NYC Comptroller Report Finds $12 Billion Increase in City’s Debt Capacity, Proposed in State Budget, is Both Reasonable & Sufficient to Meet City’s Capital Needs

New York, NY — In a new report and debt affordability study released today, New York City Comptroller Brad Lander evaluates the cost of capital projects not yet included in the City’s Capital Commitment Plan and concludes that the proposal — included in the Governor’s, State Senate, and Assembly budgets — to increase the City’s debt capacity by $12 billion is reasonably sized and sufficient to address the City’s capital needs as articulated by the Adams Administration for the next decade. At these levels, the City’s debt service is projected to remain below 15 percent of tax revenues, the City’s affordability threshold. In addition, the Comptroller proposes an amendment to the City’s debt management policy to ensure that the 15 percent threshold is operational and to identify any potential breaches.

“Investing in our infrastructure is fundamental to New York City’s long-term thriving, and a fiscally healthy approach to municipal debt is how we pay for it. The $12 billion increase in the City’s capacity to incur debt proposed in the State budget – about 10% of today’s limit – would address the capital needs laid out by the Adams Administration,” Comptroller Brad Lander said. “We find that the Governor and Legislature’s proposal to raise the City’s remaining debt-incurring power by $12 billion is reasonable and sufficient to meet the City’s needs. The challenge, of course, will be balancing the cost of investments against the other competing priorities in the budget while maintaining the City’s good credit rating and fiscal health. Toward that end, we propose a stronger debt management policy to make sure we keep debt service below 15 percent of tax revenues and maintain the City’s debt affordability moving forward.”

The City is currently allowed to incur indebtedness for capital projects up to the Constitutional debt limit, set at 10 percent of the 5-year average of the full valuation of real estate located in the city (with additional adjustments as approved by the State Legislature in the past). As of June 30, 2023, the City’s debt limit was $127.4 billion, and total indebtedness counted against it was $96.9 billion, leaving remaining debt-incurring power of $30.5 billion. However, the remaining debt-incurring power is narrowing due to the growth in current and planned capital projects and to the effects of the COVID-19 pandemic on tax assessments.

The Adams Administration has suggested in recent weeks that a range of capital projects are not accommodated by the Constitutional debt limit. Earlier this month, in testimony before the City Council discussing the FY 2025 Preliminary Budget, the Office of Budget Management placed the onus of the capital debt limit problem on borough-based jails, which are essential to the City’s plan to close Rikers Island, pursuant to local law. However, the newly projected planned commitments for the four borough-based jails of $13.3 billion, are only 7.7 percent of the estimated $173.8 billion of capital commitments projected for the period FY 2024 to FY 2033, up from 5.6 percent in the January plan.

Lander’s report finds that the Governor’s proposal to increase the City’s remaining debt-incurring power by $12 billion, which was also included in the Assembly and Senate one-house budget bills (and therefore likely to pass), is reasonably sized and would enable the City to meet the additional capital needs the Administration has articulated, without breaching the debt limit for the next decade, and without adding more indebtedness capacity than is warranted.

Incorporating the additional capital spending, debt service, which was 10.2 percent of tax revenues in FY 2023, is projected to approach but remain below 15 percent, the affordability threshold adopted in the City’s debt management policy.

The Comptroller’s report includes a detailed proposal to amend the City’s debt management policy to make the affordability threshold operational. Under the proposal, the City would use its Capital Stabilization Reserve, an expense that is already included in the financial plan, to pay debt service in any years when debt service is projected to exceed 15 percent of tax revenues.

This mechanism would ensure that the capital planning process appropriately prioritizes and manages capital projects, while maintaining debt affordability.

The Comptroller’s report is accompanied by a Debt Affordability Study conducted by Acacia Financial Group, and a review of the methodology used to determine the City’s Constitutional debt limit.

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