“He that goes a borrowing goes a sorrowing” is the old maxim. The book of Proverbs and Old Richard’s Almanack are full of cautionary statements about debt and borrowing at a personal or family level.
But what about for a government -- state or local? Is debt good or bad? Many municipalities use debt as an instrument to stretch out payments for a town hall or expensive highway equipment (and snowplows don’t come cheap). The state is no different. New York borrows for various purposes, and voters have approved various bond issues, but debt can get out of hand and there has been criticism that New York’s borrowing practices are shrouded in secrecy.
People borrow for a house or car, but you wouldn’t think of taking out a bank loan for your groceries. Governments are the same. Certain purposes make sense, but we don’t want to put the state’s groceries on a credit card.
That’s one reason why the state senate passed some genuine debt reform legislation this year, starting with senate bill 8333. The senate approved legislation, including a constitutional amendment, to limit the amount and type of debt the state can issue and to deal with debt more aggressively in order to reduce New York State’s debt load, improve state finances and reduce the state’s financial burden being shouldered by hardworking New Yorkers. Debt reduction cuts the state’s financial blood pressure.
The comprehensive constitutional amendment would limit the amount of New York’s debt through a number of provisions, including eliminating all appropriation-backed debt, contingent obligation debt, and moral obligation debt (essentially all “backdoor borrowing”). Additionally, it would cap the total debt outstanding at 4 percent of personal income, to be phased in over ten years.
The proposed amendment also includes a number of provisions to reduce current and limit future debt by:
• Only allowing revenue debt (debt backed by a pledge of specific state revenues) for existing capital projects and/or maintenance and improvements on capital projects;
• Capping revenue debt at thirty percent of all issuances per year;
• Requiring that payment for new capital programs with state debt must be general obligation debt and receive voter approval;
• Allowing multiple bond issues on the ballot (currently only one bond issue can be on the ballot);
• Constitutionally limiting the issuance of debt to capital works only;
• Limiting bond maturities to the useful life of the project or 30 years, whichever is less;
• Restricting suspension of the debt cap to bona fide state “emergencies” such as acts of terrorism or major natural disasters.
The other bill (S.8334) would help pay down and eventually eliminate New York’s heavy outstanding debt burden by requiring a portion of the general fund surplus to be deposited into the debt reduction reserve fund. The bill would prohibit the transfer of any balances to the general fund, authorize the deposit of ten percent of any cash surplus to the debt reduction reserve fund and restrict the use of debt reduction reserve funds to be used only for decreasing or retiring outstanding debt.
Every time we can reduce the state’s debt, we free up cash to reduce taxes or pay the state’s other bills without pressuring the need for more taxes or fees.
The use of municipal and state debt does have its place. But it should be limited and the process should be transparent with maximum voter knowledge and approval.
Senator Seward’s office web site is www.senatorjimseward.com.