Fiscal Year 2009 Annual Report of the Comptroller on Capital Debt and Obligations
January 2009

New York City has a large and growing debt burden that is threatening to become unaffordable as the City’s economy suffers the impacts of a severe global economic downturn. By any commonly accepted measure, New York City ranks above its peers in the amount of debt shouldered by city residents and the city’s economy.

The City’s debt has grown from $2,490 per capita FY 1990 to $7,153 by FY 2008, an increase of 187 percent. Over the same period, the cumulative growth rate in debt per capita exceeded the rate of inflation by 115 percentage points and the growth rate of City tax revenues by 32 percentage points. Based on an analysis of financial statements released by other jurisdictions, New York City leads a sample of large U.S. cities in debt burden per capita by a margin of more than two to one.

Among the cities surveyed in this report, New York City also ranks among the highest in two measures of debt burden that factor in a locality’s wealth, and is well above the averages of the sample cities and counties. New York City’s outstanding debt as a percentage of full value of real property in FY 2007 was 8.6 percent. This was 4.8 percentage points above the sample city average of 3.8 percent. Philadelphia at 17 percent and San Antonio at 9.4 percent both exceeded New York City’s ratio. Other major cities had considerably less debt relative to full market value compared to New York City. For example, Chicago’s debt was 4.5 percent of full market value and Los Angeles debt was 3.1 percent of full market value.

Compared to the same set of cities, New York City’s debt as a percentage of personal income in FY 2006 was the highest at 14.5 percent, more than twice the 7.0 percent average of the other sample cities. Philadelphia and San Antonio were the next highest ranked cities at 13.3 percent and 11.6 percent, respectively, with Boston the lowest at 2.9 percent.

Debt is issued by the City of New York (the “City”), or on behalf of the City, through a number of different mechanisms. This report assesses the debt condition of the City of New York in accordance with Section 232 of the City Charter. The Charter requires the Comptroller to report the amount of debt the City may incur for capital projects during the current fiscal year and each of the three succeeding fiscal years.

Despite its magnitude, the amount of outstanding New York City debt is within the debt limit provided by State law. New York City’s general debt limit, as set forth in the New York State Constitution, is 10 percent of the five-year rolling average of the full value of taxable City real property. The City’s FY 2009 general debt-incurring power of $70.42 billion is projected to rise to $75.24 billion in FY 2010, $79 billion in FY 2011, and $80.63 billion in FY 2012.

The City’s General Obligation (GO) debt was $34.19 billion at the beginning of FY 2009. After including contract and other liability and adjusting for appropriations, the City’s indebtedness that is counted toward the debt limit totaled $42.64 billion at the beginning of FY 2009, as shown in the Debt-Incurring Power table on page vii. This indebtedness is expected to grow to $59.26 billion by the beginning of FY 2012. The City was below its general debt limit by $27.78 billion on July 1, 2008 and is projected to have remaining debt-incurring capacity of $24.27 billion on July 1, 2009, $25.07 billion on July 1, 2010, and $21.37 billion on July 1, 2011. This decline in debt-incurring capacity reflects the combined influence of a sizable capital plan and softening property values. If beginning in FY 2011 the City complies with GASB Statement 49, which would require it to fund certain environmental remediation expenses from its operating budget rather than its capital budget, borrowing requirements would be reduced by roughly $500 million per year, thus freeing up additional debt-incurring capacity.

In addition to the obligations counted toward the debt limit, the City is responsible for the interest on Hudson Yards Infrastructure Corporation (HYIC) debt to the extent that revenues from the Hudson Yards development are insufficient to pay debt service (but not its related principal of $2 billion).
The City maintains several additional credits, including bonds issued by the New York City Transitional Finance Authority (NYCTFA) and TSASC, Inc. The debt-incurring capacities of NYCTFA and TSASC total $17.3 billion of which $14.8 billion has been utilized to finance the City’s capital program. Also included in the $17.3 billion capacity is $2.0 billion of recovery bonds issued for general fund expenses in the aftermath of the World Trade Center disaster. As the Debt-Incurring Power table shows, the NYCTFA has exhausted its general debt-incurring power as of July 1, 2008. In addition to this capacity, the NYCTFA is authorized to issue up to $4.8 billion of Building Aid Revenue Bonds (BARBs) for education purposes. Debt service for these bonds is supported by State building aid revenues.

Despite turmoil in the capital markets, the City continues to have market access to sell its debt and has successfully sold $2.865 billion through GO, NYCTFA BARB, and Water credits since the Lehman Brothers bankruptcy filing in September 2008. However, individual transactions have been substantially reduced in size, requiring more frequent sales. In addition, the collapse of the municipal bond insurance industry and auction rate bond market, and reduced credit bank capacity to provide new credit or liquidity support to variable rate demand bond issues, have narrowed the range of debt issuance techniques available to the City. The City’s GO credit is rated AA by Standard & Poor’s, Aa3 by Moody’s Investor Service, and AA- by Fitch Ratings; in each case with a Stable outlook.

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