Creates a debt management board; repealer

Summary of provisions

Section 1 adds a new Article 5-8 ("Debt Management Board and Limitations on State Funded Debt") to the State Finance Law, including six sections:

Section 67-a defines the terms "State debt," "State backed debt" and "State funded debt" to clarify the full scope of the State's debt obligation.

Section 67-a also defines the terms "Board" (i.e., the New York State Debt Management Board), "Total personal income of the state, "capital purpose," "conduit debt obligation" and "cash surplus."

Section 67-b requires, after any transfer to the Tax Stabilization Reserve Fund, that a portion of any cash surplus accumulated in the General Fund as of the end of any fiscal year, be deposited in the Debt Reduction Reserve Fund for the exclusive purpose of reducing the aggregate amount of outstanding State funded debt obligations.

Section 67-c creates the New York State Debt Management Board consisting of the Governor, the Comptroller, and a third person, who shall be a financial expert jointly selected by the Governor and the Comptroller.

Section 67-d sets forth the powers and duties of the Board, which include monitoring all debt of the State and public authorities, establishing an annual debt affordability level, and adopting debt policy standards addressing:

* structure for State funded debt;

* criteria for refunding, including extending debt and use of savings;

* use of credit enhancements and derivative instruments;

* goals for the proportion of state capital spending to be financed with debt and the proportion to be financed with current appropriations;

* methods of sale;

* criteria for selecting State funded obligations to be retired or defeased by the use of a portion of any cash surplus;

* the definition of non-recurring revenues to be used for the funding of capital projects or for the purpose of retiring or defeasing bonds or notes previously issued;

* other policy standards the Board may determine to be appropriate; and

* policy standards for the issuance of debt obligations by Class A and Class B public authorities.

Section 67-e requires the Comptroller to annually report to the Debt Management Board on the amount of State funded debt outstanding.

Section 67-f sets forth general limitations on State funded debt and State debt service payments, including:

* implementation of an overall debt cap, effective on and after April 1, 2015, on all State funded debt to limit debt to no more than 5% of the total personal income in the State;

* implementation of the annual debt affordability level established by the Debt Management Board;

* prohibiting the use of State funded debt for any purpose other than a capital purpose;

* requiring all State funded debt to be in the form of obligations issued by the Comptroller, beginning with the fiscal year that is at least one year after the effective date of an amendment to the Constitution;

* prohibiting the issuance of any state funded debt obligation with a final maturity exceeding the probable life of the capital project financed by such debt, as well as prohibiting any maturity longer than 30 years;

* up to and including State fiscal year 2015-2016, limiting the issuance of new State funded debt obligations in any fiscal year to no more than 9596 of the amount of the State funded debt incurred in the last complete fiscal year.

* Prohibiting the issuance of new debt supported by a state agreement to make payments only if expected debt service sources fall short.

Section 2 amends subdivision 2 of section 6B-a of Article 5-C ("Revenue Bond Financing Program") of the State Finance Law to conform the definition of "authorized purpose" to the definition of "state funded debt" set forth in new State Finance Law Article 5-B, as added by this bill.

Section 3 amends subdivision 6 and adds a new subdivision 7 to section 68-c of the State Finance Law to prohibit, on a contingent basis, the issuance of revenue bonds when and if the Constitution is amended to eliminate backdoor borrowing.

Section 4 amends section 97-rrr of the State Finance Law to dedicate the moneys of the Debt Reduction Reserve Fund to the purpose of retiring or defeasing State funded debt obligations.

Section 5 adds a new subdivision 4 to section 24 of the State Finance Law to require the inclusion in the budget bills submitted with each year's Executive Budget an appropriation of the available balance from the Debt Reduction Reserve Fund to be used exclusively for the purpose of retiring or defeasing State funded debt obligations.

Section 6 adds a new section 2 to the Public Authorities Law to establish a new comprehensive definition of a public authority. The term "public authority' is defined as:

(i) any public authority, public benefit corporation, or commission created by or existing under the Public Authorities Law or any other law;

(ii) a public authority or a public benefit corporation, at least one of whose members is appointed by the governor or who serves by virtue of holding a civil office of the State;

(iii) a not-for-profit corporation affiliated with, sponsored by, or created by a State agency;

(iv) a not-for-profit corporation created by or existing under article 2 of the racing, pari-mutuel wagering and breeding law and operating under an exclusive franchise granted by the state;

(v) a local industrial development agency or other local public benefit corporation; or

(vi) a subsidiary or affiliate of such a public authority.

Section 6 also adds definitions of the terms "affiliate," "affiliated with," "subsidiary" and "other debt obligations." This section categorizes all current or future public authorities into four classes: Class A: major public authorities with statewide or regional

significance and their subsidiaries; Class B: entities affiliated with a State agency or created by the State that have limited jurisdiction but a majority of board members appointed by the Governor or other State officials; Class C: entities with local jurisdiction; and Class D: entities with inter- state or international jurisdiction. Classes A, B, C and D include, but are not limited to, the more than 720 public authorities specified by name in the bill.

Section 7 adds a new section 3 to the Public Authorities Law imposing limitations on the terms and conditions of any Class A or Class B public authority debt obligations issued after the effective date of this legislation. No Class A or Class B public authority may include in a bond covenant or other debt instrument a requirement or guarantee that the public authority will remain in existence until the debt is repaid. Unless (i) permitted under a statutory debt cap applicable to a Class A or Class B Public authority, or (ii) specifically authorized by an act of the Legislature, no Class A or Class B public authority can issue any bonds or notes, nor incur any other similar debt. Refundings or refinancings would be permitted if they achieve cost savings without extending the maturity of any existing debt. Further, no Class A or Class B public authority can include any provision having the effect of extending the life of the authority when refunding or refinancing any current debt obligation.

Section 8 amends subdivision 1 of section 51 of the Public Authorities Law to expand the jurisdiction of the Public Authorities Control Board to approving the financing and construction of projects of all Class A and Class B public authorities.

Section 9 adds a new subdivision 6 to section 51 of the Public Authorities Law to require an annual report by the Public Authorities Control Board detailing (i) the aggregate amount of debt approved by the Board during the fiscal year, (ii) a list of the individual projects approved by the Board for each public authority during the fiscal year, and (iii) the total amount of new debt obligations the Board has approved during the fiscal year for issuance by each public authority.

Section 10 amends subdivision 2 of section 365 of the Public Authorities Law to delete the requirement that Thruway Authority bonds and notes sold at public sale must be issued by the Comptroller.

Section 11 provides for an immediate effective date.

Justification

The construction of roads, bridges, canals, housing developments, hospitals, universities mass transit and other government facilities has made New York the Empire State. Debt is a tool that, when used prudently,- helps governments plan and pay for such large public

works projects. Borrowing in moderation allows those who will benefit from necessary, worthwhile capital investment to pay the costs.

Since 1990, New York State's outstanding debt has grown from $14.4 billion to $45.4 billion in 2004, representing a 215 percent increase. From 1996 to 2001 when the State experienced unprecedented surpluses, the State continued to borrow, rather than utilizing surplus dollars and responsibly paying for capital expenditures through more pay-as-you go (PAYGO) spending.

Furthermore, New Yorkers bear one of the highest debt burdens in the country. New York is ranked second to California in total outstanding debt. According to Moody's 2004 State Debt Medians, New York is fourth highest in debt per capita just behind Connecticut, Massachusetts and Hawaii. New York's $2,420 debt per capita is over two and one-half times the national average of $944. According to the Census, New York ranks second only to Alaska for state and local combined debt per capita.

This bill proposes major reforms that should be enacted into law to restore accountability, and transparency and limit debt to an affordable level. It is long past time for effective reform that will decrease the State's propensity to utilize debt financing, recognize the value of pay as-you-go spending and open the process to the public. Successful reforms must implement debt management policy that balances need with capacity and intergenerational equity. To be competitive with other states, New York must continue to make needed, affordable capital investments.

Establishing a new, all-inclusive definition of "State funded debt" will provide a more comprehensive accounting of the State's debt portfolio, eliminate loopholes in the current statutes and insure that all State funded debt is subject to the cap equal to 5 percent of the State's personal income beginning in 2014. As New York's outstanding debt is currently equal to 6.5 percent of personal income, steps will have to be taken to bring down the debt to 5 percent.

To force discipline and reach the proposed Constitutional debt cap of 5 percent by State Fiscal Year 2015-16, the legislation limits annual debt issuance to 95 percent of the last complete fiscal year's issuance starting immediately and continuing through March 31, 2016. The establishment of a Debt Management Board will provide coordinated policy direction, monitoring and reporting for all debt, including debt issued by public authorities. The three-person Debt Management Board made up of the Governor, the State Comptroller, and a financial expert, selected jointly by the Governor and Comptroller, would be vested with the responsibility to issue a binding debt affordability study, annually by October 31. Additionally, the board would forecast the debt affordability level expected for the two succeeding fiscal years based on multi- year projections of State revenues and spending. With this structure, the State's chief executive and the

State's chief fiscal officer jointly would be responsible for controlling, planning, implementing, reporting and managing the State's borrowing from beginning to end. Beginning in, the issuance of State debt will be subject to the Board's debt affordability level.

Additional oversight of public authority debt is provided by expanding the responsibilities of the Public Authorities Control Board (PACB) to include the oversight of all major State and regional authorities, requiring an annual report from the PACB and requiring that all public authority negotiated bond sales be submitted to the Comptroller for approval of their terms and conditions.

There is a suitable time and an inappropriate time to utilize debt. In New York State, debt has been utilized all too often, for objectionable purposes, and has become an easy answer to solving the State's fiscal problems. With no sign of this harmful trend ceasing anytime in the future, it is time for reform. For the foregoing reasons, the Comptroller respectfully urges passage of this legislation.

Prior legislative history

S.8175 of 2006: Referred to Rules S.1303 of 2007: Referred to Finance S.1303 of 2008: Referred to Finance S.521 of 2009/2010: Referred to Finance

Effective date

This act shall take effect immediately, provided, however, that paragraph a of subdivision 3 and subdivision 6 of section 67-f of the state finance law, as added by section one of this act, and section three of this act, shall take effect on the same date as a concurrent resolution of the Senate and Assembly entitled "proposing amendments to article 7 of the state constitution, in relation to the authorization of debt in times of public emergency, a limit on the total amount of state debt, the establishment of a debt management board, and refunding of state debts", takes effect.