In a recent guest column ("Guest Word," July 6), George J. Marlin and Peter Murphy implied that New York's elected officials are trying to pull a fast one on the taxpayers with debt reform. This is absolutely not the case. The proposed reform amendment advanced by Gov. Mario M. Cuomo would make fundamental changes to the debt management practices of the state, provide a stable funding source for the state's capital projects, and ensure that our debt remains affordable.
Extensive amounts of material such as bill memorandums, fact sheets, and press releases have been made available by both the division of the budget and the state comptroller's office to help individuals understand the amendment. I can only conclude that the authors either have not taken the time to do a thorough analysis or are being intentionally misleading.
The article contained many inaccurate and misleading statements. Let me correct the most glaring errors:
* The authors compare the increase of general obligation debt to that of all public authority debt, even debt sold for non-state purposes. The state is not responsible for the payment of debt service on a large portion of that public authority debt, including debt issued for the Port Authority of New York and New Jersey and the state Power Authority. A more accurate comparison would have been between state-supported debt, which includes only general obligations of the state, and lease-purchase and contractual obligations of public authorities, where debt service is paid from state appropriations.
* The authors incorrectly state that bonds of the Local Government Assistance Corp. were proposed to pay tax refunds. The bonds were never used to pay tax refunds. However, the issuance of bonds by the corporation has allowed the state to accelerate payments of school aid and other local aid. We have also built up our cash reserve to pay tax refunds. This is fully consistent with the corporation's goal of enabling the state to eliminate the spring borrowing through permanent cash-flow changes.
* The article misleadingly says that the amendment would let the state issue revenue bonds without voter approval. The authorization to issue revenue bonds is contained in this amendment, which must be voted on and approved by the voters of the state. We believe that these revenue bonds will have a higher credit rating than bonds issued by an authority, resulting in lower interest rates and savings to the taxpayers. The alternative, absent the amendment, is to continue to issue appropriation-backed debt in unlimited amounts without voter approval.
Once you understand the choice between this status quo and a constitutional debt cap, it becomes evident that even the headline given the Marlin-Murphy piece ("New York's Idea of Debt Reform Would Mean More Borrowing, Not Less") is itself grossly misleading.
* The authors confuse the cap with a plan to sell bonds in that amount. We had to develop a formula that looks out into the future and imposes a realistic limit on borrowing. The state will issue far less debt than allowed under the cap in the early years. In fact, the largest amount of state-supported bonds ever issued in one year and subject to the cap was $2.2 billion, in 1991-92.
* Specific exemptions to the ban are provided, but they would not permit unlimited authority borrowings. The ban is drafted to allow operating aid to continue to be used by entities such as school districts and regional transportation authorities for debt service payments. These exemptions are for local, not state, purposes. To conclude that exempting these important local programs somehow constitutes unlimited state bonding authorization is just not sensible.
* The authors mislead readers to believe that the state would extend its debt by refinancing. All debt issuers refund debt when savings accrue from a refunding. In 1993-94, all refundings complied with very strict administratively imposed standards regarding present-value savings. The state constitution was amended in November 1993, when voters approved provisions that govern the refunding of state general obligation bonds. The new revenue debt would be required to meet these same provisions, already approved by the voters.
* The original debt reform amendment was proposed by Gov. Cuomo in the executive budget for fiscal 1994 and approved by the legislature on April 4, 1993. The debt reform effort was not a response to the suit brought by Robert Schultz, which was commenced on May 24, 1993.
Even though the state was victorious in this suit, debt reform remains an urgent undertaking. The alternative to debt reform is the status quo. This means the legislature would be able to authorize authority borrowings in unlimited amounts, without voter approval, and at higher rates.
Several important reforms creating greater public access to the process were ignored by the authors:
* The proposal provides that any bill authorizing the issuance of debt be on the desks of the members of the legislature at least 14 days before it can be voted upon. This "sunshine" requirement will mean there is sufficient time for the public, including financial experts and rating agencies, to review such bills and provide comments and criticism.
* The proposal would authorize the submission of more than one general obligation bond issue to the voters on any year's ballot. this would enable the state to propose smaller, more targeted issues. Voters would be able to approve one or more of these bond issues, thereby enhancing their role in major fiscal decisions.
* The proposal would absolutely restrict the use of bond proceeds to capital works. It would require that any debt issued by the state, whether general obligation bonds or revenue bonds, must be for capital works or purposes. This would prohibit the state from using bonds to close operating deficits.
* The proposal would require the governor to hold hearings on the capital needs of the state. In addition, the governor would be required to submit to the legislature an assessment of the state's capital assets and capital needs.
* The proposal would require the governor to submit a detailed multi-year capital program and financing plan no more than 30 days after submission of the budget each year.
The proposal passed by the legislature is another critical step in the state's efforts to reform its debt practices. The process of change is slow, each proposal must be carefully examined, because constitutional changes should not be made precipitously. But New York State is moving forward.
Following approval by the legislature of the 1993 amendment, that amendment was subjected to extraordinary public review and discussion. Hearings were held to solicit public input, and the views of public finance experts were sought. Many expressed concern that the proposed cap was too high and that the ban on so-called backdoor borrowing was less than complete. In response to these concerns, changes to the 1993 amendment were made to tighten the ban, reduce the amount of revenue bonds that can be issued under the cap, and generally eliminate loopholes.
We are convinced that this year's amendment is a vast improvement over the original draft. Other budget and fiscal experts agree. The new amendment has been enthusiastically endorsed by state Comptroller H. Carl McCall. The influential and respected Citizens Budget Commission strongly supports the amendment. Other financial experts who, like the commission, had serious reservations about the 1993 draft have expressed full support of the revised amendment.
Assuming the legislature provides second passage next year, the amendment can go to the voters in 1995. Informed public debate is therefore vital, as it is the voters who must choose change, or if they prefer, the status quo. Although responsible public debate is helpful to the process, broadbrush smears are not. I hope this response helps your readers reach their opinions on the amendment based on the facts.
