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Public Authorities
Borrowing Like There’s No Tomorrow
While New York State struggles to cope with the nation’s highest tax burden, Albany undermines its fiscal
future with borrowing practices that range from the patently irresponsible to the downright shady.
 Under
governors from Nelson Rockefeller through George Pataki, the chief source of
new government debt in New York has been a network of public authorities. Since
the legendary “master builder” Robert Moses tapped public authorities
on a large scale to realize his visionary network of highways, bridges, and
parks in the 1930s and 1940s, New York State has used authorities to build,
operate, and finance infrastructure projects unburdened by restrictions that
affect other government agencies—notably, restrictions on borrowing.[109]
New York’s more than 640 state and local authorities have been called
a “large semi-secret unsupervised government empire.”[110]
Seventeen state-level authorities now account for over $105 billion in debt,
a third of it underwritten by state appropriations. The State Dormitory Authority
alone has nearly $30 billion in outstanding bonds—more than the total
for most states.[111]
Not all debt should be equated with bad government practice. States, like homes and businesses, must borrow to pay for capital projects
that are so costly that the full price cannot be borne in one year’s operating budget.[112] For example, New York borrowed heavily to finance
construction of the Erie Canal, which has been called the nation’s largest public-works project in America’s first century.[113] But the high costs
and high debt levels associated with the Erie Canal project prompted nineteenth-century lawmakers to enact a constitutional obstacle to
borrowing: with limited exceptions, New York could borrow money only with prior approval from voters—and only a single, specific bond
issue could be presented to the voters in any given year.[114]
Over the last half-century, though, governors and legislators have dodged this constitutional impediment by forming quasi-governmental
agencies that are not bound by constitutional bylaws, yet have the power—the “authority”—to issue debt guaranteed by state government.
Consider the current state of New York’s debt practices:
- New York’s per-capita debt burden is the nation’s second-heaviest, behind only Alaska and 75 percent above the national average.[115]
- As of 2005, the state owed some $48.2 billion to bondholders, a 236 percent
increase since 1990. Of this new debt, some $11.4 billion was incurred after
the state enacted highly publicized but largely illusory “debt reform”
in 2000.[116] What’s more, little of the new borrowing
since then has produced any of the capital assets (bridges, roads, canals, buildings)
that debt should ideally fund.
- Rather than issue debt for capital improvements, New York State borrows to sustain high levels of spending on operating costs—the
equivalent of a homeowner taking a second mortgage to buy groceries.[117]
- The state has relied heavily on borrowing even during years with ample surpluses, and it has substantially diminished the share of its
capital spending that it funds on a pay-as-you-go basis.[118]
- Under a particularly egregious 2003 deal that Pataki unsuccessfully attempted to block in court, the legislature in Albany approved
the creation of a new “public benefit corporation” to allow New York City to issue $2.5 billion in new state-underwritten debt over
the next 25 years—all to pay off deficit-bailout bonds dating back to the fiscal crisis of the 1970s.[119] Thus, New Yorkers yet unborn,
from Lake Champlain to Montauk to Niagara Falls, will get to pay for the fiscal ineptitude of the Big Apple in the Lindsay years.
There have been widespread calls for reform, such as State Comptroller Alan
Hevesi’s proposal to reform borrowing practices by enhancing oversight
of public authorities.[120] Unfortunately, there’s
little evidence that New York’s leaders are ready to cut up the credit
cards. Consider the May 2005 meeting of the Public Authorities Control Board,
an entity created in the wake of the 1970s fiscal crisis as a mechanism for
controlling and overseeing borrowing. The focus of the meeting was supposed
to be Mayor Michael Bloomberg’s proposal (later rejected) for public funding
of a new football stadium in Manhattan. However, the agenda was abruptly amended
in mid-meeting so that the board—controlled by representatives of Governor
Pataki and the legislature’s two majority leaders—could approve
over $440 million in borrowing for other projects. Exactly how would the money
be spent? That question was left unanswered. The details were to be hammered
out later, in private, by the “Big Three.”[121]
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Abuse of Authority
The New York State Thruway Authority began as a classic
example of what a public authority should be: a nimble entity empowered
to oversee a single public asset. Since then, it has become a powerful
symbol of what’s wrong with New York State’s public authorities.
Construction began on the Thruway in 1942, and the first sections were
opened in 1944. It was largely completed by 1955, before Congress began
authorizing federal funds to construct interstate highways. But New York’s
congressional delegation persuaded Washington to pay, retroactively, for
much of the costs of building the road.[122]
The
original plan for the Thruway was to charge motorists solely to pay construction
costs; the tolls would expire as soon as costs were covered.[123]Years
after the project was completed, the Thruway Authority was still collecting
tolls as well as federal aid.[124] The tolls were
supposed to expire by 1996—but it has yet to happen.[125]
In 2005, as the Thruway Authority won approval for substantial toll increases,
it became the focus of widespread protests by New Yorkers keenly aware
that other states maintained similar roads without any tolls. A May 16
story[126] in the Rochester Democrat and Chronicle
quoted a motorist who encountered no tolls while on a trip from New Orleans
to Long Island—until the driver got to New York.
In 1992, when the authority’s original toll-backed construction bonds
were almost completely paid off, the Cuomo administration essentially
took out a second mortgage on the Thruway by issuing $350 million in new
debt in order to help close holes in the state budget. As part of that
gimmick, the Thruway Authority “purchased” the 426-mile New
York State Canal System (successor to the old Erie Canal) from the state
government. This meant that Thruway tolls, far from expiring, could now
be perpetuated —in part to support the canal.[127]
But the Thruway Authority’s stewardship of that public asset was
hardly encouraging. In 2003, a political scandal erupted when the authority
sold exclusive rights to develop the canal to a Buffalo developer—for
a mere $30,000.[128] Amid evidence that the Pataki
administration had steered the contract to the developer, the state comptroller
reversed his initial approval of the deal.[129]
In the wake of that controversy, rules for disposing of authority property
were tightened by the legislature and the governor as part of their “reform”
package, but nothing was done to prevent future repetition of the Cuomo-era
budget gimmick that allows Albany, Inc. to issue new debt by “selling”
state assets to the state’s own public authorities.
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As part of a feverishly hyped “reform” package enacted near the
close of the 2005 session, Governor Pataki and the two legislative leaders agreed
to a series of provisions supposedly designed to make the authorities somewhat
more accountable and transparent, mainly by subjecting them to the same sort
of corporate governance and accounting rules newly imposed on private-sector
corporations under the federal Sarbanes-Oxley law. But Albany’s Big Three
did nothing to curb the continued use of authorities as both patronage mills
and revolving credit accounts to circumvent the state constitution’s prohibition
on non–voter approved debt.
New York’s “semi-secret government empire” thus remains intact, poised and ready to issue billions in new debt without voter approval,
whenever it suits the purposes of Albany, Inc.
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109. Robert B. Ward, New York State Government: What It Does,
How It Works, (Rockefeller Institute Press 2002), pp. 300–301.
110. “Hevesi and Spitzer Call for Major Reform of Public Authorities,”
news release from February 4, 2004. Quotation
is attributed to State Comptroller Alan Hevesi. Release isavailable at http://www.osc.state.ny.us/press/releases/feb04/022404.htm.
111. E. J. McMahon Jr., “Question Authorities,” New York Post
op-ed, February 26, 2004, available at http://www.manhattan-institute.org/html/_nypost-question_authorities.htm.
112. New York State’s Debt Policy: A Need for Reform, February 2005
report from New York State Comptroller Alan Hevesi, p. 3.
The full report is available at http://www.osc.state.ny.us/press/debtreport205.pdf.
113. Ward, New York State Government, p. 205.
114. Ibid.
115. “Summary of State and Local Government Finances by Level
of Government: 2002–03,” U.S. Census Bureau, at http://www.census.gov/govs/www/estimate03.html.
116. Debt Affordability Study, December 2005 report from New York State
Comptroller Alan Hevesi, pp. 3–4. The full report is available at http://www.osc.state.ny.us/reports/debt/debtaffordability.pdf.
117. Ibid, pp. 3.
118. Ibid, p. 5–6.
119. Ibid.
120.“Hevesi: Stop the Borrowing,” Syracuse Post-Standard,
May 6, 2005.
121. Michael Gormley, “State Board Quietly Approves $440 Million ‘Pork
Barrel’ Borrowing,” Associated Press, May 18, 2005, published on
the web by the Plattsburgh Press-Republican.
122. Ward, New York State Government, p. 287.
123. Mark Johnson, “State Votes to Increase Thruway Tolls,” Associated
Press, April 25, 2005.
124. Ward, New York State Government, p. 287.
125. Johnson, “State Votes to Increase Thruway Tolls.”
126. “New Rates Now in Effect Force Travelers to Pay Up to 35% More,”
Rochester Democrat and Chronicle, May 16, 2005, originally available
at http://www.democratandchronicle.com/apps/pbcs.dll/article?AID=/20050516/NEWS01/505160325/1002/NEWS.
127. Ward, New York State Government, p. 282.
128. Joyce Purnick, “Secrecy Adds to Suspicions About M.T.A.,” New
York Times, January 31, 2005.
129. Michael Cooper, “State Cancels Deal to Develop Erie Canal,”
New York Times, May 11, 2004.
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