In a new report out this week, New York State Comptroller Thomas DiNapoli paints a grim picture of New York State’s profligate and irresponsible borrowing, much of it to fund operating expenses in direct violation of a debt cap law passed in 2000. DiNapoli reports that the State government routinely circumvents voter approval with so-called “Backdoor borrowing” gimmicks, a practice that has become so commonplace that authority debt accounts for 94 percent of the State’s current debt burden. The state’s ratio of debt service to total revenue is surpassed only by California and Illinois among populous states.
To understand why such borrowing is just another form of tax increase see Ricardian equivalence: “In simple terms, the theory can be described as follows. Governments may either finance their spending by taxing current taxpayers or by borrowing money by issuing bonds. In the latter case, they must eventually repay this borrowing by raising taxes in the future above what they would otherwise have been. The choice is therefore between “tax now” and “tax later”.”
DiNapoli’s Debt Impact Study begins:
New York State has relied far too heavily on debt for far too long. Ten years after enacting legislation to slow the growth in borrowing and end the use of debt for fiscal gimmicks, New York continues to rely heavily on debt. As a result, true debt reform is needed now more than ever. Despite attempted reforms, the State’s debt practices remain flawed:
- Since debt reform was enacted in 2000, our debt burden has grown rapidly and voters have approved almost none of the debt issued since then.
- A significant portion of the debt issued since 2000 has been for non-capital purposes.
- New York’s debt burden is among the highest of any state. ␣ Authority-issued debt lacks transparency and accountability in material ways.
- Capital planning is deficient.
- Over the past five years, State-Funded Debt grew by 24.6 percent, increasing from $48.5 billion in State Fiscal Year (SFY) 2005-06 to an estimated $60.4 billion in SFY 2009-10. This is projected to rise to $67 billion in SFY 2014-15, an increase of $18.6 billion, or 38 percent, over the ten years.
- New York’s Debt Cap Is Fundamentally Flawed. Aggressive borrowing has led to a high relative debt burden for New York, compared to the ten other most populous states. New York is third in the ratio of debt service to total revenue, surpassed by California and Illinois. On debt per capita, New York is second to New Jersey and three times the median of peer states.
- The Debt Reform Act of 2000 purported to limit new debt supported by the State but narrowly defined the debt subject to the cap. As a result, the cap covers only about 60 percent of the $60.4 billion of debt funded with State resources.
- New York’s current debt portfolio includes nearly $9.8 billion in bonds used to finance operating expenses and deficits, 16.2 percent of all State-Funded debt.
- New York State uses borrowing by public authorities to finance a large portion of the State’s Capital Plan. “Backdoor borrowing” circumvents voter approval and has become so commonplace that authority debt accounts for 94 percent of the State’s current debt burden, compared to only 60 percent in 1985.
Read the entire report here.
h/t Tony Aiello