Governor Cuomo has the privatization flu

March 23, 2012

The governor of New York has announced his intent to ask the state legislature for a new law allowing him to auction off the cash flows of the state’s public assets. Bloomberg reports:

Governor Andrew Cuomo is seeking legislation that would allow private-equity firms to help finance construction of public-works projects, including a new $5.2 billion Tappan Zee Bridge.

The bill would authorize the state to lease bridges, roads and state buildings to help pay for construction, maintenance and operations of infrastructure, said Thomas Madison, executive director of the New York State Thruway Authority. Cuomo doesn’t want to sell state assets, said Karen Rae, deputy secretary of transportation. Carlyle Group LP (CG) and Macquarie Group Ltd. (MQG) are among companies expressing interest in the Tappan Zee.

The Debt Reform Act of 2000 limits the amount of money the state can borrow, and New York is right up against that borrowing ceiling. The Debt Reform Act says the state may only borrow 4 percent of the personal income of the state’s residents, which was $37.8 billion for 2011 (the law only counts debt issued since its enactment in 2000). Currently the state has $32 billion outstanding using the law’s counting method, so remaining capacity is around $5 billion.

I think the governor looked over the state’s books with his staff and got a little spooked thinking about where the Tappan Zee Bridge funding would come from. Maybe the governor’s counselors whispered in his ear that they have been getting calls from the helpful people at Carlyle and Macquarie, who would love to finance some infrastructure. What a relief, the governor might have thought. He could fund this mega-project and not have to fight the legislature to change the law. Instead, he could craft a new law that opens up the state’s public assets to Wall Street and other wealthy investors. They’ve been clamoring to get in, and here is a chance.

Now I can understand the governor’s enthusiasm to offload the cost of infrastructure onto private investors, but the funds to construct a new Tappan Zee Bridge would more likely come from the New York State Thruway Authority than the general financing of the state. The Authority is a public corporation of the state but has no taxing powers. Its debt is not a liability of the state (page 41) and would not count against the state’s debt ceiling. Bonds issued by the Thruway Authority are repaid through fuel taxes and other sources. The Thruway Authority has a debt service limit of $16.5 billion. Total debt service (principal and interest) for the Thruway Authority currently equals $10.7 billion. This consists of bonds that come due through 2032; the payments peak in 2015 and then fall dramatically.

The federal government will lend the state about $2 billion to construct the new bridge, leaving the state to issue toll-backed bonds to fund the balance. There is debt capacity in the Thruway Authority and massive demand among the wealthy of the state for tax-exempt municipal bonds. There is no reason for the governor to create legislation privatizing the public assets of New York State. Although there is not a lot of fiscal space within the current law, there is enough. The governor would serve his citizens more prudently by working with the legislature to boost the Thruway Authority’s borrowing capacity. That would be a bridge to a strong public future for the state instead of pledging the public’s cash flows to multinational corporations.


MSRB: New York State Thruway Authority $780,000,000 Second General Highway and Trust Fund Bonds Series 2012A

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