How municipalities can issue debt to raise cash under current New York law, and why it could make sense for you.

Short-term Debt

COVID-19 has left many New York municipalities short on cash as they grapple with a triple threat: falling sales tax revenues, holds on state aid, and unexpected expenses due to the pandemic. Short-term borrowing strategies can provide local governments with the funds to stay afloat until property tax payments or other revenues arrive to replenish the coffers.

There are two main reasons a municipal government might issue short-term debt: because of revenue shortfalls, or because there has been an unforeseen expense. During the pandemic, many municipalities have seen both. Despite taking other budget-reduction steps, such as curbing spending, offering retirement or separation incentives, or cutting staff, some governments are still facing shortfalls of tax or fee revenues.

“After exhausting other available options, governing boards may need to consider issuing some form of short-term debt in order to generate sufficient cash flow to meet the operational needs for the remainder of the year,” reads a section in The Office of the State Comptroller’s Financial Toolkit for Local Officials in 2020 and Beyond, which recommends consulting with financial and legal professionals for guidance.

The main avenues for short-term debt issuance to address those issues are tax anticipation notes, revenue anticipation notes and budget notes. In dire cases, a municipality may also use deficit financing, also known as a deficiency note.

Tax anticipation notes, known as TANs, are borrowed in anticipation of the collection of the next year’s property taxes, which are generally due in January for counties, cities and towns; or against assessments. Generally, the OSC says, the funds from TANs may only be used for the purposes for which the tax or assessment funds they’re borrowed against would be used.

Revenue anticipation notes, or RANs, are borrowed to generate cash flow in expectation of receiving certain specific revenue types, such as sales tax payments or a particular grant. RAN proceeds may be used to meet expenses payable from the revenues they are borrowed against, according to the OSC.

Budget notes are generally used to finance an unanticipated expenditure, particularly if the municipality was already experiencing a bad year. Budget notes may be used for “any object or purpose for which a local government is authorized to expend money” according to the OSC, and they provide cash that can be used to finance increased appropriations. Budget notes must be used for the purpose specified by the municipality.

The timing on a budget note affects when it must be paid: Adopt and issue the note before adopting the next year’s budget, and the municipality must pay it next year; issuing a budget note after the budget is adopted buys an additional year.

To pursue a TAN, RAN or budget note, a municipality would solicit rates from banks, much as it would when issuing a bond anticipation note for a capital project. The governing body must authorize issuance of the debt, and the bond or debt resolution must include the interest rate, due date, and other details.

The fourth option, deficit financing, is a last resort when there is a deficiency of funds due to lower-than-anticipated revenues for that year’s budget. Local Finance Law imposes strict requirements on the form of the resolution that a local municipality or school district must adopt to issue a deficiency note. If a renewal is required or if the unit of government must issue another deficiency note the next year, state law triggers monitoring by the Office of the State Comptroller and requirements to file regular reports.

Many municipal governments in New York have found themselves in tight budgetary times due to the strains of the COVID-19 pandemic and shutdown, but careful and creative issuance of short-term debt can help them weather the crisis in a fiscally responsible manner.

Domestic Manufacturing: The Next Big Boom?

Domestic Manufacturing

While the national scramble and subsequent shortage of PPE materials amid the COVID-19 pandemic revealed a critical flaw in our current system, it also serves as a transformative moment for restructuring manufacturing business models. For the past three decades, global macroeconomic trends coupled with U.S. based manufacturing disadvantages contributed to the mass international manufacturing movement. As many discuss the importance of domestic manufacturing, could this moment in history be a catalyst for change? Reshoring provides a reliable ability to avoid supply-chain shocks, but it also involves risks and takes time to execute. So is it right for you? Let’s explore the challenges and opportunities of bringing manufacturing back stateside, and what the future could hold for your business.

It’s important to remember that many of the same issues prompting interest in domestic production – like disruption in supply chain – are not new, but rather are being revisited in light of COVID-19. Inventory carrying costs, travel costs, cyber security risks, and a rising increase of wages in foreign countries are some of the ongoing concerns. The pandemic also illustrated the risk of relying on a geopolitical adversary for 80% of the materials we consider critical. The Wall Street Journal has reported that China is the only maker of key ingredients for certain drugs, including established antibiotics that treat a range of infections such as pneumonia. In a deal aimed at reducing U.S. reliance on China, the federal government announced this summer that it plans to give Eastman Kodak a $765 million loan to start producing the chemical ingredients needed to make pharmaceuticals. The planned investment will generate about 350 jobs at Kodak’s home base in Rochester New York and in St. Paul, Minnesota. According to data gathered by the Reshoring Initiative, this trend is gaining real momentum, as an overwhelming demand to become domestically self-sufficient builds in the market – particularly within medical equipment manufacturing. The company says while this time last year they were helping a handful of businesses make domestic moves, they are currently assisting upwards of 100 businesses in the reshoring process. Big companies like Caterpillar, GE, Intel, and Under Armour to name a few, are getting in the game of being close to their markets.

Despite the fact that China has become a less attractive manufacturing venue, ultimately the costs for domestic manufacturing are significantly higher than costs for international manufacturing. Outsourcing allows companies to run their factories with high efficiency. So, what needs to happen to make this a viable option for a manufacturing plant owned by a New Yorker? Both the U.S. government and U.S. manufacturers need to spend more on manufacturing research and development. Many industry experts also believe federal and state government needs to incentivize manufacturers with expanded tax credits, subsidized production facilities, and new cash flow. Legislative plans are also in the works to help manufacturing become more practical in regions like the northeast. Just last week, New York Senate Democratic Leader Chuck Schumer helped introduce The America Labor, Economic competitiveness, Alliances, Democracy and Security (America LEADS) Act. The America LEADS Act would provide over $350 billion in new funding to synchronize all aspects of U.S. national power and give manufacturers the skills and support needed to out-compete China by expanding the Manufacturing USA Network.

The reasons a company might choose to reshore vary greatly. Everyone has a different motivating factor driving their decision to stay the course, merge, or move their manufacturing site. Realistically, building new U.S. facilities is a long term commitment, typically spanning five to eight years. Your location choice should be focused on the structures (or lack thereof) that local, state, and federal government have placed on activities. Diligently monitoring upcoming incentives, subsidies, and regulations for businesses like yours is crucial to your future success. A survey by Site Selectors Guild, an association of professional site selection consultants, predicted an uptick in onshoring to the U.S., but also to Canada and Mexico — particularly in the pharma and life sciences industries. The reality is, filling workforce once a company does decide to diversify operations presents its own set of challenges. Deciding if this is a move that is right for you and your business comes down to reimagining your business plan and examining your TCO or, Total Cost of Ownership. One thing is certain: how industry leaders react to the shifting landscape at this critical moment will shape the future of manufacturing for generations.