An expansion of “backdoor borrowing” in New York State's new budget raises transparency red flags, according to State Comptroller Thomas DiNapoli.

The $168.3 billion budget adopted in early April increases bond authorizations for state-supported debt from public authorities by $6.5 billion, a 21% jump from Gov. Andrew Cuomo’s initial spending proposal, DiNapoli's office wrote in a report released Friday. DiNapoli noted that new language in the budget authorizes the issuance of bonds for various purposes including programs for high-tech innovation and economic development infrastructure as well as economic development initiatives.

"Personal income tax collections are falling short of what was expected," says New York State Comptroller Tom DiNapoli.
“I am concerned that the budget expands public authority backdoor borrowing," says New York State Comptroller Thomas DiNapoli. Bloomberg News

“The enacted budget raises numerous concerns regarding transparency, accountability and oversight,” said DiNapoli in his report.

DiNapoli said the largest change from the executive budget proposal is a $398.5 million increase in borrowing authority for the State and Municipal Facilities Program, which is used by the Dormitory Authority of the State of New York to fund capital projects. He said the bond-financed program has been appropriated $2.4 billion since its inception five years ago with the new budget extending an already extensive list of entities authorized to receive funding to include nonprofit organizations, sanitation districts, special districts, regional transportation authorities and the New York City Health and Hospitals Corporation.

Morris Peters, a spokesman for Cuomo’s budget office, said in response to DiNapoli’s report that that the additional support for SAM is important so that the state has the necessary tools to respond to needs that pop up during the fiscal year. The budget includes a $475 million lump sum appropriation for the program.

“The budget includes the flexibility to react to needs that emerge during the fiscal year and every dollar of spending must meet the statutory and program requirements established within appropriation language and be subject to a rigorous agency review process,” said Peters in a statement. “The idea that we’d know exactly what the year will bring with no contingencies is simply unrealistic and a recipe for gridlock.”

DiNapoli’s budget review also stressed concerns that the state missed an opportunity to boost its fund balance in preparation for the next economic downturn. He noted that the state ended its 2018 fiscal year on March 31 with a general fund balance of $9.4 billion, a $1.7 billion increase from 2017 due largely to strong personal income tax collections late in the year, without a reserve boost.

“I am concerned that the budget expands public authority backdoor borrowing and fails to build up rainy day reserves,” said DiNapoli in a statement. “While revenues are currently strong, it’s important to monitor trends moving forward including the ongoing impact of federal tax and budget actions.”

DiNapoli said his office will provide a new analysis after the state’s Division of the Budget releases its enacted budget financial plan in coming weeks that includes details on updated out-year gap projections. New York State has general obligation bond ratings of Aa1 from Moody's Investors Service, and AA-plus from S&P Global Ratings, Fitch Ratings and Kroll Bond Rating Agency.

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