Relates to authorization of debt in times of public emergency; and a limit on state funded debt and refunding of state debts

Summary of provisions

Section 1 of the resolution proposes an amendment of section 10 of article 7 of the Constitution to add disasters, including those caused by acts of terrorism, to the existing list of purposes for which debt may be incurred on an emergency basis. Emergency borrowing would, however, require the approval of the Governor, the Comptroller, and a majority of the Senate and a majority of the Assembly. The amendment prescribes a procedure for the Governor to propose emergency borrowing and for the Comptroller, and the Senate and the Assembly to give their approval or disapproval.

Section 2 eliminates "back-door borrowing" and, effective with State fiscal year 2022-23, establishes a cap on the total outstanding principal amount of State debt that would be equivalent to 5% of the total personal income in the State. Except for short-term revenue anticipation notes permitted by section 9 of Article 7 of the Constitution, emergency borrowing permitted by section 10 of Article 7, and refundings permitted by section 13 of Article 7, no indebtedness could be incurred for State purposes or to finance State grants unless the debt falls below the 5% cap. To eliminate "back-door borrowing," this section defines State debt to include debt supported by any financing arrangement whereby the State agrees to make payments which will be used, directly or indirectly, for the payment of principal, interest, or related payments on indebtedness incurred or contracted by the State itself for any purpose, or by any State agency, municipality, individual, public or private corporation or any other entity for State capital or operating purposes or to finance grants, loans or other assistance payments made or to be made by or on behalf of the State for any purpose. Among other provisions, the prohibition will apply (i) whether or not the obligation of the State to make payments is subject to

appropriation, or (ii) whether or not debt service is to be paid from a revenue stream transferred by the State to another party that is responsible for making such payments.

The amendment also would authorize the State to issue revenue debt backed by specific revenue sources. Such debt would be included in the debt cap and would be subject to all other restrictions on State debt such as voter approval. The amendment would also allow multiple bond acts to be presented to the voters at one time and would ban future contingent obligation debt.

Bond issuances in the aggregate amount of $250 million a year, would be permitted without voter approval, but only if the total outstanding principal amount of State debt resulting from such an issue would not exceed the 5% cap.

The amendment requires that, with the exception of refundings and Short term notes and emergency borrowing permitted by sections 9 and 10 of Article 7, respectively, all future State debt will be permitted only for capital purposes. All new debt, and most refunding debt, will be required to be issued by the State Comptroller.

Section 3 of the resolution proposes an amendment of section 16 of Article 7 of the Constitution that states if at any time the legislature shall fail to make an appropriation for the payment of interest or installments of principal or sinking fund payments, the State Comptroller shall set apart from the first revenues received and pledged to such payments a sum sufficient to pay such interest or installments of principal or contributions to such sinking fund payments, and shall apply the moneys thus set apart.

Justification

Debt reform is one of the most important challenges facing New York State. The future of the State's finances depends in large measure on its ability to manage debt in a way that is disciplined and effective. Debt reform must impose meaningful caps to ensure that future debt is affordable.

Since 1990, outstanding debt has grown from $14.4 billion to $63.0 billion in 2012, representing a 337 percent increase. The State's use of pay-as-you-go (PAYGO) financing for State funded capital spending has declined, even during times of unprecedented surplus, replaced with an increased dependence on debt.

Furthermore, New Yorkers bear one of the highest debt burdens in the country. New York is ranked second only to California in total debt outstanding. According to Moody's 2011 State Debt Medians, New York is fifth highest in debt per capita behind Connecticut, Massachusetts, Hawaii and New Jersey. New York's $3,149 debt per capita is more than double the national average of $1,408.

This proposed constitutional amendment establishes strict limits on debt. All financing arrangements in which the State agrees, even indirectly, to make payments on indebtedness incurred by the State or by a municipality, public authority or private corporation or other entity on behalf of the State would be subject to a cap equal to 5% of total personal income of the State, beginning in 2022.

"Back-door borrowing", or borrowing outside of constitutional strictures, has been used by New York State to circumvent the requirement for public referendum. As of March 3], 20] 2, "back-door borrowing" accounted for approximately 94 percent of the $63,0 billion in outstanding State-funded obligations. Only $3,5 billion was approved by the State's voters and issued as General Obligation debt. This proposed constitutional amendment restores accountability and transparency to the decision to incur State debt by requiring voter approval of most future debt, thereby insuring that the decision to obligate future generations of New Yorkers will be subject to full public debate.

New York State's capital spending on transportation, mental hygiene facilities, State park improvements, State housing programs and other programs exceeded $9.3 billion in State fiscal year 2011-12, with 52 percent of that amount financed through debt issued by public authorities on behalf of the State. When this proposed amendment is in place, New York State will likely support its capital plan with a combination of General Obligation or revenue debt issued by the Comptroller or "pay-as-you-go" dollars appropriated in the State budget. A total of $250 million in debt could be issued annually without voter approval. Any additional debt issuance would be required to be approved by the State's voters.

There is a suitable time and an inappropriate time to utilize debt. This amendment would promote the appropriate use of State debt by capping its levels, closing loopholes in the existing statutes and restoring the accountability and transparency associated with the requirement for public referenda on the issuance of debt.