NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A10116
SPONSOR: Weinstein TITLE OF BILL: CONCURRENT RESOLUTION OF THE SENATE AND ASSEMBLY
proposing amendments to article 7 of the constitution, in relation to
authorization of debt to respond to acts of terrorism, a limit on the
total amount of state-funded debt, and the refunding of state debts
PURPOSE:
This proposed constitutional amendment prohibits "back-door borrowing,"
limits total State-Funded debt to no more than 5% of total personal
income in the State and adds an act of terrorism to the list of purposes
for which debt may be incurred on an emergency basis.
SUMMARY OF PROVISIONS:
Section 1 of the resolution proposes an amendment to section 10 of arti-
cle 7 of the Constitution to add an act of terrorism, to the existing
list of purposes for which debt may be incurred on an emergency basis.
Section 2 eliminates "back-door borrowing" and, effective with State
fiscal year 2028-2029, establishes a cap on the total outstanding prin-
cipal amount of State-Funded debt that would be equivalent to 5% of the
total personal income in the State. Except for short-term revenue antic-
ipation 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 debt outstanding is
equal to or below the 5% cap. To eliminate "back-door borrowing," this
section defines State-Funded 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, munici-
pality, individual, public authority or 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 prohi-
bition 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.
Annual borrowing in the combined aggregate amount of one-half of one
percent of the annual total of All Governmental Funds tax receipts would
be permitted without voter approval, but only if the total outstanding
principal amount of State-Funded debt resulting from such an issue would
not exceed the 5 percent cap.
The amendment requires that, with the exception of refundings and short
term notes and emergency borrowing permitted by sections 13, 9 and 10 of
Article 7, respectively, all future State -Funded debt will be permitted
only for capital purposes. All new State-Funded 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 Arti-
cle 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 on debt secured with
a pledge of specific state revenues, 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.
PRIOR LEGISLATIVE HISTORY:
A.7288 (Farrell) 2017
A.10265 (Farrell) 2015-2016
JUSTIFICATION:
Contravening the spirit of the State Constitution, the State relies
heavily on borrowing by public authorities on its behalf. Unlike State
general obligation borrowing, issuance of public authority debt does not
require the approval of voters. Such "backdoor borrowing" now comprises
the great majority of the debt that has been issued to finance the
State's capital spending. Less than 5 percent of the current State-Fund-
ed debt burden received voter approval. Reliance on non-voter-approved
borrowing has become the rule, rather than the exception.
The Debt Reform Act of 2000 defined State-Supported debt and, in an
effort to control the growth of State debt, imposed limits on outstand-
ing State-Supported debt and annual debt service associated with such
borrowing. However, these provisions have not adequately restrained
questionable borrowing practices or the growth in State debt due to the
fact that, since the Debt Reform Act was passed, its provisions have
been circumvented on numerous occasions. This has had the effect of
masking the State's true debt burden.
According to Moody's Investors Service, New York's debt burden is among
the highest in the nation. In 2016, New York State was the second most-
indebted state behind California and had nearly twice as much debt as
the third most-indebted state, New Jersey. New York also ranked fifth
among all states in debt per person, with a per capita debt burden of
$3,070. The State's borrowing practices must be made more transparent
and accountable, and its debt burden more affordable.
The SFY 2017-2018 Enacted Budget contained no new borrowing proposals
requiring voter approval, but instead , continues to rely heavily upon
backdoor borrowing by public authorities. As of March 31, 2017, approxi-
mately 96 percent of State-Funded debt outstanding had been issued by
public authorities without voter approval. Reforms proposed in this
legislation will eliminate backdoor borrowing by public authorities by
having the State Comptroller issue all State debt.
This legislation would constitutionally ban "backdoor borrowing" on
behalf of the State by public authorities. All new State debt would
require approval by the Legislature and voters, with limited exceptions,
before being issued by the State Comptroller, with the same legal
protections and controls that apply to General Obligation debt. Existing
exceptions would be preserved (to repel invasion, suppress insurrection,
defend the State in war, and to suppress forest fires, as well as
certain short-term borrowing), with a new exception added to respond to
acts of terrorism.
In addition, approved annual issuances of up to 0.5 percent of All Funds
tax receipts would be allowed without voter approval to meet critical
capital needs. (Such a figure would equate to approximately $373.4
million as of SFY 2015-16, reflecting 12.2 percent of actual State-Sup-
ported debt issuances in that year.) Also, to facilitate improved plan-
ning and appropriate use of borrowing for capital investments, authori-
zation would be provided to allow multiple bond acts to be presented to
voters at the same time.
The 2000 Debt Reform Act defines debt too narrowly, and new financing
programs have circumvented the statutory definition and thus, the estab-
lished limits and restrictions on such debt. State-Supported debt is
narrowly defined in the State Finance Law to include the State's voter-
approved General Obligation bonds and certain public authority
debt.issued on behalf of the State.
The Office of the State Comptroller uses a more comprehensive measure of
the State's debt burden to identify all State-Funded debt. This includes
State-Supported debt as well as other debt supported by any financing
arrangement whereby the State agrees to make payments with State
resources, directly or indirectly, to a public authority, bank trustee
or municipal issuer to enable them to make payments on debt issued for
State purposes.
Examples of State-Funded debt that are not included in the statutory
definition of State-Supported debt include bonds issued by the Tobacco
Settlement Financing Corporation, backed by revenues from the 1998
Master Settlement Agreement with major. tobacco manufacturers, and
borrowing in recent years by the Dormitory Authority of the State of New
York to fund construction of State University of New York dormitories.
The debt counted under the statutory cap on State-Supported debt
outstanding does not include all borrowing funded with State resources,
due to the narrowly constructed definition of State-Supported debt. The
Debt Reform Act excluded from its caps all debt that was outstanding at
the time of enactment. As of March 31, 2017, this debt totaled $ 8
billion. Debt outstanding that has been authorized since 2000 but does
not fall within the narrow definition of State-Supported debt, as well
as other existing debt not subject to these caps, but whose repayment
comes from State resources, totaled $11.7 billion as of March 31, 2017.
Debt not subject to the statutory cap (including Other State-Supported
Debt, and Other State-Funded Debt) comprises nearly one-third of the
$61.4 billion in State-Funded debt outstanding as of March 31, 2017.
Certain of these new debt authorizations also circumvented the provision
of the Act that limits the issuance of debt to capital purposes. As a
result, approximately $7.6 billion has been issued for non-capital
purposes since 2000. As of March 31, 2017, almost 7.5 percent of the
State's debt outstanding was for non-capital purposes.
This Constitutional Amendment would establish a more comprehensive and
effective cap on New York's debt outstanding to limit all State-Funded
debt to 5.0 percent of personal income in the State. It would also
restrict the use of long-term State-Funded debt to capital purposes (as
is currently provided in State law), with limited exceptions. The debt
cap and the restriction on the use of debt would help New York more
effectively rein in its debt load and avoid questionable borrowing prac-
tices.
A legislative proposal accompanying this Constitutional Amendment recom-
mends certain statutory amendments to require a plan be submitted with
the Executive Budget for SFY 20192020 setting forth target percentages
and the methodology for achieving compliance with the new debt cap by
its effective date of April 1, 2028. Each Executive Budget thereafter
would be required to contain a progress report with respect to meeting
the target percentages, an explanation of any deviations from target
percentages, and proposed remedial actions deemed necessary to comply
with the new debt cap by the effective date.
The New York State Comptroller respectfully urges passage of this
concurrent resolution to amend the New York State Constitution.
