Debt Service

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Budget Highlights

Introduction

The 2014-15 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 $55.6 billion in 2013-14 to $57.1 billion by the end of 2014-15. Debt service spending – the costs of repaying those debt obligations – is projected to decline from $6.5 billion in 2013-14 to approximately $6.2 billion by the end of 2014-15.

Key Strategies

The 2014-15 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 $85 million in 2014-15 and include the following:

  • Issuing all debt through three highly-rated, well-understood credits: State Personal Income Tax Revenue Bonds, State Sales Tax Revenue Bonds, and State General Obligation Bonds.
  • Continuing to sell 50 percent of State-supported debt issuances competitively, subject to market conditions. This provides the State with superior pricing performance, as well as a benchmark to competitively use for negotiated sales.
  • Continuing to refund higher cost debt, including refunding older bonds under consolidated and lower-cost financing structures, 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, sales 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 and sales taxes, and other available transfers and revenues. Total appropriations of $5.7 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 $482.5 million and reflect payments on outstanding fixed rate and variable rate general obligation bonds and estimated payments on new bonds anticipated to be issued.

Revenue Bond Tax Fund

The appropriations for 2014-15 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 $3.4 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 to the State’s General Fund.

Sales Tax Revenue Bond Tax Fund

The appropriations for 2014-15 reflect the continued use of the sales tax revenue bond program (rated AAA by Standard and Poor's) to reduce State borrowing costs. Appropriations of $153 million are recommended from the Sales Tax Revenue Bond Tax Fund, an account within the General Debt Service Fund that provides for the payment of sales tax revenue bonds. These bonds are secured by the pledge of payments from the Sales Tax Revenue Bond Tax Fund, which receives one percent of the State's four percent sales tax receipts. Tax receipts in excess of debt service requirements are then transferred to the State’s General Fund.

Special Contractual Obligations

Appropriations of $1.33 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 (no new issuances are expected in FY 2015):

  • Thruway Authority for service contract bonds for local transportation purposes ($200 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 and the financing of parks and other environmental programs ($6 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 ($417 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 ($561 million).
  • Housing Finance Agency pursuant to agreements to finance the State’s housing programs ($39 million).
  • Metropolitan Transportation Authority for service contract payments on bonds issued to finance transit and commuter rail projects ($82 million).
  • Related and capital expenses ($21 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 $10 million appropriation is recommended for 2014-15.

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 2014-15 require appropriations of $33.5 million.

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 $298 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 one percent of the four percent 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 $405.5 million represents anticipated debt service on all outstanding fixed and variable rate bonds, interest rate exchange agreement payments and related 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 $25.6 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 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 $820.3 million is recommended to the Thruway Authority for 2014-15 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 2014-15.

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 $1.9 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 bonds (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 market conditions, including the ability to terminate swap agreements and effectively manage risks.

Secured Hospitals

This appropriation is provided to the Dormitory Authority 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 ($66 million). Legislative authorization for new projects in this program expired in March 1998. Based on recent DASNY analyses, the State expects to pay about $31.4 million in 2014-15 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 General Fund 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 2014-15 ($236 million).

ALL FUNDS FISCAL REQUIREMENTS
DEBT SERVICE AND FINANCING AGREEMENT PAYMENTS
(dollars)
Fund Available
2013-14
Recommended
2014-15
Change
General Fund
State Operations Account
Rebates to Federal Government 20,000,000 20,000,000 0
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 25,600,000 25,600,000 0
Subtotal 25,600,000 25,600,000 0
Debt Service Funds
Debt Reduction Reserve Fund
Debt Reduction 500,000,000 500,000,000 0
Mental Health Services Fund
Financing Agreements 328,000,000 298,000,000 (30,000,000)
General Debt Service Fund
General Obligation Bonds 492,500,000 482,500,000 (10,000,000)
Financing Agreements 1,781,460,000 1,627,700,000 (153,760,000)
Revenue Bond Payments 3,051,300,000 3,573,000,000 521,700,000
Housing Debt Fund
General Obligation Bonds 11,500,000 10,000,000 (1,500,000)
Department of Health Income
Financing Agreements 31,200,000 31,500,000 300,000
Financing Agreements 2,000,000 2,000,000 0
State University Dormitory Income Fund
Financing Agreements 127,800,000 0 (127,800,000)
Local Government Assistance Tax Fund
Financing Agreements 397,500,000 405,500,000 8,000,000
Subtotal 6,723,260,000 6,930,200,000 206,940,000
Capital Projects Funds - Other
Dedicated Highway and Bridge Trust Fund
Financing Agreements 980,300,000 820,300,000 (160,000,000)
Subtotal 980,300,000 820,300,000 (160,000,000)
Unspecified Funds
All Funds
Contingent Appropriation 1,500,000,000 1,400,000,000 (100,000,000)
Total 9,474,160,000 9,421,100,000 (53,060,000)

Note: Most recent estimates as of 01/20/2014

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