DiNapoli: NYS to stop issuing balloon-payment bonds

Public authority debt offerings that substantially delay principal payments will no longer be approved because the practice racks up millions in unnecessary costs, state Comptroller Thomas DiNapoli said Tuesday.

At a Mineola news conference, he said he'd only approve such "backloaded" debt structures in "compelling circumstances."

The comptroller said the authorities - there are some 1,100 in New York State - end up having to make big balloon payments because they haven't paid down principal. "Balloon payments are . . . a bad idea for taxpayers," he said in announcing that he already has gotten three public authorities to change that practice.

The agencies are the Metropolitan Transportation Authority, the Long Island Power Authority and the Water Authority of Western Nassau County. Earlier this year, DiNapoli said his office reviewed bond issues by the three agencies and advised them to restructure the issuance so the majority of payments would not be made in the debt's final years.

By doing that his office saved taxpayers and ratepayers a total of "$456.9 million on a cash flow basis over the life of the debt," he said, or $175.9 million in today's dollars when adjusted for inflation.

In LIPA's case, DiNapoli said a $210 million bond offering in January would have deferred principal payments until 2036 - terms that would have cost ratepayers $102.8 million in additional debt service costs, or $47.3 million in "present value savings" over the life of the bonds.

LIPA chief financial officer Herb Houge said the authority's policies were "in concert" with the comptroller's. "LIPA's debt issuance and past practice does not allow or promote intergenerational inequities and in addition, LIPA believes its debt structure proposals for new debt were in its customers' best interest," Houge said.

But one LIPA watchdog disagreed. "It's the $7 billion question," said Adrienne Esposito, executive director of the Citizens Campaign for the Environment, referring to LIPA's long-standing debt load. She said only an outside review like DiNapoli's could have revealed the backloading. Just last week, LIPA trustees approved $490 million in new borrowing.

DiNapoli said in some cases, the balloon or backload practice might make sense, but even then it could lead to "intergenerational inequity" because in 30 years or so, "a different group of people may be paying for the asset being financed and may not benefit from its use."

But Water Authority superintendent Mick Tierney, while conceding DiNapoli had some good points, said bonds should be examined case by case. "My industry, for example, has a majority of assets with a long service life, some with more than 100 years," he said.