Provides for the creation of a state debt management board to serve in an advisory capacity and for a limitation on the amount of debt the state may incur

Proposed new section 69-o would create the New York State Debt Management Board (the "Board"), to consist of the Governor, the Comptroller, the Budget Director, the Assembly Speaker, the Temporary President of the Senate, the Minority Leader of the Assembly, and the Minority Leader of the Senate, who could designate representatives. The Governor would designate the chairman. Board members would serve without salary or per diem.

Proposed section 69-p sets forth the powers, functions and duties of the Board, including the responsibility to recommend to the Governor and Legislature policy guidelines for the issuance of State-related debt and other capital financing matters. Such policies would cover matters such as refunding criteria, the use of credit enhancements, debt structure and goals for the proportion of capital spending to be financed with debt and the proportion to be financed with current appropriations.

Section 69-q directs the Comptroller to collect and analyze data respecting outstanding State related debt and report to the Board, the Governor and the Legislature on an annual basis on the amount and categories of debt, the issuers and the differences in credit rating among categories and issuers.

Section two of the bill would add a new Article 5-F to the State Finance Law, "Limitations on State Related Debt." Proposed section 69-t defines terms used in Article 5-F. Proposed section 69-u limits the issuance of all State related debt in two ways. First, no State backed debt or newly authorized State debt could be issued after March 31, 2003 unless the aggregate amount of outstanding debt contracted after that date would be less than the designated percentage of total personal income of the State. The designated percentage would be one percent in the fiscal year which ends the year after enactment of this legislation, increasing incrementally in the seven subsequent fiscal years when it would reach three and one-half percent for fiscal year 2011 and thereafter.

Second, no State related debt could be issued after September 1st of the year following enactment, if, as of the last day of the preceding fiscal year, the aggregate annual debt service in any subsequent year on all outstanding State related debt would exceed 5.75 percent of total governmental funds receipts of the State for the preceding issuance. The Comptroller would be directed to develop procedures for maintaining a current total of aggregate debt service due in any year on all State related outstanding debt.

Justification

The debt reform constitutional amendment rejected by the voters in November 1995 would have restricted backdoor borrowing and authorized a new type of revenue debt that could be issued without voter approval in an amount not exceeding 4.4 percent of total personal income of the State. The amendment was criticized for leaving too many exceptions to backdoor borrowing and for setting the cap on borrowing so high that it was meaningless. Pending the proposal and passage of a new constitutional amendment, a process that takes a minimum of two to three years, this statutory amendment would impose meaningful discipline on the State's borrowing practices.

The creation of a New York State Debt Management Board would allow for the coordination and consistent application of standards for debt issuance by the State and its public authorities, which should contribute to a higher degree of restraint in matters such as refundings and capitalization of interest, which can be subject to abuse. It has been argued that the Public Authorities Control Board currently fulfills this function, but it does so on an ad hoc basis. The Debt Management Board would be able to step away from a specific financing to consider overall policies in the light of comprehensive data on the condition of the State's debt burden.

The limitations on debt issuance that would be established by this bill are both sensible and realistic. Unlike the recent constitutional amendment, this bill includes newly authorized State general obligation debt under the cap on outstanding debt as a percentage of personal income of the State, and lowers the ultimate cap from 4.4 percent to 3.5 percent. This provision was similar to the provisions of a Governor's Program Bill submitted in anticipation of voter approval of the constitutional amendment rejected in November 1995. This bill introduces a second cap, on debt service as a percentage of total governmental funds receipts, which are essentially all funds, including federal. Because debt service affordability is perhaps the most important aspect of debt reform, this bill provides for a debt service limitation as an added safeguard. The percentage figure would be established once a year, to avoid the problem of tracking a "moving target" as old bonds are paid off and new ones issued.

New York State is experiencing rapid growth in debt service as a share of resources, driven primarily by multi-year tax cuts, much slower growth in federal funds and increased reliance on borrowing for the capital plan. Based on the Executive's current capital plan, New York's debt service as a percentage of all funds revenues is 4.2 percent for the fiscal year ending 2004. Setting a goal of 5.75 percent would give the State a window of time for planning and reduction of debt issuance. The goal is both necessary and reasonable. Controlling the rapid expansion of State related debt would improve the State's ability to balance its operating budget and would significantly improve the State's credit rating, resulting in a lower cost of borrowing.

New York State must make a commitment to debt reform that is credible and responsive to public concerns and interests. We should remain committed to a constitutional change, but the proposed statutory amendments would address the immediate problem of our ballooning debt service burden and give the public confidence in its leadership.

Prior legislative history

2007-08: S.2884: Referred to Finance 2006-06: S.2589: Referred to Finance 2003-04: S.1004: Referred to Finance 2001-02: S.1484: Referred to Finance

Effective date

Immediately.