New York's first late budget in seven years will not impact the state's bond payments, according to Moody's Investors Service.
Moody's analyst Marcia Van Wagner wrote in a report Tuesday that the New York State legislature took steps to assure that general obligation and appropriation debt service payments are not a casualty of the overdue fiscal plan that missed an April 1 deadline. State lawmakers passed a bill on March 30 that appropriates funds for all state-sponsored appropriation-dependent debt that includes bonds payable from dedicated personal income taxes and sales taxes. She noted that no annual appropriation is necessary for the state's GO debt, but bonds secured by state aid to local governments will not have debt service payments assured until future passage of relevant spending bills.
State Senate and Assembly leaders agreed Monday on Gov. Andrew Cuomo's plan to pass an extender of the current 2017 budget through May 31, which includes revenue sources for bonds secured by state aid. Van Wagner said the legislature routinely passes a debt service bill for the next fiscal year prior to budget adoption, which provides payment for appropriation-dependent state debt. She noted that New York's GO debt accounts for about 4% of the state's total debt outstanding with the remaining backed partly by appropriation or dedicated taxes.
"The legislation ensures debt service is funded for the state's workhorse credits, personal income tax revenue bonds and sales tax revenue bonds," said Van Wagner, who noted that about $32 billion of this debt is outstanding. "Both are backed by dedications of taxes that can't be released to the state's budgetary funds until debt service has been paid, although these funds can be redirected for payment of state general obligation bonds under certain circumstances."
Van Wagner added that the state also has obligations for Metropolitan Transportation Authority service contract debt as well as an assortment of bonds issued by the Dormitory Authority of the State of New York for education and mental health facilities. The debt legislation does not cover bonds tied to state aid such as the New York City Transitional Finance Authority's building aid revenue bonds and debt service the MTA's dedicated tax fund bonds.
"The practice of appropriation for debt service separately from the rest of the budget and prior to the end of the fiscal year stems from the state's long history of late budgets," said Van Wagner. "This record led the state to develop mechanisms developed to keep lateness from critically impairing the state's ability to continue operations."
Moody's rates New York State GO bonds Aa1. The Empire State is rated AA-plus by S&P Global Ratings, Fitch Ratings and Kroll Bond Rating Agency.