DiNapoli offers a sound debt reform plan – By George J. Marlin

The following appears in the February 8-14, 2013 issue of the Long Island Business News:

Back in the 1840s, good-government groups concerned about New York’s rising state debt, persuaded delegates at the 1846 Constitutional Convention to support a plank that required popular approval of any proposed borrowing.

Since that time governors and legislators have concocted scores of financial schemes to evade that constitutional amendment and the will of the people.

The most creative Chief Executive was Nelson Rockefeller who served as governor for a record-breaking 14 years (1959-1973). Not to be hampered by the voters in implementing his grandiose plans for the redesign of N.Y.S., Rocky created over 200 public benefit agencies and authorities with the power to incur debt. These quasi-independent entities circumvented voter-approval and rang up $12 billion in debt during Rockefeller’s tenure.

This “back-door” borrowing, as it became known, was utilized by every one of Rockefeller’s successors. Governor George Pataki, who fraudulently claimed to be a fiscal conservative, increased such state-funded debt during his three terms in office from $28 billion to $51 billion. In the past decade, 95 percent of debt for state purposes has been issued by state agencies.

The state’s debt burden, which was $63 billion on April 30, 2012, is among the highest in the nation. At $3,253 per capital, it is 3 times the median of the 50 states; second to California and 80 percent higher than New Jersey, which comes in third place. As a result, N.Y. spends 5.4 percent of its annual budget (2 times the national median) paying down its debt. Only financially strapped Illinois pays a higher percentage.

The most egregious example of back-door borrowing was the state’s sale of Attica prison to the Urban Development Corporation in 1990. To procure a one-shot revenue to help balance his budget, then Governor Mario Cuomo leaned on the U.D.C. to issue $241 million in 30-year bonds to buy the prison facility. After the sale was completed, the U.D.C. leased the facility to the state. The lease payments have been used to pay principal and interest on the bonds.

As of March 31, 2012, $142.1 million of the Attica prison bonds are still outstanding and they will not be paid off until April 1, 2020. In other words, it will take two generations of taxpayers to pay off Mario Cuomo’s 1990 overspending.

To curtail abuses and to address New York’s shrinking debt capacity and its need to invest in the state’s crumbling transportation infrastructure, Comptroller Tom DiNapoli released in January a very sensible reform plan.

To make the state’s borrowing practices more transparent and accountable and its debt burden more affordable, DiNapoli has called for the following:

  • Constitutionally banning “Backdoor Borrowing” and returning control of state debt to voters: Voter approval that presently applies to state-issued General Obligation debt would be expanded to include state public authorities that issue bonds;
  • Constitutionally restricting the use of long-term debt to capital purposes: This provision would force Albany to live with its means by preventing long-term borrowing to balance current operating budgets;
  • Create an Infrastructure Council: This Council would prioritize capital infrastructure projects and develop a long-term strategic plan to guide the Capital plan.

Conservatives like me have been pleading for such reforms for years. And it is time they are taken seriously in Albany.

On this issue, I welcome Comptroller DiNapoli to the ranks of fiscal conservatism. Perhaps he has realized that some of the votes he had cast as a member of the state assembly supporting “back door” borrowing have been harmful to the state’s fiscal health.

One can only hope the Comptroller fights for debt reform and exhibits more staying power than Governor Andrew Cuomo who broke his no tax increase pledge last year when he signed into law legislation that raised state income taxes.

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