A financial oversight board would have the power to effectively prevent New York from issuing state-backed debt if the state’s budget isn’t balanced, under a plan proposed yesterday by Lieut. Gov. Richard Ravitch.
The potential limitation on borrowing was an integral component of Ravitch’s plan that is intended to overhaul the state’s budget process and return the budget to structural balance within five years.
“If we don’t get this budget in true structural balance, we’re not going to have the opportunity to reinvest in the growth and the future of this state,” Ravitch said to reporters in Albany. “The course we’re on is not sustainable and will not be sustained.”
Ravitch was scheduled to meet with legislative conferences yesterday afternoon to discuss the measures he said would address the cumulative $60 billion deficit the state faces over the next five years as projected expenditure growth outpaces revenue growth.
The lieutenant governor called for the creation of a five-member financial review board that would determine whether budget proposals were balanced and that would review budget results quarterly.
In addition to proposing a one-year budget, the governor would put forward a five-year plan to address projected out-year deficits. If the review board determined that the budget was not projected to be in balance by the end of the current fiscal year, or that it would not be in balance by the end of the fifth year of the plan, the board would give the governor and Legislature 15 days to address it. If they failed to do so, the governor would be given extraordinary powers to make cuts necessary to return to balance.
One of the more controversial measures would permit the state to sell up to $6 billion of “transition bonds” for deficit borrowing over the next three years while the state shifts to structural balance.
Ravitch said that a “limited amount” of borrowing may be necessary because he didn’t think it was politically possible for the state to close its $9.2 billion budget deficit.
The bonds would be issued on the state’s personal income tax credit. New York would covenant in future bond documents that it would not issue additional state-backed debt unless the financial review board determined in the preceding fiscal quarter that the budget was in balance and adequate progress was being made toward achieving structural balance under the five-year plan.
It wasn’t clear yesterday whether the proposed covenants would apply to all future state-backed debt or just bonds issued during the five-year period.
Comptroller Thomas DiNapoli criticized the deficit borrowing piece of the plan.
“Lieut. Gov. Ravitch is right to focus on the state’s fiscal mess,” DiNapoli said in a statement. “Our debt costs are already skyrocketing — debt service is one of the fastest growing categories of state spending. More debt would become part of the problem, not the solution.”
Some states that have turned to deficit borrowing in the past are turning to it now, Moody’s Investors Service analyst Emily Raimes said.
“It’s generally not viewed as a great solution to budget problems, and for most of our higher-rated states it’s not something they typically do, but we do view it as one of the tools that states have to use in downturns,” Raimes said.
Other parts of Ravitch’s proposal include: shifting the beginning of the fiscal year to July 1 from April 1; using generally accepted accounting principles instead of the current cash basis method; and building up the state’s budget reserves.
It wasn’t clear yesterday what kind of support Ravitch would get from the Legislature. When asked if he had any indication that the lawmakers would be amenable, he told reporters “No,” adding, “I’m on my way to meet each of the four conferences now.”