Proposes Sweeping Debt Reform, Including Constitutional Amendment,
New York’s Use Of Debt
Still Out Of Control
2000 Reform Act Said No Debt for Operating Costs;
Since Then State Issued $7.7 Billion for Operating Costs, Total Debt
State Comptroller Alan G. Hevesi today issued a comprehensive
debt control reform program, including a proposed
which would finally bring New York’s runaway debt under control.
Hevesi also issued a 115-page report providing an historical analysis
of State debt practices.
“Today, I am proposing a seven-point plan of constitutional
and statutory changes that would effectively reform and control New
York’s debt practices,” Hevesi said. “Properly used,
debt plays an essential role in government. It provides reserves to
build schools, hospitals, highways and mass transit and it creates
jobs. Misused, debt creates a burden that reduces government’s
ability to respond to vital needs and transfers costs we should pay
now to our children and grandchildren. It is especially dangerous that
the State continues to use massive amounts of debt to pay for day-to-day
operating expenses. That’s what led to the near-bankruptcy of
New York City in the 1970s.”
Key findings of the report include the following:
- Total debt. State debt has grown from $14.4 billion in 1990
to $46.9 billion in 2004 and an estimated $49 billion in 2005.
- Back-door borrowing. Voter-approved debt has decreased from
40 percent of the State’s debt portfolio in 1985 to eight percent
today. Under the State’s constitution, all general obligation
borrowing is supposed to be approved by voters.
- Public Authority Debt. Most State funded debt is issued through
authorities, $43 billion of the $46.9 billion. In addition, public
authorities have another $70 billion of debt that is not supported by State revenues.
- Debt per capita. New York ranks second highest in state and
local debt per capita after Alaska, a state that benefits from
its huge oil reserves.
- Loopholes in 2000 reform. Because the Debt Reform Act of 2000
was riddled with loopholes, New York State has actually issued debt at
a faster rate since the Act’s passage than it did before.
- Since 2000, State debt has grown by $12.2 billion, bringing
total State debt to an estimated $49 billion in 2005 from $36.8
billion in 1999-2000.
- The Act set a goal of limiting debt to four percent of personal
income, but since the law passed debt has actually increased
from six percent to 6.5 percent of personal income. That’s because
the Act does not count towards its limit all debt issued
before 2000 and still outstanding and most of the debt issued since then.
- Debt not counted in limits. Of the $12.2 billion issued since
2000, $7.7 billion is not counted as State debt, even though it is a
State obligation: $4.6 billion tobacco borrowing, $2.6 billion to stretch
out debt of New York City’s Municipal Assistance Corp., and $500
million to finance payments to 19 school districts for old claims. This
debt represents 16 percent of the State’s
$49 billion in outstanding debt.
- Debt for operating costs. The 2000 Act properly mandated no
borrowing for operating expenses. Despite that,
the same $7.7 billion was borrowed to pay for operating expenses for the State,
New York City and 19 school districts.
- Borrowing in good times. Between 1996 and 2001, the State had
annual surpluses of between $450 million and $3
billion. Instead of using those surpluses to reduce debt, the State actually
increased borrowing. During that time, outstanding debt increased an average
of 5.1 percent a year, while State spending increased an average of 4.4
percent a year.
- Borrowing for legislative initiatives. The State separately
authorized $2.8 billion for member items and local
economic development from fiscal 1997 through fiscal 2005. These projects
may be worthwhile and some are for local capital projects, but they do not create
state-owned capital assets and should be paid for without borrowing,
especially when the State has a surplus.
- Pay-as-you-go. New York slashed its pay-as-you-go cash support
to the capital program by almost half from 1994
to 2004, a period during which the state often had surpluses.
- Bond rating. New York has the second-lowest bond rating in the
nation, according to Moody’s.
The sale of Attica prison is a case study
in the irresponsible use of debt. The State
borrowed $200 million to sell the prison
to itself in 1990 and used the funds for
operating expenses. Since 1990, the State
has paid $242 million in debt service on
the Attica debt, but due to refinancings,
it still owes $323 million in principal and interest.
So the total cost of providing $200 million in
one-shot budget relief in 1990 will be at least
$565 million, assuming the debt is not refinanced again.
“Debt is an indispensable tool for creating essential assets,
such as a modern transportation infrastructure and cutting-edge educational
facilities we need for our economy to remain competitive. Used correctly
it also helps the State economy during recessionary periods. But if
debt is used irresponsibly, it isn’t available for those vital
purposes,” Hevesi said. “For too long, we have used debt
to permit unsustainable levels of government spending. This is simply
wrong. Our reforms will ensure that New York State only issues as much
debt as it can afford.”
Hevesi’s proposed reforms include:
- Constitutionally define state-funded debt
to include all debt. This will close the loopholes created in the 2000 debt reform act and
provide taxpayers with a complete picture of the State’s
- Limit outstanding State-funded debt to five
percent of personal income. The current limit of outstanding debt applied to only money
borrowed after April, 2000.
- For nine years, statutorily limit new borrowing
to 95 percent of previous year debt. This will reduce the total amount of debt
outstanding and bring it to the five percent limit by 2014.
- Create an independent debt management board
and publish annually a realistic measure of debt affordability. The board’s job would
be to police the annual use of debt – setting borrowing levels
to address economic conditions and keeping the cost of borrowing
to what the state can afford. This is done in many states that
have higher bond ratings and lower borrowing costs.
- Require voter approval for annual issuances
exceeding $1 billion, authorize multiple ballot initiatives and
consolidate the issuance of State-funded debt. By subjecting most annual debt
issuance to public approval, the taxpaying public will have more
influence on where their tax dollars are spent and how.
- Improve accountability and transparency by
expanding oversight of the Public Authorities Control Board to
more than 200 public authorities from the current 11 public authorities. Terms and conditions of all negotiated
sales would be subject to the Comptroller’s review.
- Use standards and guidelines to mandate fairness
to future generations and efficiency in current debt issues. Taxpayers should not pay for assets
they cannot use. So, for example, debt would only be issued for as long
as the useful life of the asset provided. And debt would only be used
for capital, not operating expenses.
Roger Benson, president of the Public Employees’ Federation
(PEF), said "PEF supports the Comptroller’s legislation
that will help put the state’s fiscal house in order by setting
realistic limits on debt public authorities issue without voter approval.
This legislation will help bring public authorities out of the shadows
and make them more accountable to the state's taxpayers."
Daniel B. Walsh, president/CEO of the Business Council of New York
State, Inc., said "New York State's high and rising debt is a
symptom of high and rising spending. The debt limit and other reforms
proposed by Comptroller Hevesi would force the state to hold its borrowing
to more responsible and affordable levels. That's the kind of reform
New York needs."
Diana Fortuna, Executive Director of the Citizens Budget Commission,
said “The Citizens Budget Commission applauds Comptroller Hevesi’s
efforts to advance debt reform. His proposal contains the key to achieving
long-term debt reform in New York State: debt defined comprehensively
and brought under an effective constitutional limit.”
Dick Dadey, executive director of Citizens Union, a good government
reform organization, said "Comptroller Hevesi's proposal deserves
serious consideration and support as he tries to bring needed order
and compliance to the alarming issue over how the state accounts
for and handles its burgeoning debt.”
The current role of the Office of the State Comptroller is limited
to approving only the terms and conditions of each bond issue, such
as the appropriateness of fees and interest rates, and only for negotiated
debt issued by some of the public authorities and local governments.
The Comptroller recently issued a Policy Statement on Debt Issuance
Approval in order to provide clear guidance to public authorities and
local governments, to ensure that all factors contributing to the cost
of borrowing are considered in the review of negotiated or private
sales, and to streamline and improve the Office of the State Comptroller's
oversight process. The debt guidelines are designed to help debt issuers
hold down borrowing costs. Data about costs collected during the process
will be made available to all issuers, so they can use this information
to negotiate a better deal for themselves.
Albany Phone: (518) 474-4015 Fax:(518)
NYC Phone: (212) 681-4825 Fax:(212) 681-4468