Q&A
Discussion on NYC's debt limit and remaining debt capacity
0:19:17
·
5 min
Council Member Brannan and Comptroller Lander discuss the city's debt limit and remaining debt capacity. They review current estimates and projections for fiscal years 2025 and 2026, considering the recent increase in the TFA bond cap.
- The city is estimated to have a remaining debt margin of $27.5 billion (20.2% of the debt limit) by the end of FY25, and $25.5 billion (18.3%) by the end of FY26.
- The discussion touches on the calculation method for the debt limit, which uses a 5-year average of the full valuation of the city's taxable real estate.
- They note that while COVID-19 impacted these calculations, modest growth is expected in the coming years.
Justin Brannan
0:19:17
Thank you, controller.
0:19:19
We've also been joined by council member Williams.
0:19:25
I wanna jump in to, talk about the debt limit.
0:19:29
In December 23, prior to the release of the January plan, your office reported that by the end of f y 24, without assuming any increases in the TFA bond cap, that the city would have $33,500,000,000 of remaining debt, incurring power, which is 24.6% of the total.
0:19:50
By the end of f y 26, your office estimated that the city would still have 27,700,000,000 of remaining debt incurring power.
0:19:59
With the additional TFA increase that we saw included in the state budget, what does your office estimate as the city's current debt limit for GO and TFA debt combined for f y 25?
Brad Lander
0:20:11
Thank you for this question.
0:20:12
I really wanna praise my team here because we did a deep dive on debt affordability, and we actually commissioned in addition to the internal work we do, we commissioned a consultant to dive a little deeper.
0:20:22
So if you are interested in the questions of debt affordability and the debt limit, they're on our website.
0:20:28
We can we can get them to you.
0:20:30
We estimate that the general debt limit, will total, in f y 25, a 136,500,000,000 and that the city's indebtedness applicable to that debt would be will be, 108,900,000,000.
0:20:44
So that leaves a remaining debt margin of 27,500,000,000, which is 20.2 percent of the debt limit remaining by the end of fiscal year 25.
0:20:56
And by the end of 26, we estimate the remaining debt margin to be 25,500,000,000, so $2,000,000,000 lower with 18.3 percent of debt limit remaining at that point.
Justin Brannan
0:21:08
Do you feel that those are appropriate amounts of remaining, debt incurring power?
Brad Lander
0:21:13
We do.
0:21:13
We we feel that the $14,000,000,000 increase was appropriate and responsible that it gives the city room for its 10 year capital commitment plan, even with the adjustments that the administration, brought forward.
0:21:29
We will say I'll say 2 things here.
0:21:31
We do believe that a stronger approach to ensuring that we stay below the 15% annual threshold is critical.
0:21:39
We're well below now.
0:21:40
We're at about 10%, but it is gonna grow in the coming years.
0:21:44
And that really is what we wanna measure for because the way the debt limit is calculated is really not related to, what we're actually can afford in terms of debt service or even to the value of its property.
0:22:00
So we do think the $14,000,000,000 increase was appropriate, that it should cover us in the coming years of the financial plan, that we can afford that debt, but some new tools are needed to keep an eye for the long run.
Justin Brannan
0:22:13
So the calculation of the city's geo debt limit uses a 5 year average value of the full valuation of the city's taxable real estate.
0:22:21
And one reason we've seen, declining debt limits is because during COVID, f y 21, there was a significant decline in that number, nearly 8 a half percent from f y 20.
0:22:32
It wasn't until f y 23 that the city's full valuation of taxable real estate exceeded the pre COVID values.
0:22:39
So, if the city's real estate values keep increasing at this modest pace as COVID years drop out of the formula, we assume that the debt limit will greatly increase.
0:22:50
Do you agree with that assessment?
Brad Lander
0:22:53
I'm actually gonna let, I I I think that that Francesco may be the only person who actually understands the special equalization ratios that inform this debt limit, and he has persuaded me that on the one hand, it's not a very good formula.
0:23:06
And on the other hand, you know, given the framework that we have, we're in a reasonable spot.
0:23:12
But let me let me,
Francesco Brindisi
0:23:13
like, respond to the question.
0:23:14
I actually think, my colleagues at the Council of Finance know about the special equalization.
Brad Lander
0:23:18
I apologize.
0:23:19
I'm sure they do as well.
0:23:20
The only person that I've talked to.
Francesco Brindisi
0:23:22
Anyway, the formula itself, the methodology for the calculation of the debt limit is based on something that is done at the state level by the State Department of Taxation and Finance.
0:23:35
And we went into a lot of detail about how that happens.
0:23:38
But the short version of the growth rate going forward of the debt limit is that what we've seen in the FY25 assessment rule from Department of Finance is a growth rate of market value of 0% for FY25.
0:23:56
That's going to be picked up in 2026 by the formulas for the debt limit, which means that although the COVID year, FY21, is going to roll out, the growth rate is going to remain very moderate going forward.
0:24:12
So it
UNKNOWN
0:24:14
So will
Justin Brannan
0:24:14
the debt ceiling start increasing once all the COVID years are no longer
Francesco Brindisi
0:24:18
The debt limit will keep increasing because throughout from 'twenty four to 'thirty three, it's going to continue to increase.
0:24:26
But it's going to increase at a moderate pace, and it's going to be held down by the fact that market values have not grown so much in 'twenty five.
