You can listen Dr. Bushell's interview with Andrew Coen on The Bond Buyer's website. Full transcript below:
AC: Good day, everyone, and welcome to another Bond Buyer Podcast. I'm northeast regional reporter Andrew Coen, and today we are joined once again by the leader of one of the nation's largest municipal bond issuers, Gerrard Bushell, from the Dormitory Authority of the State of New York. This is Gerrard's third visit with us since being named President & CEO of DASNY in June 2015 by New York Governor Andrew Cuomo. Plenty has unfolded since our last visit, (including) the new federal overhaul tax changes and budget challenges on the state level. Gerrard, welcome back to The Bond Buyer.
GB: It's always great to be here, Andrew. Thank you for having us again.
AC: Absolutely. At the end of last year, there was certainly much uncertainty on how the final congressional tax bill was going to shake out and whether the private activity bond exemption would be preserved. It was certainly a busy time for DASNY, with many deals that had been planned for 2018 fast-tracked for December just in case the PAB exemption went away. How were those final two months of the year when everything was in flux?
GB: I love how The Bond Buyer presented everything we did: we "unleashed a preemptive volley." We understood this was an exigent circumstance. It was a very difficult set of circumstances that DASNY as an issuer was confronting, that New York State and the other 49 states and other issuers across the country (were confronting). What we felt like we needed to do was take a stand. Governor Cuomo was very aggressive, very visible on that. For our part, at DASNY, we had five board meetings and our board was very responsive to accommodate all our private clients and our concerns about advance refundings -- which we ultimately lost -- and the presumptive loss of private activity bonds, which we retained. So, we were very aggressive. We worked with approximately six issuers who came to us: Fordham University, St. John's, Bronx-Lebanon Hospital, Mt. Sinai Hospital, United Cerebral-Palsy as well as Touro College. We were very aggressive and really stood up in the sand and drew a bright line in the sand and said we would stand by our partners.
AC: And you referenced the advanced refundings, which were not preserved in the tax bill. What does that loss mean to DASNY issuers?
GB: Well, obviously, it is another tool I think that issuers have historically used over the last 50 years in terms of looking to reduce the cost of borrowing. I think what we're looking at and we're talking to all our partners, are what are some of the new opportunities we can look at to at least preserve an opportunity for issuers to call their bonds and start looking at alternative ways to price? So, there is a lot of discussion around short calls. We'll see. We're in the early stages of this process now.
AC: On the positive side, the PAB exemption was ultimately preserved, how important a tool is that for many of the hospitals, higher-education institutions that you issue for?
GB: It's very important, because it is a form of low-cost borrowing. It is a very important tool in terms of economic development across this state and the other 49 states across this country. Social infrastructure means having or winning the competition for the best minds and creating fulfilling and enriched institutions. You want the best of breed in higher education, both public and private, but more importantly you need to recognize you need high quality health care. And hospitals are going through enormous change and transformations. There are a lot of costs associated with that and losing the lower cost associated with tax-exempt financing would have been a huge challenge. These are institutions that every dollar counts. These are not-for profit institutions.
AC: Even though it has been preserved, there has been some talk this year about eventually it still getting eliminated, possibly. How much of a concern is that for DASNY? Is there anything your agency is trying to do to try and prevent that from happening?
GB: We're always concerned about that. Sadly, this issue has been raging at full force for over 30 years in terms of the elimination of private activity bonds. We're going to stand with our brothers and sisters across this nation and there are 49 states that will stand and really push on this issue. There are 50,000 issuers across this country, so there is really a strong network of support to continue advancing economic development through private activity. Everybody is talking about "how do you create new industries?" "How do you create opportunities for growth?" The educational and the health care industries, what they call the "ed" and "med" sectors are sectors of dynamic innovations and so we stand in New York State with higher education and health care. You've got huge infrastructure which has a virtuous impact on municipalities as well as the state. More importantly you have a large number of jobs that are associated. And these are jobs that require a wide array of skills, so we stand with our partners in higher education as well as health care.
AC: Another issue out of Washington that certainly impacts you is interest rates and the Fed has been indicating has been indicating a few interest rate hikes for this year. How does that impact DASNY as far as borrowing goes?
GB: Look, everybody is always looking for the cheapest cost of capital, so with interest rates getting higher that may, in fact, have an impact on what and when people are doing things. We saw our volume go down in the beginning of the year, from year to year, by 32%. Part of that was attributed to the activity at the end of the year, no doubt. But, issuers were always concerned about, sort of, the increased cost associated with borrowing in terms of rate hikes. This has been part of the discussion for an extended period of time. I think the acceleration was associated with the private activity bonds looking as if they would be pulled away and the loss of advance refundings.
AC: On a more local level, New York State is facing some budget challenges with a large deficit that the Governor is tackling. How do those challenges impact DASNY, if at all as far as the budget goes?
GB: We are an issuer for the State. We are a public benefit corporation. The state is our huge client and we execute on behalf of the state through sales tax which we did a huge transaction (yesterday) in the market which was priced very favorably ($1.3 billion). We also do the Personal Income Tax (PIT), which goes back as far as 2002. These are two very important credits that New York State stands by. We work with Division of Budget (DOB) on these credits. These are very important credits for our capital infrastructure across the state and we're going to look at ways we can continue to support and enhance them.
AC: You had a very busy 2017. Obviously, the end of the year there was a big rush, but even before that it was an active year. How would you sum up 2017 and did it go the way you envisioned?
GB: You always want to finish at the top. We were near the top, so what I tell everyone all the time is "we don't use 'second.'" We don't use "second best." We talk about being "one of the top issuers in the nation" because we are consistent in terms of who we work with in terms of our private clients and our public clients. Last year we finished executing 26 transactions that perhaps may have been the highest in the nation and we did $7.7 billion worth of transaction in terms of volume. So we're excited. It was excited. It was an excellent year. Really, quality credits in the market. As you know, from last year and the previous year we were really partners to scientific research and the transformation and creation of the innovation economy so when you think about some of the work we have done looking at the Advanced Science Research Center in northern Manhattan with the City University system: City University (CUNY), we financed and built a $700 million project. South of that we partnered in terms of Columbia University financing the Jerome Greene Center as well as Manhattanville College. Then you go further southeast, Rockefeller University, huge transaction in terms of transforming that area. And then further south to NYU in Brooklyn -- not just the West Village -- but what was the old MTA site, the Tandon Center and creating this interdisciplinary research effort. So we were extremely busy and we look to continue to partnering, not just with those institutions, but with institutions across the state.
AC: Obviously, you already have a lot of clients you work with, but I'm sure you're always looking for new ones. Is there anything marketing-wise DASNY tries to do to get the word out to potential other colleges or health care institutions or libraries even that might benefit from DASNY?
GB: It's three years that I've been at DASNY, and we're focused on continuous change and continuous improvement. Our clients are very important to us, so we represent the State of New York, but we also have to cover our costs. We have to be profitable. So the thing that is very important that will make us even more attractive to our partners is how we allocate our capital and resources. We have a mission, and that mission is to provide a low-cost financing for higher-education and health care institutions. We've got to execute faster. We must be more efficient. We have to have the right mixture of understanding risk. So: top-line revenue growth, greater efficiencies, stronger risk management. Last year we executed transactions at a very high pace. There was a shorter tenure in terms of getting our clients to market. What I said to everyone at DASNY: that's the benchmark. And so we bring value-add. We go around, we've built a client account management infrastructure so we're not just responding, but we're being more proactive in terms of how we go to the market and talk to our clients. The first thing that's always important to say every client is "whether or not you work with DASNY, talk to us. We want to talk to you because we have worked on so many transactions. Singularly differentiated based on the intellectual capital we have inside DASNY as well as the partnerships we bring across the state and across the county. So, we may not do your transaction, but we can give you insights on how you might find more efficient and lower-cost ways to do that both through construction as well as the execution on issuing."
AC: Looking ahead for the rest of 2018: as we tape this, it's a day after you issued a $1.3 billion deal that went very well. What do you anticipate for the rest of the year?
GB: We have two more sizable, probably a PIT or a sales-tax transaction that may be coming. We anticipate doing some work with Columbia University and NYU. There are a number of colleges as well as health care institutions that are really in the pipeline. So, you never really know who's ready to move but what we try to do is have greater insights through our partnerships in understanding what people need in any given point in time. How can we help? We are focused on a partnership, not executing on a transaction. So the transaction is a small part of the larger relationship that we have cultivated with our private clients as well as our public clients. We want to do more. We want to continue to be value-added. We anticipate having a strong year. The thing we are very focused on is One DASNY. One DASNY is all about integration. It is all about execution. It is all about presenting DASNY to our clients. In other words, you may not do financing with us, but you're in the business of construction. These institutions have major footprints. We're working on our construction division across this entire state with the City University, and with the State University of New York (SUNY) we are executing design-build, we are getting done a lot faster. We have knowledge. We can partner. Again, you don't have to work with us, but what is important with us is the partnership we have established across the state is a value added to these institutions. That is what we're trying to do. We have a mission. In that mission, we still have to be efficient. The Governor is very focused on MWBE participation. We are very focused. We are leaders in the space of equity and inclusion so I always talk about efficiency, equity and inclusion. We want the lowest cost of capital, but we need to be in the market. We've got to be very focused on our larger mission. As a public institution we are satisficers. We are always trying to figure out how to figure out how we get a larger share. But we have to figure out how to balance that with our public mission.
AC: Gerrard, thank you again for joining us. It's been great having us for what's been becoming a tradition here on The Bond Buyer podcast.