Provides for limitations on the contracting of state debt as to amount and manner

The revenue debt that the Legislature would be able to authorize without voter approval would include debt secured by a pledge of specific state revenues authorized by the Legislature to be deposited in a dedicated trust fund for capital works or purposes. No debt, including newly authorized voter approved debt, could be issued unless the total outstanding principal amount of debt authorized and contracted after the effective date of the amendment would be less than the designated percentage of the total personal income of the State, as defined by law.

The designated percentage would be one-half percent in the fiscal year ending a year after the enactment of this legislation, increasing by one-third percent in each of the eight subsequent fiscal years and rising to three and one-half percent for the 14th succeeding fiscal year after the enactment of this legislation and thereafter. Furthermore, no debt could be issued after January 1 of the third year after enactment of this legislation, if the aggregate annual debt service on all outstanding State debt, as of the last day of the preceding fiscal year would exceed 5.75 percent of total governmental funds receipts of the State for the year preceding issuance, as determined by the State Comptroller.

The resolution further provides that no revenue debt could be contracted except to finance capital works or purposes, and that revenue debt may only be refunded in accordance with Section 13 of Article 7, which provides for the refunding of general obligation debt and prohibits refunding that do not achieve a present value savings or that exceed the amount necessary to provide sufficient funds to accomplish the refunding.

Section 2 of the resolution would amend Section 16 of Article 7 to provide a mechanism for the payment of appropriation backed debt, in the same manner as is authorized for general obligation debt, by authorizing the Comptroller to pay principal and interest on revenue debt from trust fund revenues pledged for payment of the debt. JUSTIFICATION : Debt reform is one of the most urgent issues facing New York State. The future of the State's economy depends on its ability to manage debt in a way that is disciplined and effective. This proposed constitutional amendment would prohibit all backdoor borrowing and authorize a new type of revenue debt that could be issued without voter approval. All debt authorized and issued after the amendment is approved would be subject to a phased in cap, rising to 3.5 percent of total personal income of the State. Additionally, no new debt could be issued if total annual debt service in any subsequent year on all debt outstanding as of the last day of the preceding fiscal year exceeded 5.75 percent of total governmental funds receipts for the fiscal year preceding the year in which debt was issued. The dual cap restrictions would insure long term planning and affordability of the State's debt service burden.

The revenue debt proposed to be authorized could only be issued if the Legislature set aside a specific stream of revenues to pay it. All backdoor borrowing for State purposes would be prohibited while allowing State local assistance programs to continue so long as they are not financed with State-backed debt.

The State now relies heavily on appropriation-backed debt which, can be issued without voter approval and without an assessment of the State's long term ability to pay the debt service. It is also generally more costly because of the non-appropriation risk. By permitting only full faith and credit general obligation debt (authorized by the voters) or revenue debt (with a specific payment stream), and providing a mechanism for payment of the debt service on revenue bonds to the extent of pledged funds should the Legislature fail to appropriate funds, the amendment would lower the State's borrowing costs, and lower the cost to taxpayers.

This amendment would preclude many of the financing transactions known as "one-shots" that became common budget balancing techniques during the previous two decades. These included the issuance of authority debt to purchase facilities from the State and the State's lease purchase of those facilities. It would also eliminate this practice that has cost the State's future taxpayers hundreds of millions of dollars.

The proposed prohibition would preclude all backdoor financing for State purposes, such as current programs to finance correctional facilities, highways, the State University, mental hygiene facilities, youth facilities, State housing programs and State park facility improvements, among others. State service contract arrangements for other types of programs, such as financing State contributions to the Water Pollution Control Revolving Fund for local sewage treatment projects, local highways, the higher education applied technology assistance program and similar programs, would also be prohibited.

While these programs would have been prohibited under previous proposals, this proposal is stricter because of the dual cap restrictions for all State debt (general obligation and revenue debt).

The cap on aggregate outstanding debt would be phased in, giving the State time to plan ahead for restricting debt issuance to an amount that would stay within the constitutionally required cap amounts. The debt service cap would take effect immediately, to assure the affordability of debt service, but it is set at a level that the State would be able to stay within during the early years.

Fiscal implications

Undetermined.

Legislative history

2007-08: S.2885 - Referred to Judiciary 2005-06: S.1465 - Referred to Judiciary 2003-04: S.1007 - Referred to Judiciary 2001-02: S.1500 - Referred to Judiciary