NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
 
BILL NUMBER: A7907
SPONSOR: Farrell
 
TITLE OF BILL: CONCURRENT RESOLUTION OF THE SENATE AND ASSEMBLY
proposing amendments to article 7 of the constitution, in relation to
authorization of debt in times of public emergency, a limit on the total
amount of state-funded debt, the refunding of state debts, providing for
the use of conference committees, consensus forecasting and the
submission of a capital program and financing plan
 
PURPOSE: This proposed constitutional amendment allows for emergency
borrowing in times of public emergency, prohibits "back-door borrowing,"
and limits total State debt to no more than 5% of total personal income
in the State.
 
SUMMARY OF PROVISIONS: Section 1 of the resolution proposes an amend-
ment of section 10 of article 7 of the Constitution to add disasters,
including those caused by acts of terrorism, to the existing list of
purposes for which debt may be incurred on an emergency basis. Emergency
borrowing would, however, require the approval of the Governor, the
Comptroller, and a majority of the Senate and a majority of the Assem-
bly. The amendment prescribes a procedure for the Governor to propose
emergency borrowing and for the Comptroller, and the Senate and the
Assembly to give their approval or disapproval.
Section 2 eliminates "back-door borrowing' and, effective with State
fiscal year 2021, establishes a cap on the total outstanding principal
amount of State debt that would be equivalent to 5% of the total
personal income in the State. Except for short-term revenue anticipation
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 the debt falls below the 5%
cap. To eliminate "back-door borrowing," this section defines State debt
to include debt supported by any financing. arrangement whereby the
State agrees to make payments which will be used, directly or indirect-
ly, 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, municipality, individual, 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 prohibition 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 trans-
ferred 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.
Bond issuances in the aggregate amount of $250 million a year, would be
permitted without voter approval, but only if the total outstanding
principal amount of State debt resulting from such an issue would not
exceed the 5% cap.
The amendment requires that, with the exception of refundings and short
term notes and emergency borrowing permitted by sections 9 and 10 of
Article 7, respectively, all future State debt will be permitted only
for capital purposes. All new 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, the State Comp-
troller 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.
Section 4 of the resolution adds a section 1-a to Article 7 of the
Constitution which states that within ten days following the submission
of the budget by the governor pursuant to this article, such bills shall
be referred to a joint budget conference committee to consider and
reconcile such budget resolution or budget bills as may be passed by
each house. The temporary president of the senate and the speaker of the
assembly shall jointly convene such joint budget conference committee.
Such conference committee meetings shall be required to meet and shall
be open to the public.
Section 5 of the resolution adds a section 1-b to Article 7 of the
Constitution to require the comptroller to certify that the resources
used to finance the final budget acted upon by the legislature conform
to the resources projected in the binding consensus report on receipts
and other available resources.
Section 6 of the resolution proposes an amendment of section 2 of Arti-
cle 7 of the Constitution to require annual submission of a detailed
multi-year capital program and financing by the Governor.
 
STATEMENT IN SUPPORT: Debt reform is one of the most important chal-
lenges facing New York State. The future of the State's finances depends
in large measure on its ability to manage debt in a way that is disci-
plined and effective. Debt reform must impose meaningful caps to ensure
that future debt is affordable.
Since 1990, outstanding debt has grown from $14.4 billion to $60.5
billion in 2010, representing a 320 percent increase. The State's use of
pay-as-you-go (PAYGO) financing for State funded capital spending has
declined, even during times of unprecedented surplus, replaced with an
increased dependence on debt.
Furthermore, New Yorkers bear one of the highest debt burdens in the
country. New York is ranked second only to California in total debt
outstanding. According to Moody's 2010 State Debt Medians, New York is
fifth highest in debt per capita behind Connecticut, Massachusetts,
Hawaii and New Jersey. New York's $3,105 debt per capita is more than
double the national average of $1,297.
This proposed constitutional amendment establishes strict limits on
debt. All financing arrangements in which the State agrees, even indi-
rectly, to make payments on indebtedness incurred by the State or by a
municipality, public authority or private corporation or other entity on
behalf of the State would be subject to a cap equal to 5% of total
personal income of the State, beginning in 2021.
"Back-door borrowing", or borrowing outside of constitutional stric-
tures, has been used by New York State to circumvent the requirement for
public referendum. As of March 31, 2010, "back-door borrowing" accounted
for approximately 94 percent of the $60.5 billion in outstanding State-
funded obligations. Only $3.4 billion was approved by the State's voters
and issued as General Obligation debt. This proposed constitutional
amendment restores accountability and transparency to the decision to
incur State debt by requiring voter approval of most future debt, there-
by insuring that the decision to obligate future generations of New
Yorkers will be subject to full public debate.
New York State's capital spending on transportation, mental hygiene
facilities, State park improvements, State housing programs and other
programs is expected to exceed $10 billion in State fiscal year 2010-11,
with 49 percent of that amount financed through debt issued by public
authorities on behalf of the State. When this proposed amendment is in
place, New York State will likely support its capital plan with a combi-
nation of General Obligation or revenue debt issued by the Comptroller
or "pay-as-you-go" dollars appropriated in the State budget. A total of
$250 million in debt could be issued annually without voter approval.
Any additional debt issuance would be required to be approved by the
State's voters.
There is a suitable time and an inappropriate time to utilize debt.
This amendment would promote the appropriate use of State debt by
capping its levels, closing loopholes in the existing statutes and
restoring the accountability and transparency associated 'with the
requirement for public referenda on the issuance of debt.
This proposal also requires the joint committees to meet publicly to
negotiate the budget, allowing enhanced public discussion and oversight.
These conference committee meetings would provide the needed structure
for open budget deliberations, give a greater voice to individual legis-
lators and improve public awareness of fiscal decisions that affect New
Yorkers.
Additionally, current State law requires the Executive and Legislature
to agree on a revenue forecast by March 1 to provide a framework for the
upcoming budget. Absent agreement, the Comptroller is directed to
provide a forecast by March 5. However, this process covers only tax
revenues, certain miscellaneous receipts and Lottery revenue, not all
resources available to the State. In addition, the final revenue fore-
cast in no way limits the level of spending in the Enacted Budget.
To close these loopholes, this proposal requires the Legislature and
Executive to reach a consensus on all revenues and other resources
available for spending (including bond proceeds, spending re-estimates
and close-out balances from the prior fiscal year). The State Comp-
troller would be required to review and comment on this forecast. If
agreement is not reached by March 1, the State Comptroller would provide
the forecast. The established forecast would be binding. By limiting
spending to available means, this reform would impose the overall budg-
etary discipline that has long been absent in New York State.
Finally, this proposal requires the submission of a detailed multi-year
capital plan. Such a plan on the States capital needs is a prerequisite
for a responsible State Debt policy. A detailed multi-year capital plan
prepared by the Governor would provide valuable information about
proposed capital projects and the sources froth Which they would be
funded.
The New York State Comptroller respectfully urges passage of this
concurrent resolution to amend the New York State Constitution.