NEW CITY – A discrepancy between two recorded deficit bond interest rates led to some minor panic among county legislators on Tuesday before it was understood the effect would be minimal. Nonetheless, the frustration became another bone of contention between the legislature and the new county executive.
Initially, it was believed the county would receive $96 million for deficit reduction along with roughly $11.7 million in premiums. It was also initially believed that on the market, interest rates on the bonds had been driven down from 5 percent to 2.7 percent.
However, it was later revealed the bonds would have a 5 percent interest rate. According to Rich Tortora with Capital Markets Advisors , the interest rate would only be 2.7 percent if the premium was used to pay the first available interest expense at the beginning of the repayment program. In other words, county legislators mistakenly believed it would be paying a lower interest rate.
Tortora assured the body the discrepancy was little more than an accounting anomaly and that it was only a matter of whether the savings available through interest rate savings or a higher premium for the bonds. In the end, they would still receive the same amount of money they expected when the bonds were sold.
“Because of market conditions we actually received $96 million in bonds plus a premium,” Tortora said. “It was approximately $11 million.”
The legislature was initially slated to vote on a resolution committing money from bond premiums solely toward the repayment of interest, but pulled it when advised by Tortora that the resolution should be revised. The legislature is currently awaiting a recommendation from County Finance Commissioner Stephen DeGroat on whether or not it should continue pursuing the 5 percent interest rate.
Nonetheless, legislators were frustrated at the surprise and blamed ambiguous information from the county executive’s office for the mix up. Leg. Barry Kantrowitz explained the legislature was taking care to ensure the public is not misled and that legislators make no missteps.
“One of the problems we have is spending money we don’t have or anticipating revenue we don’t get,” Kantrowitz said.
DeGroat defended the handling of the situation, explaining there was no doubt that $11.7 million in premiums would be received, but merely how the money would be used to service the debt.
Regardless of the misunderstanding, the county was able to effectively sell the bonds when they went to market. 35 buyers-including many from major financial firms-purchased bonds and outlook on the market seems to reflect well on the county’s ability to pay them back.