New York, the public authorities leviathan – By George J. Marlin

The following appears in the January 2-8 2015 issue of the Long Island Business News:

During his 14 years as governor of New York (1959-1973), Nelson Rockefeller created 230 agencies and authorities and incurred $12 billion in debt to fund his grandiose plans for the Empire State. Since the end of his reign, governors and local magistrates have continued to increase the number of these entities and to pile up debt.

Today there are 325 state authorities and 847 local ones. Collectively they have incurred more than $250 billion in debt, spend $60 billion annually and employ 150,000 people with a payroll that totals $10 billion.

In a report released Dec. 23, 2014, state Comptroller Tom DiNapoli cast a light on these shadow governments: “Public authorities borrow and spend billions of dollars outside the state budget,” he said. “And from Buffalo to Brookhaven, New Yorkers foot the bill.”

DiNapoli pointed out that most of the state authorities serve as vehicles to circumvent voter approval of general obligation bonds. This financial gimmick is commonly known as “backdoor borrowing.” In other words, a given agency issues debt to finance a gubernatorial-approved capital project for which the state is bound to appropriate funds annually in its budget to cover principal and interest payments on the agency-bonded debt.

Backdoor borrowing, the report pointed out, “eliminates the opportunity for voters to have input on major borrowing decisions that affect them financially; transferring control to public authority boards [appointed by the governor] and thus further limiting accountability and transparency.”

And, as a result of this financial chicanery, as of March 31, 2014, just about 95 percent of all state-funded debt was issued by public authorities.

The governor also uses the authorities to procure one-shot revenues to balance the executive budget. The 2014-2015 enacted budget projects $265 million in transfers from public authorities. This tactic, DiNapoli observed, “obscures the state’s overall spending levels and spending growth, and diminishes oversight.”

The New York Power Authority is an example of an agency that has been a willing participant in this executive budget balancing act. Instead of using surplus dollars to lower customer electrical rates or to pay down debt, the power authority has gifted hundreds of millions to Albany’s coffers over the years.

One particularly egregious state policy imposed on public authorities since 1989 is the bond issuance charge. Almost every state agency where at least three board members are appointed by the governor must pay, for lack of a better term, a tax every time it issues bonded debt.

Here’s how it works: When the Metropolitan Transportation Authority goes to the bond market to raise, say, $500 million to pay for Long Island Rail Road infrastructure improvements, a portion of the borrowed proceeds are handed over to the state. And who gets stuck paying back this borrowed money? Commuters. In state fiscal year 2013-2014, Albany received $106.9 million in such gifts from 20 different agencies. The MTA’s share was $21.3 million.

Then there is the waste, fraud and abuse in varying degrees. Audits by the comptroller of the MTA, which employs more workers than any private-sector company in the state, uncovered a “culture of entitlement.” Inaction by the authority and lax payroll controls resulted in six employees being paid $991,000 for excessive overtime and $216,000 for hours not actually worked.

Also, an auditor reviewing the MTA’s management of cash and investments discovered that record-keepers failed to recognize that the Empire State Development Corp. owed $68.2 million.

New York’s public authorities represent a huge part of our government. And with the state’s growing reliance on them for fiscal and programmatic assistance, DiNapoli rightly concluded there is a “need for greater transparency, increased board accountability and a keener understanding of authority operations by policymakers and the public.”

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