State lawmakers dodge debt rules
“Backdoor borrowing” circumvents the need for voter approval
The state constitution has long prohibited New York from taking on debt without first seeking approval from voters, but through a process known as “backdoor borrowing” lawmakers routinely dodge that requirement and finance billions of dollars through public authorities.
The operation of the quasigovernmental public authorities is known colloquially as “the shadow government,” and it has been called “New York’s deepest pork barrel” for its practice of doling out billions for pet projects around the state that are financed with taxpayer debt. It began more than 80 years ago when former parks czar Robert Moses used it to finance projects all over the state.
Now, 96 percent of state debt
is done through backdoor borrowing, according to reports from the comptroller and the New York Senate.
A number of state programs are funded through backdoor borrowing. They are outlined in the state budget proposed by the governor and passed into law by the Legislature each year, a massive hodgepodge of legislative priorities and revenue allocation that is difficult for the public to parse.
Generally, the practice involves allocating money as a down payment to take out a big loan through a public authority. Those public authorities pledge to pay back loans using money from New Yorkers’ personal income taxes, allowing them to get very good rates on massive loans from the markets.
It’s a convoluted process that critics say is confusing, nontransparent and potentially conducive to waste, fraud and abuse.
“I don’t even have a full grasp of what the palate of programs available to the governor are,” said Sen. James Skoufis, a Hudson Valley Democrat who chairs the Senate’s investigative committee.
His committee released a report in December 2019 highlighting the practice of backdoor borrowing and decrying it as nontransparent.
“I think that speaks to a big problem here when legislators, including a legislator who has paid some keen attention to this issue, doesn’t have a firm grasp on what some of these programs are,” Skoufis said.
In total, there were nearly 600 authorities in New York last year. A vast majority are smaller and local, while there were about 50 larger, state authorities. If the expenditures of state public authorities were included in the state budget, it would make up nearly 30 percent of all New York spending, according to a second report done by the comptroller’s office in 2017.
And the Dormitory Authority of the State of New York, or DASNY, is the granddaddy of state authorities.
DASNY is basically a bank for the state, and it flies almost under the radar. While the debt facing the Metropolitan Transportation Authority — another state public authority — draws significant attention, the MTA has less than $40 billion in debt. The lesser known DASNY has about $54 billion. The total of DASNY’S revenue listed in public data — nearly $4 billion — would be large enough to qualify for the top 1,000 in Fortune Magazine’s list of the largest corporations in the world.
“My guess is 99.99 percent of the public has never even heard of DASNY,” Skoufis remarked.
Freeman Klopott, a spokesman for the executive-branch Division of the Budget, noted that DASNY’S debt has gone down during the tenure of Gov. Andrew M. Cuomo, dropping from $55.7 billion in 2011 to $54.2 billion in 2020. That’s a decrease of 2.7 percent.
“The state relies on bonds to support capital expenses, including schools, roads, bridges, and hospitals, and every dollar of state issued bonds is approved by voters directly either at the polling booth or through their elected representatives in the Legislature when they
enact the state budget each year, and any suggestion otherwise is wrong,” Klopott wrote in an email.
The Empire Center, a conservative-leaning think tank focused on state government, keeps a database of capital projects built by the State and Municipal Facilities Program, which is funded through public debt issued by DASNY. They include skateboard parks, a roller rink, an electronic scoreboard, salt sheds and snow plows. Other programs build hospitals, bridges and, occasionally, dormitories.
“Dormitories are sort of incidental to what it does,” said E.J. Mcmahon, founder of the Empire Center. “It’s a capital slush fund.”
While it’s reported how money is spent, Mcmahon said, what’s not revealed is why: “It’s not like it’s debated. Should we borrow $250 million for this, fill
in the blank? Well, guess what, there’s no public discussion of that. It just happens.”
The Times Union wrote several stories four years ago highlighting the controversial practice of moving money through DASNY.
Since then, little has changed, but Skoufis said he is “confident” that the Senate will take up a package of reform bills this year. The comptroller’s office has also pushed policies to ban backdoor borrowing, to add more conflict of interest restrictions and to require greater transparency.
“I don’t think I have a silver bullet to prescribe to you on this phone call,” Skoufis said. “But I think step one is further raising the awareness that this isn’t pretend money just because it isn’t coming directly from state government.”
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My guess is 99.99 percent of the public has never even heard of DASNY.” — Sen. James Skoufis