CONCURRENT RESOLUTION OF THE SENATE AND ASSEMBLY proposing amendments to article 7 of the constitution, in relation to the prohibition of certain borrowing arrangements, the authorization for the contacting of debt, the manner by which payments are appropriated and the manner by which payments are appropriated and paid
This bill amends Article VII of the New York State Constitution to implement the Governor's Constitutional debt reform initiatives submitted with the 2000-01 Executive Budget. A separate, complementary bill implements the Governor's statutory debt reform initiatives. These reforms are intended to permanently improve the State's debt practices.
The bill amends Article 7, sections 11, 12 and 16 of the Constitution to accomplish the following.
Section one of the Amendment would:
The amendment prohibits the State from authorizing public authorities to contract for State-supported debt that is not authorized by the Constitution.
Public authority debt that would be prohibited under the Amendment includes certificates of participation (currently issued to finance vehicles and new equipment for various agencies), contingent obligations (the State is required to pay debt service should the obligated party fail to pay), lease-purchase agreements (the State agrees to pay lease payments and, at the end of the payments, obtains ownership of the financed property), and special contractual obligations (service contract, appropriation-backed debt).
The amendment authorizes a limited amount of revenue-debt that is secured by a pledge of specific revenues of the State. Section three of the Amendment requires the Comptroller to set aside revenues received and pledged to pay debt service on the new revenue bonds, and to pay debt service in the event the Legislature fails to enact an appropriation to do so. This would ensure that both general obligation debt (for which debt service may currently be paid without an appropriation) and revenue debt, are treated consistently in the event the Legislature fails to appropriate debt service.
The bill authorizes multiple general obligation bond act proposals to appear before the voters, allowing more than one capital initiative to be placed on the ballot at a single time.
Impose a phased-in cap to restrict the amount of new State debt outstanding (including both revenue and general obligation debt) to 3.5 percent of personal income. In addition, the amount of revenue debt that could be outstanding would be capped at one-half of the cap on total debt, or 1.75 percent. This ensures that at least one-half of all debt is submitted to the voters.
The cap on debt outstanding would begin at six-tenths of one percent in 2002-03 and would be fully phased-in by 2010-11. The Governor is also proposing statutory caps in a separate bill to serve as a complement to the Constitutional caps.
Restricts the amount of new debt service to 5 percent of All Governmental Funds receipts – ensuring that the cost of debt remains affordable.
The debt service cap would also begin at six-tenths of one percent in 2002-03 and would become fully effective at 5 percent in 2015-16. The Constitutional debt service cap will be complemented by a statutory cap, implemented under a separate bill to amend the State Finance Law.
To avoid discouraging the State from implementing advantageous debt management transactions, the Amendment excludes payments made to retire debt earlier than mandatory payments would have otherwise required from the amount of debt service used to calculate the cap. Similar provisions are contained to insure that debt refinancings, which produce interest savings, are not discouraged by the debt outstanding and debt service caps.
This requires that any legislation authorizing the contracting of State debt be on the desks of Legislative members at least 14 days before being considered for a vote.
Section two of the Amendment would:
This would restrict the use of debt to financing capital projects (i.e., "bricks and mortar" projects, such as roads, bridges, buildings, water and sewer facilities, construction and reconstruction of State facilities, including engineering work related to capital projects).
The Constitution authorizes the issuance of general obligation debt, subject to voter approval, and is limited to one bond act proposal per ballot. That debt may be issued for a maximum term of 40 years.
The debt reform initiatives implemented by the Constitutional Amendment will:
The 3.5 percent cap on debt outstanding represents a significant decline from the current level of 6 percent. The amount of State-supported debt service the State is obligated to pay is not currently subject to any legal limitations or caps.
A 1995 Constitutional Amendment to reform the State's debt practices was rejected by the voters. Unlike this proposal, the cap included in the 1995 Amendment was imposed at a less restrictive rate of 4.4 percent and only applied to revenue debt. In addition, the 1995 Amendment did not include a separate cap on total debt, a cap on debt service costs, or restrict the term of debt to 30 years.
The Amendment's provisions would cap the amount of debt the State may issue by authorizing a limited amount of revenue-debt, capping debt outstanding and limiting the percentage of new debt service costs to All Funds receipts. As a result, the amendment ensures that debt service costs remain affordable into the future. In addition, general obligation and revenue debt, which would not require an appropriation for debt service, should result in more favorable interest rates, reducing interest costs.