cuomo_250x-150x150-9690239So, how is Governor Andrew Cuomo paying for that $100 billion infrastructure “development initiative” that, as he put in his State of the State message yesterday, “would make Governor Rockefeller jealous”?

The answer: for the most part, he actually isn’t.

The Cuomo administration’s official breakdown of that $100 billion can be found here.  It includes about $29 billion from the state government—i.e., to be funded, at least theoretically, through the state budget.  But less than half that amount is actually appropriated and lined out in the FY 2017 Capital Program and Financing Plan released with the governor’s proposed Executive Budget late yesterday. And much of it, including 90 percent of the highway and bridge construction plan, was already in the pipeline as of last year.

The disparity between rhetoric and financial reality is particularly striking when it comes to the $26.1 billion five-year capital plan of the Metropolitan Transportation Authority (MTA), which runs the subways, buses and commuter rail service in the New York City metro area.

Cuomo and Mayor Bill de Blasio reached a deal last October under which the state promised to contribute $8.3 billion to the MTA plan, and the city agreed to kick in $2.5 billion.

But the full amount required to make good on the state share of the promise to the MTA is not appropriated in the budget Cuomo presented yesterday. Instead, the governor is offering what amounts to an IOU, in the form of the following budget bill language under the heading “Metropolitan Transportation Authority (MTA) Capital Financing Act of 2016.” It starts like this:

This act commits the state of New York (state) and the city of New York (city) to fund, over a multi-year period, $10,828,000,000 in capital costs related to projects contained in the MTA’s 2015-2019 capital program (capital program). The state share of $8,336,000,000 shall consist of $1,000,000,000 in appropriations first enacted in the 2015-2016 state budget and additional funds sufficient for MTA to pay $7,336,000,000 of capital costs as provided herein. The city share of $2,492,000,000 shall consist of $657,000,000 to be provided by the city from 2015 through  2019, and additional funds sufficient for MTA to pay $1,835,000,000 of capital costs for the capital program. The $7,336,000,000 of additional funds to be provided by the state may be used by the MTA to pay direct capital costs and/or the state may fund such $7,336,000,000 of capital costs through financing mechanisms undertaken by the MTA. [emphasis added]

The boldfaced language signals that, in all likelihood, the state will not issue its own bonds to finance all or even part of its remaining $7.3 billion share of the MTA plan. Instead, the governor will direct (or expect) the MTA to front the money through the authority’s own bond issues, on which the state will pay the interest and principal.

Why take such an approach?  Because, as made clear elsewhere in the capital plan, Cuomo within the next few years will have almost completely exhausted the state’s bonding capacity under the Debt Reform Act of 2000. As shown in the table excerpt from the capital plan, the state couldn’t borrow much more without raising the cap, which Cuomo wants to avoid doing.

screen-shot-2016-01-14-at-2-46-30-pm-5240903

To sum up: Cuomo is backing up an $8.3 billion promise with an actual appropriation of just $1 billion, leaving the rest to be borrowed by the MTA, with tprincipal and interest to be paid by state taxpayers in the future (a future in which there is more room to maneuver under the state’s debt service cap). The city has been “committed” by state law (assuming such a thing is possible) to do a smaller version of the same thing.

(Also completely unfunded, by the way, is the governor’s proposal for a third track on the Long Island Railroad, which is listed in the “MTA” column of the Cuomo summary even though it’s not even part of the MTA capital plan.)

By contrast, there is at least $22 $20 billion in the long-term capital budget to finance the five-year highway and bridge construction plan of the Department of Transportation (DOT). That’s a modest $2.2 billion more than the state already was planning to spend over five years under the previous version of the capital budget. Another $2 billion is earmarked for the state Thruway.  However, breaking with historic patterns, the DOT, backed by projected hikes in federal aid as well as state borrowing and “pay as you go” resources, will fall $4 $6 billion short of “parity” with the MTA plan.

Senate Republicans reacted to the governor’s MTA capital deal last fall by pledging to seek more for highways and bridges.  Now that the budget is actually in front of them, all they have to do is find the money.  Here’s where to start:

  • repeal state laws and policies that needlessly add to construction costs, including project-labor agreements and the prevailing wage laws.
  • reject the governor’s new proposal to expand minority business enterprise and women business enterprise (MBE/WBE) goals (often treated as quotas) to 30 percent of all contact expenditures, which are almost impossible to meet without driving up subcontractor bids.
  • reappropriate for actual highway and bridge construction the $340 million in one-shot, windfall bank settlement money that Cuomo wants to spend on a temporary three-year rebate of Thruway tolls—a gimmicky political ploy that needlessly detracts from infrastructure needs;
  • enact laws permitting broad use of the “design-build” approach and public-private partnerships (P3); and
  • reform New York’s Scaffold Law, which adds to construction insurance bills.

Most of these changes, of course, would also stretch MTA transit capital dollars much further.

PS — Courtesy of PoliticoNY, some good added explanation of the MTA funding situation here from Chuck Brecher of Citizens Budget Commission, with a wonderful summing-up from Manhattan Institute’s Nicole Gelinas:

“The plan is to have a plan, and in the meanwhile, to keep having budget surpluses!” said Nicole Gelinas, a transportation expert with the Manhattan Institute, via email.

“Practically speaking, it means the MTA will have to do its borrowing up front, and that when and if we have a fiscal crisis, the state will have to come up with a new emergency revenue, a la the 2009 payroll tax, to avoid draconian service cuts,” she added. “They are stretching a five-year capital program well beyond the six-year budget outlook, meaning, officially or unofficially, debt.”

About the Author

E.J. McMahon

Edmund J. McMahon is a senior fellow at the Empire Center.

Read more by E.J. McMahon

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