Like a shopper whose holiday spending maxed out the credit card, New York state is coming closer and closer to its borrowing limit — threatening our ability to pay for projects critical to transportation, economic development, education and other needs.
New York’s outstanding debt averages $3,253 per state resident, among the highest of any state in the country and more than twice the national average. This heavy debt burden and our high costs for paying off old debt make it harder for the state to balance its budget, and are factors in the state’s comparatively low credit rating.
In fiscal 2010-11, the state spent $6.6 billion to repay borrowing — and that figure is projected to be $900 million higher in the budget year that starts April 1. This means debt costs are consuming more than half the added revenue the state gained from tax changes enacted in December 2011.
More than a decade ago, worry over the growth of borrowing and related debt-service costs led the Legislature to enact the Debt Reform Act of 2000. The law limited future debt to 4 percent of personal income in the state.
But those reforms failed to curb New York’s addiction to debt. As of March 31, 2012, total state-funded debt outstanding was $63.3 billion, up from $39 billion 10 years earlier. And although the law imposed new limits on the use of debt for operational costs, it left exceptions. Our current debt burden includes $5.2 billion issued for non-capital purposes since the reform law took effect.
The Division of the Budget projects the state’s available borrowing capacity will decline to $509 million at the end of the next fiscal year. In the context of the billions that a large state such as New York needs to pay for capital investments, this is a troublingly small margin. And because the cap is linked to personal income, slower-than-expected income growth could restrict our remaining debt capacity even further.
At the same time, our need for new capital expenditures may grow more rapidly than now projected, as unexpected events, such as extreme weather disasters, impose unanticipated costs.
New York’s current five-year capital plan assumes spending of $9.7 billion this year and $34.3 billion in the next four years. But this doesn’t include any costs related to recovery from Hurricane Sandy or new storm-proofing.
In short, our declining capacity for new borrowing threatens to delay investments essential to New York’s economic growth, and to its residents’ well-being.
The state Constitution requires voter approval of state debt to ensure appropriate scrutiny of costs that pass along to the next generation. But in recent decades, Albany has increasingly avoided voter approval.
Instead, state-funded debt is issued through public authorities. This “backdoor borrowing” — which the 2000 law did not stop — reduces public scrutiny and contributes to an environment where debt is more likely to be used inappropriately.
If we want to truly resolve our over-reliance on debt, we need to reform the way we borrow for long-term capital needs. That means better planning for capital investments; a ban on backdoor borrowing and use of debt for non-capital purposes; a return to authorizing new debt via voter approval; and a much more effective debt cap that will protect future taxpayers. Only an amendment to the state Constitution can lock in these essential reforms.
In short, we must get control of the state’s credit card. It’s time to get serious about debt reform.
Thomas P. DiNapoli is the state comptroller.