Stop irresponsible borrowing and enact debt reform

Last month, the U.S. reached its debt limit, forcing the Treasury Department to take extraordinary measures as Congress debates potential action. These high-stakes decision points have become increasingly common in the last decade, making federal spending and debt front-page news.

In contrast, state and local finances, and particularly debt, rarely receive that level of public attention.

Many states, including New York, have debt limits in place on state bonds. However, the structure and efficacy of those limits varies greatly. In New York, the limits have been circumvented too easily, often with little public discussion, and have led to a high and growing debt burden. A new model is needed to effectively limit debt growth and maintain long-term affordability.

Moody’s ranks New York as having the second-largest debt burden in the nation. Rating agencies have consistently cited our high and growing debt burden as an adverse factor on the state’s credit.

The state constitution requires voter approval of debt, but the state routinely circumvents this requirement by issuing debt through public authorities. As of state fiscal year 2021-22, nearly 97 percent of state-supported outstanding debt had been issued as such “backdoor borrowing.”

New York’s opaque practices and gimmicks don’t stop there. While statutory debt caps were imposed in the Debt Reform Act of 2000, new forms of debt were created outside the definitions of the act and structured in ways to avoid being counted under the limit. And New York has a history of misusing borrowing to pay for short-term needs while a backlog of longterm infrastructure projects languishes.

In recent budgets, nearly $18 billion of new debt issuances were excluded from the cap. In addition, debt was permitted for non-capital purposes, and maturities up to fifty years were allowed for Metropolitan Transportation Authority bonds. These actions make the stat

utory debt limits functionally meaningless.

Over the next five years state-supported debt is projected to increase by $26 billion, or 42 percent, from $61.9 billion in 2021-22 to $88 billion in 2026-27. The growing costs for repaying the state’s debt load constrict flexibility in the operating budget, diminishing the resources available for other priorities.

Taxpayers and voters deserve to know what the debt is going to be used for, that the debt is structured responsibly, and that a new issuance of debt will not pose an unaffordable burden on their children.

A new report by my office offers a roadmap for comprehensive state debt reform. To modernize the state’s debt practices, we must:

Establish comprehensive, binding debt limits.

Meaningful debt reform needs to be addressed through a binding constitutional amendment to impose a 5 percent limit on all existing and future state debt. The calculation should be based on a rolling ten-year average of the state’s personal income growth, which will provide enhanced stability and predictability for capital and debt financing plans.

Provide accountability to voters. State debt limits should be subject to voter approval, and all state debt should be required to be issued by the state comptroller. This would isolate longterm liabilities and their associated costs from the temptations of annual budgetcycle gimmicks.

Establish responsible and sustainable practices. All state debt should be required to be issued with a level or declining debt service structure, be limited to a final maturity of 30 years or fewer and must begin to be repaid within one year. State debt should not be used solely to benefit private enterprise.

Give flexibility in times of emergency. The constitution’s emergency contingencies should be updated to account for potential crises, while establishing boundaries around such possible uses.

These recommendations should open the policy discussion on state debt. Restoring prudent debt practices is essential to improving the long-term sustainability of New York’s fiscal health, keeping debt costs down for taxpayers, and more effectively deploying the state’s resources to pay for its considerable infrastructure needs.