New York Universities Propose Changing Law as State Debt Limit Closes In
As New York, the second-largest borrower among U.S. states, approaches its legal debt limit, officials at its university system suggested revising the law to provide more room for bond sales.
About $900 million of bonds sold to finance dormitories shouldn’t be subject to the limit because they are repaid by revenue from students, said Monica Rimai, chief operating officer for the 64-campus system. She spoke at a Division of Budget hearing in Albany yesterday about next year’s spending plans.
“If you no longer counted the residential-hall debt against the cap, that would allow the state to borrow $900 million for other programs,” said Philip Wood, the system’s vice chancellor for capital facilities. Some of that money could go to universities, he said.
The state’s per-person debt of $2,925 is three times the national average and second only to New Jersey among the 10 largest states by population, according to a report issued in March by Comptroller Thomas DiNapoli. New York plans to sell about $5.4 billion of bonds in the year ending March 31, 2011, while retiring about $3.2 billion, according to the Division of Budget’s capital plan.
New York limits state-supported debt issued after April 1, 2000, to 4 percent of residents’ annual personal income, a limit the state is approaching, according to the plan.
Near the Ceiling
“The available room under the debt-outstanding cap is expected to decline from $4.2 billion in 2010-11 to only $1.8 billion in 2012-13,” according to the mid-year budget update published Nov. 1.
Dormitory bonds are backed by state appropriations, according to Division of Budget documents. They are rated AA-, the fourth-highest grade, by Standard & Poor’s and Fitch Ratings. Those companies rate the state’s general obligation bonds one level higher, at AA.
With 48 percent of the university system’s buildings in fair or poor condition, it needs more than the $943 million allotted this year for capital projects for educational facilities and hospitals, Wood said. At the hearing, he asked for $1.08 billion in the year that begins April 1, up from the $912 million allocated in the five-year plan prepared by the Division of Budget.
Dormitory revenue has never fallen short of the amounts needed to pay bond interest and principal, Rimai said in an interview after the hearing.
Addicted to Debt
The 2000 law included loopholes that helped keep the state “addicted to unaffordable borrowing,” DiNapoli said in March. The 2000 law excluded about $20.5 billion of debt outstanding at that time and $17 billion of new debt not subject to the cap “but whose repayment comes from state resources,” according to the report.
About $9.8 billion of the $60.4 billion of state-backed debt is from bonds sold to finance previous years’ deficits, evading the 2000 law’s requirement that borrowing be used to finance capital projects, according to the report.
For Related News and Information:
To contact the reporter on this story: Michael Quint in Albany, New York, at mquint@bloomberg.net.
To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net
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