State warned about deep debt
Comptroller’s prediction of 42% increase in next 5 years prompts call for reform
ALBANY—NEW York’s debt is expected to jump 42 percent over the next five years, an increase that potentially places the state on shaky financial ground and could unfairly burden taxpayers, according to a report issued Tuesday by the state comptroller’s office — a day before Gov. Kathy Hochul is expected to unveil her executive budget.
New York carries a significantly higher long-term debt load than other states, with the Empire Center for Public Policy estimating that the state’s tax burden — at $5,134 per capita — is more than double the national average. Higher state debt is typically associated with lower credit ratings, which impact interest rates and bond pricing.
Though the state has limits in place to guard against what Comptroller Thomas Dinapoli called the inappropriate practice of using more and more debt to fund operating expenses — instead of long-term capital projects that are ostensibly used for the benefit of all New Yorkers. Those limits have been circumvented over the years, he added.
Recent state budgets have been able to skirt the caps placed on debt limits made through the Debt Reform Act of 2000, Dinapoli said. Because of that, the state has found itself on a downward path with debt levels exceeding what New York can realistically afford and with debt service spending taking up a larger proportion of the operating budget.
The amount of debt spending has also rapidly increased. In the last two decades, statesupported debt service spending has increased nearly 45 percent.
But in just the next five years, it is projected to increase another 42 percent, or $2.5 billion. Funding, meanwhile, is unlikely to keep pace.
That translates to less flexibility in the operating budget, with fewer resources available for other priorities and programs such as school aid or health care, Dinapoli said.
Dinapoli pointed to the budgets from the last two fiscal years as an example of skirting statutory limits. According to the comptroller, debt issued during this time period was effectively written off through loopholes in the debt limit law, with fiscal projections overlooking nearly $18 billion in new debt.
“Increased projections of state debt levels, coupled with persistent concerns regarding the State’s capital planning process and its shortcomings for effectively prioritizing projects, give taxpayers good cause to be concerned,” Dinapoli said in the report, calling for a return to “prudent debt practices.”
Instead of solely relying on statutory limits that can be overriden by budget executives, Dinapoli suggested enforcement via a constitutional amendment that would include a binding cap on all current and future debt.
That amendment should also cap “backdoor borrowing,” which refers to the practice of dodging the constitutional prohibition on taking on debt without voter approval; lawmakers can thus raise billions by financing through public authorities instead. Backdoor borrowing accounts for nearly 97 percent of outstanding debt, according to the comptroller’s office. Under the proposed constitutional amendment, which would tie outstanding debt to 5 percent of the state personal income, public authorities would not be able to issue new debt for non-state purposes (with the exception of certain entities like the Metropolitan Transportation Authority).
Any changes to debt limits could only be changed by voter approval of a ballot measure under Dinapoli’s proposal.
That cap could be lifted in the case of emergencies such as terrorist attacks, or in response to any economic or public health emergencies, Dinapoli said, further suggesting that such a move would require strict time limits placed on repayment schedules.
While Dinapoli’s report pointed to this year as a prime opportunity for lawmakers to consider debt reform, the Legislature is unlikely to seriously heed Dinapoli’s suggestion to place limits to borrowing or spending, said E.J. Mcmahon of the Empire Center.
“But Dinapoli’s proposal isn’t pointless,” Mcmahon said in response to Dinapoli’s report. “At the very least, the comptroller has laid out a marker for active consideration when — not if — the state spends, taxes, and borrows its way into another serious fiscal crisis.”