Debt Service
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Introduction
The 2012-13 recommended debt service appropriations meet all of the State’s potential obligations to bondholders, and reflect the maximum estimated debt service payments for outstanding bonds, including payments due on outstanding variable rate debt, interest rate exchange agreements (“swaps”) and new State-supported bond issuances.
A broad overview of the State’s debt management practices, debt affordability measures, and five year information and trends on State debt levels and capital costs is available in the Five-Year Capital Program and Financing Plan released with the budget.
Operating Highlights
The State finances a substantial share of its capital program through the issuance of debt, providing funding for transportation, education, economic development, and other major program areas. State debt – which includes debt issued by the State, by public authorities on behalf of the State, and other debt obligations for which the State is contractually or morally responsible – is projected to grow from $57.0 billion in 2011-12 to $58.1 billion by the end of 2012-13. Debt service spending – the costs of repaying those debt obligations – is projected to grow from $6.5 billion in 2011-12 to approximately $6.7 billion by the end of 2012-13.
Key Strategies
The 2012-13 Executive Budget seeks to reduce the State’s costs of borrowing through ongoing debt management efforts. These are expected to produce debt service savings totaling approximately $23.5 million in 2012-13 and include the following:
- Continuing to use competitive bond sales for up to 50 percent of State-supported debt issuances, subject to market conditions. This provides the State with superior pricing performance, as well as a benchmark to use for negotiated sales.
- Continuing to refund higher cost debt, including refunding older service contract bonds under a consolidated credit structure, thereby enhancing efficiencies and increasing savings opportunities.
General Debt Service Fund
The General Debt Service Fund pays for debt service and related expenses on fixed and variable rate General Obligation bonds, Personal Income Tax revenue bonds, and contractual obligation payments to public authorities. The General Debt Service Fund’s moneys are provided from the General Fund, dedicated personal income taxes, and other available transfers and revenues. Total appropriations of $5.2 billion are recommended from the General Debt Service Fund. These amounts include contingent appropriations for obligations related to deficit (tobacco securitization) and secured hospital financings, which are more fully discussed in the Contingent and Other Appropriations section.
General Obligation Bonds
Appropriations from the General Debt Service Fund for general obligation bonds are recommended at $ 502.5 million and reflect payments on outstanding fixed rate and variable rate general obligation bonds and estimated payments on new bonds anticipated to be issued.
Special Contractual Obligations
Appropriations of $1.7 billion are recommended from the General Debt Service Fund to the following public authorities for special contractual obligations due on outstanding State appropriation-backed bonds:
- Thruway Authority for service contract bonds for local transportation purposes ($227 million). Spending from this appropriation is financed by transfers from the Dedicated Highway and Bridge Trust Fund.
- Environmental Facilities Corporation for environmental infrastructure service contract bonds, the Pipeline for Jobs Program, and the financing of parks and other environmental programs ($22 million).
- Urban Development Corporation for financing the construction and rehabilitation of prisons, State facilities, youth facilities, the pine barrens land acquisition, economic development purposes, projects at various university technology centers, the Higher Education Applied Technology program, and the Onondaga Convention Center ($456 million).
- Dormitory Authority of the State of New York for State University of New York educational facilities, athletic facilities and upstate community colleges, State Education Department facilities, City University of New York senior and community colleges, child care facilities, the Department of Health’s Axelrod Laboratory, the Albany Airport, the Department of Audit and Control building, and the East Garage in Albany ($707 million).
- Housing Finance Agency pursuant to agreements to finance the State’s housing programs ($62 million).
- Metropolitan Transportation Authority for service contract payments on bonds issued to finance transit and commuter rail projects ($165 million).
- Related and capital expenses ($18 million).
Revenue Bond Tax Fund
The appropriations for 2012-13 reflect the continued use of the Personal Income Tax revenue bond program (rated AAA by Standard and Poor’s) to reduce State borrowing costs. Appropriations of $2.7 billion are recommended from the Revenue Bond Tax Fund, an account within the General Debt Service Fund that provides for the payment of Personal Income Tax Revenue bonds. These bonds are secured by the pledge of payments from the Revenue Bond Tax Fund, which receives 25 percent of State personal income tax receipts. Tax receipts in excess of debt service requirements are then transferred back to the State’s General Fund.
Personal Income Tax revenue bonds are issued under broad functional areas by certain public authorities and are provided as follows:
- Economic Development and Housing ($365 million);
- Education ($462 million);
- Environment ($105 million);
- General Purpose ($1.2 billion)
- Health care ($15 million);
- State Facilities and Equipment ($195 million);
- Transportation ($321 million); and
- Related and capital expenses ($14 million).
Housing Debt Fund
Payments from local governments and housing companies that benefit from housing and urban renewal projects funded with State general obligation bonds are deposited in the Housing Debt Fund and are used to pay debt service on such bonds. A $12.5 million appropriation is recommended for 2012-13.
Health Income Fund
The Department of Health has entered into contractual agreements with the Dormitory Authority of the State of New York to finance the construction and rehabilitation of State hospitals and veterans’ homes. These agreements require the Department of Health to make lease-purchase rental payments to the Dormitory Authority of the State of New York. Such payments have first claim on revenues received in this Fund from patient care at the Department of Health facilities. Consistent with existing bonding pledges and statutory requirements, the Roswell Park Cancer Institute Corporation’s moneys continue to flow into the Fund as security for payments to bondholders. As a result, the State’s Financial Plan reflects the portion of the Corporation’s receipts that are attributable to debt service. Lease-purchase obligations during 2012-13 require appropriations of $33.2 million.
State University Dormitory Income Fund
This Fund receives payments from student dormitory rentals and other fees at dormitories operated by the State University of New York. Debt service on bonds issued by the Dormitory Authority of the State of New York for the construction and rehabilitation of the State University of New York dormitory facilities has first claim on all revenues deposited in the Fund. An appropriation of $117.1 million is recommended for lease-purchase payments to the Dormitory Authority of the State of New York.
Mental Health Services Fund
The Dormitory Authority of the State of New York is authorized to issue bonds to finance capital programs for the Department of Mental Hygiene. Patient revenues received from care and treatment activities at State mental health facilities are deposited into the Mental Health Services Fund, and are used to make payments to the Dormitory Authority of the State of New York for debt service on mental health services bonds. These payments have first claim on moneys in the Fund. The Dormitory Authority of the State of New York also makes loans to eligible not-for-profit agencies providing mental health services. In return, these voluntary agencies make rental payments equal to the amount of debt service on bonds issued to finance their projects. These payments are also deposited in the Fund. The recommended appropriation for these obligations is $348 million.
Local Government Assistance Tax Fund
To eliminate the State’s annual cash flow borrowing to finance payments in the first quarter of the State Fiscal Year, the Local Government Assistance Corporation issued bonds in the early 1990s to finance payments to local governments previously funded by the State. By 1995, the Corporation had issued its entire $4.7 billion net authorization, and its activities are now primarily limited to the ongoing maintenance of those existing obligations. Revenues equal to the first cent of the four cent State sales and use tax are deposited into the Local Government Assistance Tax Fund and used to pay debt service on the Local Government Assistance Corporation bonds. The recommended appropriation of $406.5 million represents anticipated debt service on all outstanding fixed and variable rate bonds, interest rate exchange agreement payments and related administrative expenses.
Local aid payments due to New York City from the Local Government Assistance Tax Fund, and assigned by the City to the Sales Tax Asset Receivable Corporation, are appropriated in the local assistance portion of the budget.
School Capital Facilities Financing Reserve Fund
An appropriation of $30.5 million is recommended from the School Capital Facilities Financing Reserve Fund, a fiduciary fund, to pay debt service and related expenses on bonds issued by the Dormitory Authority of the State of New York on behalf of special act and certain other authorized local school districts. The districts have assigned to the Dormitory Authority of the State of New York their State local assistance payments, which are deposited into the Fund and used to make debt service payments on bonds issued to finance their respective facilities.
Dedicated Highway and Bridge Trust Fund
An appropriation of $960.3 million is recommended to the Thruway Authority for 2012-13 debt service payments and related expenses on Dedicated Highway and Bridge Trust Fund bonds. Debt service payments for the highway program are supported by the statutory dedication of transportation-related taxes and fees to the Fund.
DEBT REDUCTION RESERVE FUND
An appropriation of $500 million is recommended from the Debt Reduction Reserve Fund to allow the State flexibility to defease high cost debt and/or pay hard dollar for capital projects that would otherwise be financed with debt. No disbursements are anticipated from this appropriation in 2012-13.
Contingent and Other Appropriations
Contingent and other appropriations are required pursuant to various bond financing agreements. Therefore, they supply appropriation authority in the unlikely event that the primary obligated parties cannot provide sufficient funds to meet their own debt service obligations, or to pay unforeseen additional expenses that may arise on State-supported obligations. Appropriations of $2.1 billion are recommended in this section of the debt service appropriation bill to provide for the State’s contingent liabilities to make payments on certain other types of debt instruments. These include arbitrage rebate and defeasance obligations required by Federal tax code limitations, the maximum potential variable rate, swap, termination or other payments on State-supported debt obligations, as well as contingent-contractual obligations for deficit (tobacco securitization) and secured hospital bonds.
General Fund – State Purposes Account
An appropriation of $20 million is recommended for the State’s potential liability to rebate arbitrage earnings on General Obligation bonds to the Federal government. In addition, a $225 million appropriation is recommended for the redemption of General Obligation bonds, should this become necessary to maintain the exemption from Federal taxation of the interest paid to General Obligation bondholders. This appropriation would only be used if the State received payments from any party found to be responsible for site contamination for which 1986 Hazardous Waste and 1996 Clean Water/Clean Air bonds were sold and disbursed to finance site clean-ups. The potential use of this appropriation is unlikely, as an effort is made to find the responsible parties prior to the issuance of bonds.
All Funds
An All Funds appropriation of $1.4 billion provides authority for a maximum interest rate of 18 percent on variable rate bonds, and the estimated costs for potential terminations on all interest rate exchange agreements outstanding, under Article 5-D of the State Finance Law. This appropriation is available to all issuers of State-supported debt, and provides assurances to bondholders and counterparties of interest rate exchange agreements that sufficient authorization is available to pay the maximum amounts which may become due on such variable rate and swap instruments. In addition, it provides the State the flexibility needed to comprehensively manage such instruments and State-supported obligations consistent with stressed market conditions, including the ability to terminate swap agreements and effectively manage risks.
Secured Hospitals
This appropriation is provided to the Dormitory Authority of the State of New York for contingent-contractual obligations related to financially distressed hospitals in the event that hospital loan repayments and other available funds are inadequate to meet debt service and related expenses ($81 million). Legislative authorization for new projects in this program expired in March 1998. Based on recent DASNY analyses, the State expects to pay about $3.4 million for certain hospitals that are failing to meet their payment obligations.
Tobacco Settlement Financing Corporation
This appropriation is provided to the Tobacco Settlement Financing Corporation for contingent-contractual obligations that are available to pay debt service on bonds issued by the Corporation to help eliminate a deficit in 2003-04. Such funds would only be called upon in the unlikely event that tobacco receipts sold to the Tobacco Settlement Financing Corporation are insufficient to make such payments. As required by the contingent contract, the debt service bill includes a recommended appropriation that is equal to amounts payable on the Corporation’s bonds in 2012-13 ($346 million).
| Fund | Available 2011-12 |
Recommended 2012-13 |
Change |
|---|---|---|---|
| General Fund | |||
| State Operations Account | |||
| Rebates to Federal Government | 20,000,000 | 20,000,000 | 0 |
| State Operations Account | |||
| Redemption of General Obligation Bonds | 225,000,000 | 225,000,000 | 0 |
| Subtotal | 245,000,000 | 245,000,000 | 0 |
| Fiduciary Funds | |||
| School Capital Facilities Financing Reserve Fund | |||
| Trust and Agency Financing | 30,500,000 | 30,500,000 | 0 |
| Subtotal | 30,500,000 | 30,500,000 | 0 |
| Debt Service Funds | |||
| Debt Reduction Reserve Fund | |||
| Debt Reduction | 250,000,000 | 500,000,000 | 250,000,000 |
| Mental Health Services Fund | |||
| Financing Agreements | 353,000,000 | 348,000,000 | (5,000,000) |
| General Debt Service Fund | |||
| General Obligation Bonds | 530,000,000 | 502,500,000 | (27,500,000) |
| General Debt Service Fund | |||
| Financing Agreements | 2,052,050,000 | 2,083,960,000 | 31,910,000 |
| General Debt Service Fund | |||
| Revenue Bond Payments | 2,408,350,000 | 2,661,900,000 | 253,550,000 |
| General Debt Service Fund | |||
| Lease Purchase Payments | 2,925,000 | 0 | (2,925,000) |
| Housing Debt Fund | |||
| General Obligation Bonds | 15,500,000 | 12,500,000 | (3,000,000) |
| Department of Health Income | |||
| Financing Agreements | 32,000,000 | 31,200,000 | (800,000) |
| Department of Health Income | |||
| Financing Agreements | 2,800,000 | 2,000,000 | (800,000) |
| State University Dormitory Income Fund | |||
| Financing Agreements | 105,300,000 | 117,100,000 | 11,800,000 |
| Local Government Assistance Tax Fund | |||
| Financing Agreements | 392,000,000 | 406,500,000 | 14,500,000 |
| Subtotal | 6,143,925,000 | 6,665,660,000 | 521,735,000 |
| Capital Projects Funds - Other | |||
| Dedicated Highway and Bridge Trust Fund | |||
| Financing Agreements | 960,250,000 | 960,300,000 | 50,000 |
| Subtotal | 960,250,000 | 960,300,000 | 50,000 |
| Unspecified Funds | |||
| All Funds | |||
| Contingent Appropriation | 1,500,000,000 | 1,400,000,000 | (100,000,000) |
| Total | 8,879,675,000 | 9,301,460,000 | 421,785,000 |
Note: Most recent estimates as of 1/17/2012