally showing admirable (and unsurprising) revenue stability.”

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On the surface, New York doesn’t look too bad in Rockefeller Institute’s latest report on tax trends in the 50 states.  Albany’s tax receipts in the third quarter declined by 8.9 percent, compared to a national average of 10.7 percent, the report says.  New York’s largest revenue source, the personal income tax (PIT), declined 7.4 percent, compared to a national average of 11.4 percent in other states with income taxes.

Keep in mind, however, that the Empire State’s 2009-10 budget retroactively increased the income tax rate on high-income taxpayers by up to 31 percent.  This was the second largest PIT increase to be enacted by the six eight states that enacted personal income tax increases this year, usually including some version of a “millionaire tax” this year.**

New York taxpayers with incomes over $500,000, who were generating well over 40 percent of the state’s PIT revenue before the meltdown, have seen their tax bite grow by nearly one-third on average.  On a purely static tax base, that would translate into an overall revenue increase of more than 12 percent.   But the base isn’t static — it is shrinking rapidly, most rapidly among high-income households.   Adjusting for the tax increase, the decline in PIT receipts in New York under prior law would have been more like 20 percent, nearly twice the national average.   And that’s a better indication of what’s going on in the state’s tax base and the economy as the Legislature continues to dither on budget reductions needed to avoid an cash-flow crisis. (more…)

It looks more and more like Chicago’s parking-privatization deal was a bad deal for the city and a good deal for Morgan Stanley, the concessionaire. Under the 2008 deal, Morgan Stanley bought the rights to the city’s parking-meter revenue for 75 years – including the right to make massive rate hikes — in exchange for paying $1.15 billion to the city of Chicago upfront. (more…)

“If there is no action taken by the state [of New York] to close the [budget] gap, or if action is taken but is largely-one-time in nature (therefore increasing the structural imbalance in the outyears), and revenue collections in January are close to or below state projections, the state’s situation at that time would likely not be consistent with a Aa3 rating and stable outlook.”

So says Moody’s Investors Service in assigning an Aa3 and a “stable” outlook rating—perhaps for the last time in a while—to $351 million in New York general obligation refundng bonds.

On the Moody’s scale, a Aa rating denotes an issuer demonstrating “very strong creditworthiness relative to other US municipal or tax-exempt issuers or issues,” while “the modifier 3 indicates a ranking in the lower end of that generic rating category.”  Next step down on the Moody’s scale is A1.  California is the lowest-rated state, at Baa.

A few thoughts on the late-breaking Albany deal to pass the so-called Public Authorities Reform Act, now stalled for good reason in the Senate after passing in the Assembly:

Not for the first time, some of New York’s well-meaning good-government advocates are being suckered by a bill title.  Like most legislation trumpeted as “reform” in Albany, this measure’s modest virtues are being grossly exaggerated even as its negatives are being ignored, minimized or overlooked.

The bill stems from the pretense that public authorities are, as Assemblyman Richard Brodsky (D-Harrison) put it, “Soviet-style bureaucracies” that amount to a “secret, shadow government.”

In fact, because they are subject to the discipline of the bond market, the state’s major public authorities are far more transparent than the typical state agency.

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Some awful ideas just keep turning up.

Take, for example, the old state and city stock transfer tax.  The last vestiges of the tax were effectively phased out in 1981, although its ghostly shadow technically survives due to a weird tax law quirk whose repeal has been urged by, among others, the state Bar Association.

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Comptroller Bill Thompson just released a quarterly staff report with some good economic and fiscal data for New York City.

Personal income tax withheld were down 7.2 percent in the third quarter (which ended in September) relative to the same quarter a year earlier. We saw such declines starting in the fourth quarter of last year, however, that we’ll likely see a bounce soon in one of these reports — but it will be a slow climb back to boom-era levels.

More below … (more…)