BARB wire?
Zohran won. The feeling of that victory in the recent Democratic primary for New York City mayor was unlike any other political feeling I’ve had recently. Just amazing.
In the wake of that win, I’ve been thinking about the campaign’s green schools platform. I contributed a little to this platform, particularly the financing part of it, and there’s one thing that’s worried me a little.
One of the main critiques Zohran gets is that his plans are impossible or impractical. Given that there’s a moderate governor in New York, and the city is creature of the state, can he do what he’s proposing?
This question is largely left-punching. They said it’d be impossible for him to win and he did. Moderates and conservatives just lack imagination, will, or interest in doing the things Zohran proposes, and they launder that lack with words like ‘impractical’.
That Politico piece I link to above has a particularly egregious critique of the campaign’s estimate that it would cost $3.87 billion to green retrofit 500 schools over ten years.
That’s based on a calculation of square footage retrofitting costs done by the meticulous work of researchers behind Align’s report on green, healthy schools in NYC. If you want to take issue with an estimate, tell us why! Ugh.
But there’s another question that’s been nagging me. Given how NYC’s school infrastructure financing works, the state might be able to limit the city’s borrowing capacity for new school construction.
To understand that, we need to look at building aid revenue bonds, or BARBs.
New York City has to borrow to pay for capital programs like every local and state government in the United States. The city does this through the New York Transitional Finance Authority (TFA).
This is how the city finances the School Construction Authority, which oversees school construction. While the city itself borrows the money, it pays back that money from at least two kinds of bond: a future tax secured bond (FTS) or the building aid revenue bond (BARB).
The BARBs are actually state-issued bonds included in the TFA issuance. That’s how the state government reimburses the city for school building costs. Last year, the state covered 47% of the district’s debt service through these bonds.
There are limits to how much outstanding building aid debt the state can do for the city. From what I can tell, the current limit is $9.4 billion. The total outstanding BARB debt at the moment? $7.7 billion.
So if Zohran’s plan is to do a $3.87 billion green school retrofit, does the state limit to outstanding BARB debt then limit what Zohran can do in terms of retrofitting the schools?
Maybe. I’m seeing different things. Like, in the School Construction Authority’s recent internal report, they say that there’s some breathing room built into the most recent budget to meet classroom size requirements.
There was $2 billion added for new capacity projects in the July 2024 plan, reflecting the State’s increase of the cap on TFA bonds not subject to the City’s debt limit under the
condition that the $2 billion be spent on classroom construction. This funding was specifically added to fund seats to help the City comply with the State’s Class Size Law.
Does this mean that the state’s new TFA BARB limit is $11.4 billion? If so, that could be good news. But then in an S&P ratings report, they say that it’s Future Tax Secured bonds (FTS) that were given that breathing room. Can we finance green school infrastructure with FTS bonds? Great! But will they be reimbursable by state building aid? No. Not great. And: this $2 billion extension is only for classroom seat expansion, which green renovations might not do.
Also, I’m seeing from recent credit analysis that a 2025 amendment to the law that governs the TFA extended the borrowing amount subject to debt limits from $13.5 billion to $27.5 billion. Does that also create breathing room?
I don’t know. I think so? This might be a question for Brad Lander. In any case, it’s important to think about how we might create more breathing room. For instance, we know from a TFA bond statement that, last year, they refinanced a bunch of BARBs and saved about $68 million. That’s not that much but it’s not nothing either. And every year there’s been “deletion” of BARB debt from the books, to the tune of a couple million bucks. We can and should think about how to do that.
Something that occurred to me though is that the state government could mess with Zohran’s administration by toggling these limits and regulations to the city’s borrowing capacity for school construction. We need to keep an eye on that BARB wire.
As one example, the way that BARBs are currently structured in terms when they come due—when the city has to pay them—the schedule jumps up a bunch in the second year of what would be Mamdani’s administration. Whereas in 2026, there’ll be 579 million due on BARBs, in 2027 there’ll be 731 million due. That’s a big jump! Watch out.
As another example, it turns out that BARBs have a lower credit rating than FTS bonds. Whereas future tax secured bonds are rated Aa1 by Moody’s, the BARBs get a Aa2 rating. I wonder why that is, of course, but also we have to watch for the fact that they’re more expensive. (I think this might be because the relative debt limit on BARBs, 9.4 billion, is actually way higher than FTS bonds, which, while nominally 27.5 billion, there’s actually a lot more FTS debt than BARB debt.)
A third example is actually good. Critics might come around and say that Zohran is going to increase the city’s debt and raise taxes, etc. But BARBs aren’t payable with personal income taxes or sales taxes. So there’s actually no reason that those taxes should increase as a result of BARB debt.