New York taxpayers will be on the hook for an estimated $21 million or more in bond costs if automatic federal spending cuts -- or "sequestration" -- go into effect Friday, a Newsday analysis shows.
The higher costs would come through a reduction in federal subsidies to a program called Build America Bonds.
Such bonds, unlike traditional tax-exempt municipal bonds, are fully taxable to investors. They pay higher interest than typical municipal bonds, but state and local issuers of the debt benefit from a subsidy paid by the U.S. Treasury. The subsidy lowers the cost of borrowing for states and municipalities.
Among the $85 billion of automatic spending cuts due this year if Congress and the White House fail to agree on a deficit reduction plan is a lowering of payments by the Treasury to Build America Bond issuers. Bond issuers would have to make up for the lost federal subsidies, paying more out of pocket to investors, hence the hit to state and local taxpayers.
The biggest whacks in New York would be to New York City -- $7 million to $12 million -- the Metropolitan Transportation Authority -- $5 million to $7 million -- and the state itself -- $4 million to $6 million.
Nassau County Comptroller George Maragos said the cut wouldn't affect county finances in the short term but said it was "troublesome" the federal government was poised to renege on its commitments.
He said he hoped "Congress will reach some agreement with the president and will restore that subsidy, which they had promised. And if they don't, we have to live with it."
Suffolk County didn't issue Build America Bonds.
Congressional leaders and the president have a sequester summit in Washington Friday.
LIPA spokeswoman Elizabeth Fagler said Newsday's calculations of costs were "in the ballpark" and would add 14 cents to each residential customer's annual bill. State budget office spokesman Morris Peters said Newsday's estimates were in "the right order of magnitude," but the office would not provide its own figures due to the uncertainty of the situation.