New York (STONY1:US) Governor Andrew Cuomo’s $136.5 billion budget increases so-called back-door borrowing and relies on optimistic revenue estimates that may not materialize, Comptroller Thomas DiNapoli said.
The spending plan the governor introduced last month creates a bond-financing program for public authorities that is backed by sales taxes and expands the use of debt repaid with personal-income levies, DiNapoli said in a report e-mailed today. The measures are part of $3.3 billion in new borrowing the 55-year-old Democratic governor is seeking for the agencies.
The budget also assumes personal income-tax collections will rise 6.6 percent in the next fiscal year, a rate that hasn’t been achieved in recent years, DiNapoli said. The plan includes risks in both spending and revenue estimates, he said.
“It increases our debt burden and relies on temporary actions that will get us through short-term problems, but pushes off some hard choices for another day,” DiNapoli said. “Clearly the state is facing difficult issues, but provisions of this budget need to be openly discussed by the legislature so taxpayers know how resources are being used.”
DiNapoli, a 59-year-old Democrat, has already said he has concerns with a Cuomo proposal that would allow local governments to lock in their annual pension-payment rates for 25 years. In the report today, the comptroller called for overhauling the state’s borrowing mechanism because room under the debt cap is projected to fall to $509 million in the next fiscal year from $9.2 billion in 2009.
New York’s constitution generally prohibits issuing debt unless it’s approved by voters and the legislature. To get around that requirement, about 95 percent of state borrowing has been through public authorities such as the Dormitory Authority of the State of New York, which aren’t subject to the prohibition. Under the practice, known as “backdoor borrowing,” the state makes payments to the authorities for debt service
“It is more efficient because it avoids the uncertainty of voters saying no, but the voters pay the bill when we borrow and ought to be included in the decision-making process,” Robert Ward, a deputy comptroller, said today in a telephone interview.
Robert Megna, Cuomo’s budget director, said DiNapoli’s report was a “misrepresentation” of the governor’s revenue estimates and borrowing plan. The personal income-tax projection is higher than previous years because of changes in federal reporting requirements, which will boost collections in April and May, he said. Borrowing through authorities is the way New York has issued debt for the past 30 years, Megna said.
“We’re not changing our borrowing procedures,” he said during a conference call with reporters. “They know how to go to the investment community. This is something the comptroller would just prefer us not to do.”
DiNapoli has proposed a constitutional ban on borrowing by authorities that back the debt with revenue collected by the state and isn’t approved by voters. He’s also recommended a constitutional change restricting the use of long-term debt to capital purposes.
DiNapoli also said in the report that Cuomo’s financial plan includes a potential loss of as much as $1.1 billion in Medicaid funding due to a rate change for the state’s most seriously disabled. Budget officials say the state is assembling a contingency plan that may include an increase in federal funding from other Medicaid reimbursements to offset the loss.
Since Cuomo proposed his budget Jan. 22, debt sold by the state has performed better than benchmark tax-exempts. A New York general-obligation bond due in 2034 traded Feb. 11 with an average yield of 1.95 percent, 0.65 percentage points below an index of top-rated munis with similar maturity, data compiled by Bloomberg show. The yield difference was 0.02 percentage point below the index on Jan. 22.
New York’s fiscal year starts April 1. The legislature has set a schedule to pass the budget on March 21, which would be the earliest since 1983. In his first two years, Cuomo pushed through the first consecutive on-time budgets since 2006, cutting more than $12 billion in deficits. The proposed budget for fiscal 2014 trims a $1.3 billion deficit.
“This budget follows exactly what the governor has been trying to do since his very first budget, which is put us on a fiscally responsible path,” Megna said.
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