Relates to limitations on state-funded debt; repealer

Summary of provisions

Section 1 adds a new Article 5-B (Limitations on State Funded Debt") to the State Finance Law, including four sections:

Section 67-a defines the terms "State debt," "State-backed debt," "State-funded debt" and "State-supported debt" to clarify the full scope of the State's debt obligations. Section 67-a also defines the terms "Revenue debt," "Total personal income of the state," "capital work or purpose," "conduit debt obligation", "cash surplus" and "state authority."

Section 67-b sets forth the duties with respect to state-funded debt, which include:

o authorizing the division of the budget to annually determine the debt limit of the state by calculating the amount equal to five percent of the defined total personal income of the state; o beginning SFY 2022-23, authorizing the division of the budget, by October 31, to determine the total debt limit of the state for the next fiscal year and report the limit to the legislature and the comptroller; o beginning in fiscal year 2013-14, the inclusion of a plan in the executive budget proposal outlining the methodology for implementing the debt limit determined by DOB.

Section 67-c continues the current limitations on the issuance of state-supported debt. This section shall expire and be deemed repealed on March 31, 2021 when section 67-c is in effect.

Section 67-d sets forth general limitations on State funded debt including:

o implementation of an overall debt cap, effective on and after April 1, 2022, on all State funded debt to limit debt to no more than 5% of the total personal income in the State; o prohibiting the use of State funded debt for any purpose other than a capital purpose; o 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; o 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.

Section 67-e prohibits the issuance of new debt supported by a state agreement to make payments only if expected debt service sources fall short.

Section 67-f mandates that at the end of any fiscal year, 75 percent of any cash surplus shall be deposited to the Rainy Day Fund until the Fund reaches its maximum balance. The remaining 25 percent, as well as anything after Rainy Day Fund has reached its limit, shall be deposited in the Debt Reduction Reserve Fund.

Section 67-g creates the Debt Planning Council with seven members, one each appointed by the Governor, the Comptroller, the Majority Leader of the Senate and the Speaker of the Assembly and three public finance experts drawn from a pool of candidates supplied by the existing four and chosen by the Governor. Representatives of the Council shall elect a chair person.

Section 67-h establishes the powers and duties of the Debt Planning Council including annually establishing the debt affordability of the State, which cannot be exceeded, annually reporting on all current and projected State-Funded debt levels and factors that affect the cost of that debt, creation of a State-Funded debt database and making recommendations to the Governor and the Legislature on all State-funded debt and other capital financing matters.

Sections 2 through 13 make conforming changes to statute to the newly created definition of "state funded debt" set forth in new State Finance Law Article 5-B, as added by this bill.

Section 14 amends section 50 of the State Finance Law by adding a voting representative from the Debt Planning Council.

Section 15 expands the jurisdiction of the Public Authorities Control Board to include financing and construction of projects of all state authorities and requires that applications include a current listing of all debt and debt service obligations of the applicant.

Section 16 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 17 provides for an immediate effective date. Provided, however, that section 67-c of the state finance law shall expire and be deemed repealed on March 31, 2021 and that subdivisions 3 and 6 of section 67-d of the state finance law, as added by section one of this act, shall take effect on the same date as the amendments to article 7 of the state constitution.

Justification

Although New York regularly borrows and spends money to finance long term projects such as roads, bridges, dams, prisons and university buildings, there is no policy to comprehensively track these capital assets and there is no long term plan for maintaining, replacing or adding to them. Without knowing what we have or what we need, it is difficult to determine if the State's limited resources are being put to the best use or if the State's infrastructure will be able to support future citizen needs.

Furthermore, the State relies heavily on borrowing by public authorities, which does not require the approval of taxpayers ("backdoor borrowing") to pay for a large portion of the State's Capital Plan. Less than six percent of the State's current debt burden has been approved by those who pay for it. Reliance on this type of borrowing has become commonplace. The enacted Five Year Capital Plan for SFY 2012-13 through SFY 2016-17 contains no new borrowing proposals requiring voter approval, but instead relies upon public authority debt. One reason is the Constitution allows only one bond act for a single purpose to be put before voters at a time, significantly limiting the State's flexibility to address all capital needs in this process.

New York's already high debt burden is projected to significantly increase over the next five years. The debt reform measures enacted in 2000 did little to slow the growth of the State debt or restrict the use of debt to capital projects and, as a result, the State is rapidly approaching the statutory cap on State-supported debt outstanding as established in the Debt Reform Act of 2000. Although that cap was placed on the amount of debt outstanding and debt was restricted to capital purposes only, these provisions did not apply to all types of State debt and are statutory, not constitutional, and thus easily by-passed. As a result, these measures have not been effective. For example, as of March 31, 2012, 13.5 percent of the State's current debt burden is for debt that

was issued for budget relief or deficit financing, which is much like using a mortgage to pay for groceries.

The Debt Reform Act of 2000 did not adequately restrain harmful borrowing practices or control growth. The State's borrowing practices must be made more transparent, accountable and affordable.

Furthermore, as of March 31, 2012, approximately 94 percent of State-Funded debt outstanding was issued without voter approval by myriad public authorities. The Constitution establishes a procedure for controlling debt outstanding by keeping voters involved. This bill will not only return voters to that role, but will also remove public authorities from the process by having the State Comptroller issue ALL debt for the State.