How sound are New York's finances?
Gov. Andrew Cuomo touted the state's robust fiscal health in his State of the State speech in January. He specifically cited the property tax cap and "the lowest middle-class tax rates in 58 years."
At the same time, state Comptroller Tom DiNapoli issued a report that New York's debt is $63.3 billion — about $3,253 per state resident. "We spend billions each year to repay existing debt, so fewer resources are available for more pressing needs," he said.
Much of the debt has been developed by public authorities.
"Taxpayers have little or no say in how much the state borrows, but they're the ones who have to foot the bill," DiNapoli continued.
In February, DiNapoli said that Cuomo's proposed state budget "increases our debt burden and relies on temporary actions that will get us through short-term problems but pushes off some hard choices for another day."
State Budget Director Robert Megna shot back that DiNapoli "misrepresents or just totally gets wrong" the budget's provisions for borrowing.
The debate over debt is an old one. New York has often deferred obligations into the future, occasionally to the point of risking state credit.
By the late 1830s, the state was spending money lavishly on enlarging the Erie Canal, building additional canals and providing loans and other aid to railroads, mostly by issuing state bonds.
Democratic Comptroller Azariah Flagg published an alarming report in 1838, warning that the state had reached "the utmost verge of prudence" and should curtail borrowing.
But Gov. William Seward, a Whig, told the legislature in 1839 that "history furnishes no parallel to the financial achievements of this state." He added that "taxation for the purposes of internal improvement is happily unnecessary," since future canal user fees would provide funds to pay off the bonds.
Seward in 1840 called for spending $4 million more each year for 10 years for canals and railroads. Democrats, then the Whigs' political opponents, derided them as "The $40 Million Party." The Whig majority in the state Legislature kept pushing up the debt.
The state entered a downward fiscal spiral. Recession sparked by the Panic of 1837 cut into state revenues. Canal construction costs rose. Even Seward admitted "severe shock" at learning that canal expansion would cost twice what he had estimated. The Erie Railroad fell behind on its repayment of state loans. Selling state bonds became more difficult as nervous creditors began to worry about New York's solvency.
State debt rose to $27 million in 1842, a huge sum in those days. Comptroller Flagg warned that New York was at "the very brink of dishonor and bankruptcy" and "it is a question of solvency or insolvency."
Apprehensive voters gave fiscally conservative Democrats a majority in the 1842 Legislature. They curtailed or suspended canal work and railroad aid. With Seward's reluctant concurrence, they enacted a "Stop and Tax" law, which imposed a tax of one mill on each dollar of taxable property in the state.
The debt began to decline. Creditors' confidence returned, and state securities regained the status of good investments.
Seward did not run for re-election in 1842. Democrats William Bouck and Silas Wright, who followed him as governor, both favored holding down expenses. But as the fiscal picture began to brighten, even Democrats could not resist the temptation to expand spending. In 1845, the Legislature voted an appropriation to restart work on the Genesee Valley and Black River canals. Wright vetoed the bill, calling it "unwise and impolitic."
The state held a constitutional convention in 1846 to address several issues. Alarmed by the recent brush with insolvency, the public favored imposing severe limits on the state's power to run up debt. The convention's revisions to the constitution included establishment of "sinking funds," with canal revenues and taxes dedicated to bringing down the debt. Future debt was limited to $1 million, except as needed to "repel invasion, suppress insurrection, or defend the state in war."
Exceeding the limit would require voter approval. New laws must carry cost estimates and indicate how they would be paid for. Aid to railroads and other private ventures was prohibited.
The public overwhelming approved the constitution in the fall of 1846. New York briefly pulled back to fiscal retrenchment.
But, as economic prosperity returned, legislators grew restive with the constitutional restrictions. To speed up the canal work, they began appropriating money from the forthcoming year's anticipated toll revenues rather than what was actually in the canal fund. In 1851, the Legislature voted to issue long-term stock certificates to private investors against future revenues as a way of raising money even faster. That was unconstitutional, the Court of Appeals said in 1852.
Gov. Washington Hunt, another Whig, then proposed that "in view of the steadily increasing revenues of the canals," the state's borrowing authority should be expanded. The Legislature passed a constitutional amendment to increase the state's authority to borrow for canal work. Voters approved in 1854. Debt-funded canal expansion accelerated.
"It is time to return to voter approval of borrowing," says DiNapoli. But history suggests that the public may be as inconsistent as the Legislature on the debt issue.
Debt can be a wise, strategic investment. But, as Gov. Silas Wright said in 1845, heavy, "perpetual debt" hurts the state. Expenditures may need to be curtailed "until the debt of the state should be brought within the safe and certain power and control of its revenue."
Comptroller DiNapoli probably would agree.
Bruce Dearstyne lives in Guilderland. He was a professor and is now an adjunct professor at the University of Maryland. He also was a program director at the New York State Archives.