After a decade of increased borrowing — much of it for non-capital purposes — New York will be closer than ever to its statutory debt ceiling in the coming fiscal year, according to a debt impact study issued today by Comptroller Thomas DiNapoli. To his credit, DiNapoli hasn’t just documented the problem: he’s also laid out (not for the first time) a solid debt reform agenda.
The debt limit issue is not new; in fact, it was acknowledged in Governor Cuomo’s 2013 Five-Year Financing and Capital Plan a year ago (see page 89). Nonetheless, the comptroller’s findings make compelling reading. Relative to the ceiling, the state’s outstanding debt capacity shrunk from $9.2 billion in 2008-09 to about $1.5 billion at the end of the current fiscal year, and is projected to fall further, to a projected $509 million 2013-14 — which is actually nearly $200 million more wiggle room than the governor projected in early 2012.
The cost of borrowing increasingly crowds out other State expenditures. In SFY 2011-12, New York paid $6.8 billion in State-Funded debt service, which amounted to approximately 5.1 percent of All Governmental Funds receipts. Growth in State-Funded debt service, at an average annual rate of 9.4 percent over the last 10 years, has far outpaced average annual growth in State spending on both education (5.3 percent) and Medicaid (5.1 percent) for the same period. [emphasis added]
And just think how much worse the crowding-out effect would have been if the state’s most recent decade of increasing reliance on borrowing hadn’t coincided with record-low interest rates.
This chart basically tells the story:
New York manages to rank among the nation’s heavily indebtedness states, with total state-supported debt far beyond the average for its peer group, despite having what is, on paper, one of the nation’s tightest debt limitations. The state Constitution flatly prohibits the issuance of general obligation debt without voter approval. Governors dating back to Nelson Rockefeller in the 1960s have gotten around that limitation by relying increasingly on non-voter approved — bonds issued by public authorities under contract to the state. Today, only a tiny and dwindling share of the state’s outstanding bonds ever were run past voters.
The comptroller’s proposals for reforming this system deserve wide attention—and support from the governor. They are:
Impose a Real Debt Cap Using a Comprehensive Definition of State Debt. Create a more effective cap on New York’s debt by limiting all State-Funded debt to 5.0 percent of Personal Income, with a nine-year phase-in of the cap, and amend the Constitution to restrict the use of long-term debt to capital purposes. The cap and the restriction on the use of debt would help New York further rein in its debt load.
Ban Backdoor Borrowing and Return Control of State Debt to Voters. Constitutionally ban “backdoor borrowing” by State public authorities. This measure would also require new types of State debt to be approved by the 4 Legislature and the voters before being issued by the State Comptroller, with the same legal protections and controls that apply to General Obligation debt, and would authorize multiple bond acts to be presented to voters each year. These reforms would restore voter control over debt issued in New York, facilitate capital planning capabilities, and help the State regain control of its debt burden.
Create a Capital Asset and Infrastructure Council and a Statewide Capital Needs Assessment. Establish a Council to develop a complete inventory of the State’s infrastructure and assets, prepare a comprehensive 20-year long-term strategic plan to guide the five-year Capital Plan, and issue an annual comprehensive assessment of statewide capital needs with priorities and recommendations for planning and funding of capital asset investments. Such an assessment and strategic plan would allow policy makers to prioritize those capital projects that are most critical to New York’s economy.