New York State capital plan adds to debt burden

New York’s five-year capital plan may contain long-term risks from the state's increased reliance on borrowing, according to State Comptroller Thomas DiNapoli.

State-supported debt is projected to rise by $13.6 billion, or 25.6%, over the course of New York’s current $66.8 billion 2020 to 2024 five-year capital plan with new borrowing outpacing debt retirements by an average of $2.8 billion annually. DiNapoli noted in his report released July 2. The New York Division of Budget is projecting that available debt capacity under the statutory limit for state-supported debt outstanding will decline from $3.2 billion this year to only $107 million in fiscal 2024.

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“If personal income in the State does not increase at the rate projected by DOB, available debt capacity could be depleted more rapidly,” DiNapoli wrote.

Public authority bonds represent 54.2% of the 2020-2024 capital plan, an increase from the 48% average during the previous five years. State general obligation bonds are projected to average just 3.2% of total capital spending. Pay-as-you-go financing is slated to jump by 20% this year to $4.2 billion with nearly half of the growth funded by monetary settlement dollars.

State-supported debt issuances are projected to total $34.4 billion over the next five years, which comprises an annual average of roughly $6.9 billion compared to $4.1 billion over the previous five years. New York’s state-funded debt outstanding is estimated to total just under $78 billion by the end of the capital plan, according to DiNapoli.

DiNapoli’s report also highlighted concerns about that New York’s current $177 billion 2020 fiscal year budget relying on more than $8.3 billion in temporary resources. He also noted that the adopted financial plan projects budget gaps totaling $12.8 billion in the three fiscal years starting with 2020-21 before action is taken to address the structural imbalance between spending and revenues.

Personal income tax receipts account for 64% of all taxes anticipated during the 2020 fiscal year, which DiNapoli notes are subject to volatility. The DOB increased its 2020 PIT revenue projections by $380 million from Cuomo’s original budget proposal to reflect higher-than-estimated April receipts stemming largely from changing taxpayer behavior following newly enacted federal tax changes. The unexpected revenue spike is partly offset by an anticipated increase of $500 million in refunds to be paid from January through March 2020, according to DiNapoli.

The DOB added $250 million to rainy day reserves at the end of the 2019 fiscal year marking New York’s first rainy day deposit since 2015. The state is projecting $428 million deposit for 2020 fiscal conditions permitting, but DiNapoli urges enacting “more robust” reserves to avoid spending reductions or tax increases during the next economic downturn.

New York State general obligation bonds are rated Aa1 by Moody’s and AA-plus by S&P Global Ratings, Fitch Ratings and Kroll Bond Rating Agency.