The Richie Kessel NYPA Watch, March 3, 2009 – By George J. Marlin
“It’s a voluntary contribution we’re making. If NYPA didn’t do this, they’d have to get funding someplace else.” NYPA CEO Richie Kessel quoted in The Buffalo News, February 7, 2009.
On the morning of Tuesday, February 3, Richie Kessel, the new CEO and President of NYPA sat, alone, in front of a videoconference camera in Westbury, Long Island. In light of the import of the matters to be considered by NYPA that day Richie wore a billowing light-colored, short-sleeved polo shirt and chinos. Kessel, a full-time, highly compensated chief executive, declined to travel the 21 miles from Westbury to NYPA headquarters in White Plains so he plugged in at public expense from Westbury Expedite studio in Nassau County.
Kessel and the NYPA Board were gathered to discuss and consider the transfer of $488 million of NYPA funds to the State to help bridge a budget deficit of about $1.6 billion in the current budget year and $14 billion in the next.
Kessel and the NYPA Board approved two separate transfers of $318 million in fiscal years 2009 and 2010 pursuant to a memorandum of understanding and a “voluntary contribution” of $170 million. Bank of America, Ernst & Young and Hawkins Delafield & Wood advised NYPA and the preordained approval of transfer of NYPA’s excess funds to the State was duly obtained although three members of the then six-member NYPA Board voted no or abstained. So, instead of reducing electric rates to hard-pressed upstate manufacturers, Kessel’s NYPA threw its excess funds into the State budget maw.
NYPA will receive no interest on the amounts transferred and there is no obligation on the part of the State to repay the money except that the Division of the Budget has generously agreed to include a request to the Legislature for appropriation of the funds in the future. Indeed, it was pointed out at the meeting that the State had not promised, nor was there a general obligation, to repay the funds. Whether the Legislature will in fact deign to repay those funds at some future date; whether the State will then have the wherewithal to repay those amounts; and how badly the inflation, expected to follow the current federal super fiscal stimulus will erode the purchasing power of the advanced funds are all open questions. Some observers wonder whether the discredited rating agencies will arise from their decade-long slumber and consider the impact on NYPA’s credit rating. As every schoolchild knows, a reduction in the authority’s rating would lead to an increase in NYPA’s cost of money.
Interestingly, having made the voluntary contribution deal with the Governor’s office, Kessel was silent during the meeting except for one perfunctory question but, as is his practice, spoke to Tom Precious of The Buffalo News following the meeting and provided the typically blustery quote included above.
A colloquy between two NYPA trustees may indicate that more avaricious designs on NYPA cash await: The newly appointed Vice Chair assured the Board and public that NYPA could endure a “50% decline in revenues or more” and maintain its credit ratings or at worst experience a slight downgrade after the approved transfers suggests to some that he believes NYPA has more to give. An upstate trustee responded that NYPA would have to be “more stringent in the future with respect to these ‘voluntary contributions’ and whether they met the “deemed feasible and advisable test” of State law.
NYPA bondholders, customers and rating agencies should worry whether the State, having been temporarily sated by this tasty $488 million morsel to solve the relatively small current year deficit, will now move to consume other cash amounts on the NYPA balance sheet to fill the yawning $14 billion deficit in the upcoming fiscal year. A review of the NYPA financials reveals additional decommissioning and other cash balances available for the taking.
Finally, after the vote on these questionable cash transfers, one member of Kessel’s staff reported, as previously requested, that, yes, NYPA had bought the trustees Directors and Officers Insurance. Given the next demands that are likely to come from the Governor’s Office, a healthy D&O policy seems well advised.
Street Corner Conservative will be watching the other monies held by NYPA which are at risk as long as Kessel remains at NYPA and will keep its readership posted.