Institutional Federal Compliance Report 2021

84 • Notes to Basic Financial Statements __________________________________________________________________________

The Act also imposes phased-in caps that ultimately limit the amount of State-supported debt issued on and after April 1, 2000 to 4 percent of State personal income, and limit State-supported debt service on debt issued on and after April 1, 2000 to 5 percent of total governmental funds receipts. The Act requires that the limitations be calculated by October 31st of each year using the State-supported debt outstanding and State- supported debt service amounts from the previous fiscal year. As of March 31, 2017, the cumulative debt outstanding and debt service caps were at 4 and 5 percent, and there was $41.6 billion of State-supported debt outstanding applicable to the debt reform cap, which was about $5.4 billion below the statutory debt outstanding limitation. The debt service cost on this new debt was $4.3 billion, about $3.5 billion below the statutory debt service limitation. The Act does not apply to debt that is not considered State-supported and therefore does not encompass State-guaranteed debt, moral obligation debt, and contingent-contractual obligation financing. The State and some of its public authorities which issue debt on behalf of the State have purchased letters of credit and standby purchase agreements from various providers to ensure that the liquidity needs of certain variable rate demand bonds can be met. As of March 31, 2018, these agreements covered $1.56 billion of variable rate demand bonds outstanding, with costs ranging from 40 to 55 basis points of the amount of credit provided and expiration dates ranging from November 16, 2018 to January 11, 2021. In 2003, the State enacted legislation creating the TSFC to finance a portion of its future revenues expected to be received under the 1998 Master Set- tlement Agreement (MSA) with the settling cigarette manufacturers. The MSA revenues were intended to compensate the State for all claims for past, present, and future health care costs originating from health care expenses incurred by the State from the effects of cigarette smoking by its citizens. In accordance with the legislation, TSFC issued $4.6 billion in bonds to finance a payment of $4.2 billion to the State’s General Fund, enabling the State to finance a portion of the budget deficits occurring in fiscal years ending March 31, 2003 through March 31, 2005, to establish $449 million in debt service reserves, and to provide $129 million to finance a portion of the first debt service payments due on TSFC bonds. In accordance with the legislation, all future revenues from the 1998 MSA would be used to repay the debt until it was fully retired, after which all MSA revenues would revert to the State. The State agreed to make additional pay- ments for TSFC debt service, subject to annual appro- priation, from other sources if the future revenues proved insufficient to meet TSFC debt service require- ments of the State. However, the State was never called upon to make any payments pursuant to the contin- gency agreement on the TSFC bonds. During the fiscal

year, pledged MSA revenues of $333 million were rec- ognized and reported in the Special Revenue Fund— Health Care Reform Act Resources and $676 million was paid from the Tobacco Settlement Financing Cor- poration account of the General Debt Service Fund. As of March 31, 2018, all TSFC bonds were retired. Prior to 1996, certain payments due to the State’s local government units in the first quarter of the State’s fiscal year exceeded available State funds. To meet these payments in the past, the State issued short- term tax and revenue anticipation notes called the annual “Spring Borrowing.” LGAC was established in 1990 to issue up to $4.7 billion in long-term debt to finance certain local assistance aid payments, plus amounts necessary to fund a capital reserve fund and other issuance costs. Issuance of the entire $4.7 billion bond authorization as of March 31, 1996 eliminated the need for the State’s annual Spring Borrowing. Pursuant to the legislation establishing LGAC, the State deposits an amount equal to a 1 percent rate of taxation of the total State sales and use tax collected into Other Governmental Funds (Local Government Assistance Tax Fund) to make payments to LGAC for debt service on its bonds and other expenses of LGAC. Amounts in excess of LGAC’s needs are subsequently transferred to the General Fund. Payments to LGAC are subject to annual appropriations by the Legislature. LGAC’s bondholders do not have a lien on monies deposited in the Local Government Assistance Tax Fund. Under current State statute, any issuance of bonds by LGAC in the future will be for refunding purposes only. Chapter 62 and Chapter 63 of the Laws of 2003 enacted, among other provisions, the Municipal Assis- tance Refinancing Act (Refinancing Act), effective July 1, 2003 and deemed repealed July 1, 2034. The Refi- nancing Act created an incentive for the State to seek an appropriation to provide $170 million per year, from Other Governmental Funds (Local Government Assistance Tax Fund (Fund)) to the City of New York (City) for each of the City’s fiscal years beginning July 1, 2003 and ending June 30, 2034. The Refinancing Act requires LGAC to annually certify $170 million so that the State, subject to annual State appropria- tion by the Legislature, can provide for a series of payments to the City or the Mayor’s assignee in each City fiscal year, beginning July 1, 2003 and ending June 30, 2034, totaling $5.3 billion. Based on current law, until the Legislature enacts an appropriation of $170 million, LGAC certifies the release of the funds, the $170 million State payment is made, and LGAC receives the amount it has certified for its needs, no excess sales tax receipts can be transferred from the Fund to the State’s General Fund. During the fiscal year ended March 31, 2018, LGAC certified the release for the State payment of $170 million to the City. Pur- suant to Chapter 54 of the Laws of 2016, the State will receive $16.7 million monthly, not to exceed $200