Editorial: 'Backdoor borrowing' a taxpayer peril

Press Republican

Jan 2, 2018

Consumers are always warned to closely monitor their credit-card debt to make sure it doesn’t climb to a level that interferes with their standard of living.

New York State Comptroller Thomas DiNapoli is, in a way, warning the state to beware of the same thing.

According to a report issued recently by DiNapoli on state debt, New York government has boldly used a tactic called “backdoor borrowing “to build the second-highest mountain of debt of any state in the union."

New York’s $61 billion of debt is projected to reach $71 billion in four years.

The problem with the state having debt is it has to be paid back, and, traditionally, that obligation falls to taxpayers, who, in too many cases, neither agreed to it nor approve of it.

How could this happen without taxpayers knowing it? Typically, it will be done — and has been done — by public authorities, such as the Dormitory Authority, the Thruway Authority and the Empire State Development Corp. These entities pay for public projects such as college dormitories, the Tappan Zee Bridge and various other jobs by issuing bonds that have to be repaid. Voters may even have rejected paying for some projects, but they are paid anyway, through these bonds.

The authorities are not subject to the same oversight, transparency and contracting rules as other government bodies. Yet New York is relying on them more often as a way to bypass a state requirement that some borrowing must be approved by voters, the report said.

“New York’s public authorities play an increasingly influential role in government, yet they operate outside the traditional checks and balances that apply to state agencies,” DiNapoli said.

“As a result, New York is shouldering a huge debt load issued by public entities operating in the shadows that voters never approved.”

Most of those authorities have no taxing power, but they need the money. They repay their debt using revenue generated from projects they oversee, such as tolls on the Thruway.

More than a fifth of the total outstanding debt was backdoor borrowing, when authorities issued debt that was actually for state purposes, according to the report.

Among DeNapoli's recommendations:

• Amend the State Constitution to limit all state-funded debt to 5 percent of personal income, starting in fiscal year 2027-28.

• Amend the constitution to ban the issuance of state-funded debt by public authorities and other entities, to allow multiple General Obligation Bond acts to be considered by voters in the same year, and to require all state-funded debt to be issued by the comptroller, following voter approval.

• Create a New York State Capital Asset and Infrastructure Council to provide an inventory and monitor the status of all capital assets of the state and its public authorities.

Backdoor borrowing circumvents the public-approval process and adds burden to state finances and must be addressed.