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2000 M E M O R A N D U M

AN ACT to amend the state finance law, in relation to limiting the amount of state-supported debt that may be issued


This bill amends the State Finance Law to implement the Governor's statutory debt reform initiatives submitted with the 2000-01 Executive Budget. This bill complements a separate Constitutional Amendment that implements the Governor's Constitutional debt reform initiatives. These reforms are intended to permanently improve the State's debt practices.

Summary of Provisions:

Section one of the bill amends the State Finance Law to provide definitions for State- supported debt, total personal income of the State, and total Governmental Funds receipts. It also caps both the amount of new debt outstanding and new debt service costs that would be allowed, as described below.


The calculation for total debt service costs includes costs for the entire fiscal year, but excludes payments made to retire debt earlier than mandatory payments would have otherwise required, such as paying down debt early. Similar provisions are contained to insure that debt refinancings, which produce interest savings, are also not discouraged by the caps on debt outstanding and debt service.

Debt Caps

Assuming the Constitutional Amendment is effective at the earliest possible date (January 1, 2002), the statutory caps on debt outstanding and debt service would remain in place and apply to fiscal years 2000-01 and 2001-02.

The calculations for comparing debt outstanding to State personal income and debt service to Total Governmental Fund receipts are intended to be made when final information is available for such data. For instance, the Comptroller's final cash accounting reports with actual information on receipts and debt service for a fiscal year is typically available late in the summer of the subsequent fiscal year. At that time, the debt service cap would be calculated and, if exceeded, the State would be precluded from contracting new debt until the cap is calculated again next year and is met. Similarly, it is expected that information on debt outstanding and State personal income (for the prior calendar year) will be available at roughly the same time.

For example, the calculation for the 2000-01 fiscal year would be based on calendar year 2000 State personal income data, new debt outstanding as of the last day of the fiscal year (March 31, 2001), All Funds receipts during the 2000-01 fiscal year, and new debt service costs paid during the 2000-01 fiscal year.

Existing Law:

Current State Law does not cap the total amount of State-supported that may be issued and does not cap the amount of debt service costs the State is obligated to pay on such debt.

Statement in Support:

The debt reform initiatives implemented by the Governor's statutory debt reform bill will ensure that both debt levels and debt costs remain affordable and debt continues to be prudently managed.

The prohibition on issuing debt if these caps are exceeded provides the State with a substantial incentive to treat these caps as outside limits on debt that should never be reached.

The amount of total State-supported debt outstanding is not currently subject to any legal limitations or caps. The 3.5 percent cap on debt outstanding represents a significant decline from the current level of 6 percent. The amount of debt service the State is obligated to pay is also currently not subject to any legal limitations or caps. The 5 percent cap on debt service will ensure that the cost of debt remains affordable.

Legislative History:


Budget Implications:

The debt caps provided for in the bill would implement debt reform initiatives that will effectively control both the level and costs of State debt, ensuring that debt continues to remain affordable and is prudently managed into the future.