In the past five years, debt issuance by state and local authorities in New York has risen by 23%, state comptroller Thomas DiNapoli said.
Total debt outstanding at state and local public entities hit more than $329 billion, an increase of $61.5 billion since 2017, according to the report issued Wednesday.
“Many of New York’s public authorities play a major role in state operations, but far too often they function without adequate public scrutiny,” said DiNapoli.
In New York, public authorities are responsible for many tasks, such as transportation, energy, environmental protection, housing and economic development.
The state uses its authorities for revenue to supplement state spending, which makes it easier to balance the budget and avoid possible spending cuts or tax hikes.
As of July, there were 1,178 public authorities in New York, including 876 local, 294 state and eight interstate or international authorities.
Public authorities are not usually subject to the oversight and transparency requirements that apply to other government agencies, or the same types of controls over their contracting practices and day-to-day operations, the report noted.
“My office issues this periodic report on public authorities to shine a light on their finances and operations. However, as my audits have shown, New York’s public authorities must do more to improve their transparency and accountability to the public and demonstrate they are operating effectively and efficiently,” DiNapoli said.
While state and local public authorities reported 55.7%, or $183.3 billion, of the debt it sold over the period were revenue bonds issued for authority purposes, 20.7%, or $68 billion, was issued for state purposes.
The report said most of this borrowing was done by three authorities: the Empire State Development Corp., the Dormitory Authority of the State of New York and the New York State Thruway Authority.
“By borrowing through public authorities, the state bypasses the voter approval process and diminishes transparency, accountability and oversight,” DiNapli’s report said. “The state has increasingly used public authorities for borrowing: As of March 31, 2022, public authorities had issued approximately 97.2% of all state-funded debt outstanding.”
The comptroller has issued several audits of public authorities this year, which showed lax contracting processes, improper payments, loose controls and inadequate oversight.
The report also noted, in the past, the state Division of Budget has changed its definitions of debt to circumvent counting any new bond issuance under a statutory limit imposed on state-supported debt.
“For example, DOB does not consider the $2.35 billion loan from the federal government for the Gateway Program to be state-supported debt; however, it meets all the criteria for state-supported debt,” the report said. “It is debt issued by the state for a capital purpose and contractually obligates the state for repayment through a service contract mechanism subject to legislative appropriation.”
By defining the loan as state-related debt, rather than state-supported debt, DOB has excluded it from counting it under the debt cap in the state’s fiscal 2022-23 capital and financing plan, the report said.
In a report issued Monday, the Citizens Budget Commission said the main flaw with the state’s debt cap is it can be circumvented through legislation.
“During the pandemic, the state exempted billions of dollars in new borrowing that should have been subject to the cap,” the CBC said. “This was a pandemic-induced debt and cash management decision that added billions in outstanding debt and increased out-year debt service costs. Prior to the pandemic, the state had $51.8 billion in outstanding debt subject to the cap, comfortably within the cap of $55.5 billion.”
However, the fiscal 2021 budget created exemptions that let the state issue debt for non-capital purposes outside of the cap, the report said.
“Now the state holds roughly $19 billion in additional uncapped outstanding debt plus future uncapped debt service costs. By fiscal year 2027, state-supported debt will stand at $88 billion, considerably higher than the $71 billion expected prior to the debt cap exemptions,” the report noted.
The CBC also said the existing cap exempts some types of debt backed directly by the state. Specifically, about $30 million of state-guaranteed debt is not subject to the cap despite being issued by the state with its full faith and credit.
“For the cap to be more effective, it should be broadened to include all debt to be repaid from state resources — except limited exceptions for debt issued in an emergency — and codified in the Constitution,” the CBC said.
DiNapoli urged the state Legislature to discontinue its reliance on the so-called “backdoor borrowing” and the use of debt gimmicks, eliminate the use of lump-sum appropriations, and improve transparency and fiscal discipline.
New York State and its local governments ranked number one for bond issuance so far this year.
As of Nov. 30, the state, New York City and their authorities as well as local municipalities and local government entities issued about $46.56 billion of debt, up 7.6% from the $43.26 billion issued in the same period last year.