Projecting its current capital plan will consume most of its borrowing authority in the next few years while identifying additional projects to undertake, New York City asked the State to raise the City’s debt limit by $18.5 billion. Governor Kathy Hochul in her Fiscal Year 2025 Executive Budget has proposed a $12 billion increase in the limit.  

In Setting the Right Ceiling, CBC recommends the State reject the arbitrary, lump sum debt limit expansions the City and Executive Budget proposed, and adopt a more analytically grounded, sustainable approach rooted in four guiding criteria: 

1. Ensure reasonable long-term affordability of outstanding debt; 
2. Require annual debt service payments remain affordable;  
3. Provide necessary capacity to fund important capital investments; and 
4. Incentivize capital investment discipline, including project prioritization and cost effectiveness.  

Even if affordable, the City should only take on more debt judiciously, with an eye on the impact on future generations of New Yorkers. Public funds should only support necessary capital investments that are delivered cost effectively and tangibly improve the City’s infrastructure or quality of services. 

The City’s debt limit has two components: A Constitutional debt limit indexed to property values and a statutory limit set at $13.5 billion; the current proposals increase the latter.  

To ensure the City’s debt remains affordable, CBC makes four recommendations: 

• Index the New York City Transitional Finance Authority (TFA) Statutory limit—the debt limit controlled by State statute—to 2.5 percent of total personal income, to ensure the City’s debt capacity grows with its underlying economic capacity, as is the case for the Constitutional limit; 
  - This will increase the TFA Statutory limit from $13.5 billion in fiscal year 2023 to $23.8 billion in fiscal year 2033; 
• Formalize the City’s long-standing practice of keeping annual debt service costs below 15 percent of tax revenue, to protect its operating budget;   
• Continuously and comprehensively improve how the City makes capital investments, including prioritizing projects, reducing costs, and streamlining project delivery; and 
• Amend the debt limit set by the State Constitution so that it is more holistic; it would be preferable to have one limit based on an appropriate economic metric that covers all City debt repaid with tax revenues. 

Substantially expanding debt capacity without a fiscally sound grounding and key controls could threaten long-term debt affordability, the City’s high bond ratings, the ability to do effective capital planning, and other operating budget priorities. It’s the right time to set the right ceiling and improve the City’s overall capital-investment process.