Citing significant new debt obligations incurred by the state Legislature in the 2005-06 fiscal year,a new report from the state Comptroller's office warns that state-funded debt is expected to grow by one-third to nearly $65 billion over the next five years.
In a separate report, the Comptroller said an evaluation of new financial plans that New York's 62 cities are required to prepare suggests that many of them face significant property-tax increases in the immediate future.
The December 20 report on debt said that the massive new state-funded debt issued over the last 12 years will play a significant role in budget development during the new administration. "Debt service alone in 2011 will grow to more than $7 billion from $4.3 billion this year," the Comptroller's release said.
The Legislature last year created as much as $9.4 billion in new debt that is not counted in the debt limits established in the Debt Reform Act of 2000, Hevesi said.
"Even more troubling than the amount of debt is the $9.4 billion debt the legislature authorized to circumvent the debt limits in law, showing that the commitment to real reform of borrowing practices remains nonexistent," Hevesi said.
"This isn’t the first time we’ve seen this kind of debt, but I hope it’s the last. This shows that the need for strong reform that curbs the growth of debt is more crucial than ever."
The study analyzes New York’s debt using three measures of debt affordability: debt per capita, debt as a percent of personal income, and debt service as a percentage of state all-funds revenue. These measures suggest that debt will become significantly less affordable over the next four years based on current trends, the report said.
The study also showed that:
- Total state-funded debt grew by $11.5 billion or 31 percent since SFY 2001 for an average annual growth rate of 7.8 percent.
- Debt per capita has grown nearly 30 percent from $1,944 to $2,517 during the same period.
- Compared to its peers, New York has the second highest total debt behind California.
- New York is second behind New Jersey in debt as a percentage of personal income, twice the median compared to both the nation and the 10 largest states.
- Debt as a percent of personal income is projected to grow from 6.5 percent in 2006 to 6.7 percent in 2011. The national median debt as a percent of personal income is 2.5.
- New York is second to New Jersey in debt per capita, nearly three times the peer group of large states. Debt per capita is projected to rise 30 percent, from $2,517 in 2006 to $3,297 in 2011. Debt per capita was $1,944 in 2001.
- New York is currently more than one and a half times the median of the peer group, and one and a quarter times the national median, in debt service as a percentage of all funds receipts. Debt service as a percentage of these receipts is projected to grow from 4.4 percent in 2006 to 5.6 percent in 2011.
“Debt is essential for capital construction, but taxpayers will be paying for this debt for many years to come on the more than $9 billion the state has borrowed for operating expenses and deficit financing,” Hevesi said. “Every dollar we spend on debt service is one less dollar available for all the other critical services the State provides to taxpayers. It is especially troubling when the State’s debt capacity is eroded by borrowing for operating expenses.”
In a December 19 report, the comptroller said that many New York State cities "are facing very difficult fiscal problems, and if current trends continue, even more of our cities are likely to experience severe fiscal stress. In difficult times such as these it is essential that cities plan ahead."
The report is based on an examination of 48 financial plans that New York's 62 cities were required to prepare as a condition of last year's increase in state aid to cities.
Overall findings of the 48 cities analyzed (excluding New York City) include:
- New York's cities are projecting average budget gaps of 5.2 percent in 2007, with those gaps expected to swell to 9.8 percent by 2009. Ten cities are projecting serious gaps of more than 10 percent.
- The median plan projected total revenue growth of 3.4 percent per year from 2006 to 2009 compared to annual average growth of 3.6 percent from 1999 to 2004. In contrast, the more conservative plans estimated revenues at only 2.4 percent growth annually.
- Total expenditures are projected to increase an average of 4.1 percent annually from 2006 to 2009, compared to 4.1 percent per year from 1999 to 2004. Personal services costs, which account for nearly half of city operational expenses, were projected to grow by 3.3 percent annually for the next three years compared to average annual growth of 2.9 percent from 1999 to 2004. Employee benefit costs were projected to grow 7.4 percent from 2006 to 2009 compared to almost 12 percent growth from 1999 to 2004.
- Median property tax growth was projected at 4.2 percent annually. Five cities projected rate increases of more than 10 percent.
- The median city estimate for state aid was annual growth of 1.9 percent from 2006 to 2009, which is lower than the 3 percent annual growth from 1999 to 2004. More conservative plans estimated no growth in state aid.
- Reserve funds were projected to remain stable, but those cities with more conservative estimates showed a decline from 7.4 percent in 2006 to zero in 2009 as the size of their budget gaps increased.
For a release on the report on debt, with a link to the full report, visit www.osc.state.ny.us/press/releases/dec06/122006a.htm. For a release on the report on cities' financial reports, with a link to the full Comptroller's report, visit www.osc.state.ny.us/press/releases/dec06/121906.htm.