We're in a New York State of Mind -- Debt that is...
When even the New York Times see the handwriting on the wall, you know it's serious...
Debt Is Soaring in Spite of Law, Hevesi Reports
By MICHAEL COOPER
LBANY, Feb. 1 - For decades, New York State officials in both parties have favored a borrow-and-spend approach to government. It has some clear advantages: by foisting some of the state's skyrocketing expenses onto future taxpayers, it spares current taxpayers, who tend to remember things like tax increases around election time.
But that approach has left New York one of the most heavily indebted states in the nation, and on Tuesday, a state report painted an alarming picture of how bad the situation has become: the state's debt has grown to $46.9 billion in 2004 from $14.4 billion in 1990, a level that at $2,420 of debt for every man, woman and child in the state, is more than two and a half times the national average.
The debt has ballooned as the state's leaders have proven adept at circumventing the New York Constitution's requirement that voters approve state borrowing, and as the leaders have used their powers to borrow even during the flush days of the late 1990's.
In 2000, Gov. George E. Pataki and the State Legislature passed a law that was supposed to rein in the rampant borrowing. But State Comptroller Alan G. Hevesi said in a report issued here on Tuesday that state borrowing has only accelerated since then, as the state's leaders exploited new loopholes to borrow even more money.
Since the passage of that law, called the Debt Reform Act of 2000, the state has gone $12.2 billion deeper into debt, the comptroller found. And the new borrowing was in line with a disturbing trend in New York's finances: the state is increasingly borrowing to pay for short-term operating expenses instead of using it to pay for needed long-term capital projects, forcing future taxpayers to pay for services provided in the past.
Read the entire disturbing story here. We'll post a link to Hevesi's report ASAP.
UPDATE: Comptroller Hevesi's press release, Hevesi Proposes Sweeping Debt Reform, Including Constitutional Amendment, New York’s Use Of Debt Still Out Of Control, is available here. And the Comptroller's report, New York Debt Policy - A Need for Reform, Feb. 2005, is available as PDF, here.
According to the press release, the report's key findings include:
Total debt. State debt has grown from $14.4 billion in 1990 to $46.9 billion in 2004 and an estimated $49 billion in 2005.
- Back-door borrowing. Voter-approved debt has decreased from 40 percent of the State’s debt portfolio in 1985 to eight percent today. Under the State’s constitution, all general obligation borrowing is supposed to be approved by voters.
- Public Authority Debt. Most State funded debt is issued through authorities, $43 billion of the $46.9 billion. In addition, public authorities have another $70 billion of debt that is not supported by State revenues.
- Debt per capita. New York ranks second highest in state and local debt per capita after Alaska, a state that benefits from its huge oil reserves.
- Loopholes in 2000 reform. Because the Debt Reform Act of 2000 was riddled with loopholes, New York State has actually issued debt at a faster rate since the Act’s passage than it did before.
- Since 2000, State debt has grown by $12.2 billion, bringing total State debt to an estimated $49 billion in 2005 from $36.8 billion in 1999-2000.
- The Act set a goal of limiting debt to four percent of personal income, but since the law passed debt has actually increased from six percent to 6.5 percent of personal income. That’s because the Act does not count towards its limit all debt issued before 2000 and still outstanding and most of the debt issued since then.
- Debt not counted in limits. Of the $12.2 billion issued since 2000, $7.7 billion is not counted as State debt, even though it is a State obligation: $4.6 billion tobacco borrowing, $2.6 billion to stretch out debt of New York City’s Municipal Assistance Corp., and $500 million to finance payments to 19 school districts for old claims. This debt represents 16 percent of the State’s $49 billion in outstanding debt.
- Debt for operating costs. The 2000 Act properly mandated no borrowing for operating expenses. Despite that, the same $7.7 billion was borrowed to pay for operating expenses for the State, New York City and 19 school districts.
- Borrowing in good times. Between 1996 and 2001, the State had annual surpluses of between $450 million and $3 billion. Instead of using those surpluses to reduce debt, the State actually increased borrowing. During that time, outstanding debt increased an average of 5.1 percent a year, while State spending increased an average of 4.4 percent a year.
- Borrowing for legislative initiatives. The State separately authorized $2.8 billion for member items and local economic development from fiscal 1997 through fiscal 2005. These projects may be worthwhile and some are for local capital projects, but they do not create state-owned capital assets and should be paid for without borrowing, especially when the State has a surplus.
- Pay-as-you-go. New York slashed its pay-as-you-go cash support to the capital program by almost half from 1994 to 2004, a period during which the state often had surpluses.
- Bond rating. New York has the second-lowest bond rating in the nation, according to Moody’s.
The sale of Attica prison is a case study in the irresponsible use of debt. The State borrowed $200 million to sell the prison to itself in 1990 and used the funds for operating expenses. Since 1990, the State has paid $242 million in debt service on the Attica debt, but due to refinancings, it still owes $323 million in principal and interest. So the total cost of providing $200 million in one-shot budget relief in 1990 will be at least $565 million, assuming the debt is not refinanced again.
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