FOR RELEASE: Immediate, Thursday, February 23, 2006

Governor Announces Upgrade of PIT Bonds to AAA

Governor George E. Pataki today announced that Standard & Poor’s Rating Services has upgraded from AA to AAA the bonds commonly used by most State authorities – including the Dormitory Authority – to finance State debt two notches from AA to AAA, its highest level. This rating change, the second since September 11th, is a major acknowledgement of the strength of the State’s credit structures and affirms S&P’s view of the State's fiscal health.

The upgrade covers bonds secured by the State’s personal income tax revenue stream and its Local Government Assistance Corporation (LGAC) bonds, which are secured by a portion of New York’s sales tax revenue stream. Approximately two-thirds of the State’s borrowing over the next five years will be done with PIT-secured Bonds.

Since the New York Personal Income Tax Revenue Bond Program was authorized in 2001, the Dormitory Authority has issued $2.481 billion of PIT debt for education, state facilities and equipment, and economic development. The Authority expects to sell $245 million on PIT bonds during March 2006.

“To many fiscal experts, S&P’s upgrade of New York’s credit rating to the maximum AAA level probably seemed unthinkable 11 years ago,” Governor Pataki said. “But during the past 11 years, we have worked together to restrain spending, manage the State’s debt responsibly and build a more fiscally strong State. I’m proud that New York has joined only nine other States with the maximum credit rating by S&P."

The S&P upgrade marks the continuation of the dramatic turnaround of New York's fiscal condition as a result of the Governor's policies of spending restraint, debt reform and fiscal responsibility.

“As we move forward with the negotiation of this year's budget, it is important that we remember all the progress we have made and that we adhere to the principles that has helped turn New York’s fiscal picture around,” the Governor said.

According to Standard and Poor’s, the PIT upgrade is the result of “the slow, but steady, improvement in the state’s economic base and personal income tax revenue stream, coupled with the successful management of the borrowing program.”

Since Governor Pataki took office in 1995, New York’s General Fund spending has grown at an annual rate of 3.4 percent, well below the national annual average of 5.0 percent. All Funds annual spending has increased 5.0 percent in New York, which is significantly lower than the 5.9 percent national average for the same time period. Annual State Funds spending has increased by 4.8 percent in New York, compared to 5.2 percent nationally.

“Standard & Poor’s decision to upgrade the State’s PIT and LGAC Bonds is a ringing endorsement of the sound, professional debt management practices the Governor has implement and recognizes that the Governor’s prudent leadership has greatly improved New York's fiscal health,” said Budget Director John F. Cape. “This upgrade is also a tribute to the talented professionals here in the Budget Division and at the public authorities who do an exceptional job of administering the State’s debt.”

In 1995, Governor Pataki inherited a deficit of $5 billion, and turned that large deficit into a surplus. The budget surplus for the current fiscal year is now projected at $2 billion.

Governor Pataki’s policies have cut the rate of growth in State debt in half since he took office, and debt growth has been consistent with the rate of inflation. The Governor has vetoed more than $2 billion in new State debt that the Legislature sought to add to his executive budgets. In 1999-2000, he established the State's first Debt Reduction Reserve Fund, which set aside more than $1 billion in surplus resources to help pay down debt and avoid new debt issuances. The Governor has proposed to use another $250 million of this year’s surplus to reduce debt.

Today, as a percentage of the total budget, the State's debt service is less than 5 percent. In contrast, New York City projects that its debt service will be nearly 14.6 percent of its budget for the coming fiscal year.

As part of his ongoing effort to restore fiscal integrity to New York State government, Governor Pataki signed into law the Debt Reform Act of 2000 – the most comprehensive debt reform measure in New York history. This landmark reform restricted the use of State debt to capital programs only, while also imposing new limits and caps on new debt issuances. In addition, the Governor has advanced a constitutional amendment that would make these provisions a permanent part of the New York State Constitution, while also banning backdoor borrowing and requiring more than half of all new debt issuances to be approved by voters.

The Governor’s 2006-07 Executive Budget makes the maximum deposit to the Rainy Day Reserve, bringing the total to its constitutional limit of $945 million, its highest level and a five-fold increase over 1995. In addition, the Governor has called on lawmakers to increase the constitutional limit of the Rainy Day Fund to 5 percent of the budget instead of the current 2 percent.

For further information, contact Press Officer Claudia Hutton at (518) 257-3382 or chutton@dasny.org or the Governor’s Press Office at (518) 474-8418.