On Election Day, November 4th, voters in New York State will face a difficult choice between addressing a major school facility problem and exacerbating a problematic budgetary outlook for the state when they decide whether to approve the School Facility Health and Safety Bond Act of 1997, according to a study released today by the New York City Independent Budget Office (IBO). The Bond Act would authorize the state to borrow up to $2.4 billion through the issuance of bonds to fund capital projects related to the construction, expansion, and modernization of public school facilities. IBO's study examines school facility needs, the implementation details of the Bond Act (including comparisons to other bond propositions over the last two decades), the fiscal impact of the Bond Act, the state's budgetary condition, and other potential ways to address school facility needs.

The IBO report concludes that the Bond Act would help meet the immediate school capital needs that exist in both New York State and New York City, but it is not possible to determine how the bond proceeds would be distributed and whether they would be directed to the areas of greatest need. Even though the Bond Act would provide $2.4 billion in new funds, the striking deficiencies in New York State's education infrastructure means that some school facility needs may go unmet. The state's long-term fiscal health remains a concern, however, because the state faces significant out-year budget gaps and its debt payments on outstanding bonds continue to grow at more than double the rate of its revenue collections.

IBO prepared this analysis to enhance public understanding of the pending Bond Act in accordance with its City Charter mandate to provide objective and impartial analysis to the public regarding fiscal and budgetary issues facing New York City. "IBO does not advocate a position on the Bond Act but we do recommend that all voters cast an informed ballot on this important issue," said Douglas A. Criscitello, IBO Director.

The main findings in IBO's eight-page fiscal brief are:

• School facility needs are particularly great in New York City. Exacerbating these needs, the number of students attending public schools in the city has surged by nearly 20,000 each year since 1990 and a substantial amount of school maintenance has been deferred in recent years. To address its most pressing needs, the city has planned to spend $4.8 billion for school facility improvements in its five-year (1995-1999) capital budget plan. Despite this planned investment, unmet needs are expected to exceed available resources.

• Apart from identifying the total amount of money that can be borrowed and listing general categories of public school capital improvement projects that can be funded with bond proceeds, the Bond Act is not accompanied by other implementation details. This lack of detail effectively separates the decision to borrow funds, which will be submitted to the voters, from the equally important decision of how the state will spend the proceeds, even in a broad manner. A broad set of guidelines for spending proceeds, which usually exists prior to a bond referendum and informs the voters' decision, has not yet been established.

• The fiscal effect of the Bond Act and New York City's share of the benefits are uncertain because of this lack of detail. If the Bond Act passes, New York State taxpayers would likely incur costs of about $5 billion in principal and interest payments to repay funds borrowed. As they do for other state expenditures, city taxpayers would contribute significantly to these repayments.

• New York State has more than doubled the amount of money owed to bond holders in the last ten years. Consequently, debt service (principal and interest costs on outstanding bonds) has grown at a rate of 8.9 percent per year-more than double the 3.6 percent growth of revenues collected by the state. Debt service is expected to continue to grow by nearly 7 percent annually through 2002. Such rapid growth, absent comparable revenue increases, will make balancing the state's budget increasingly difficult.

• The use of bonds-as opposed to pay-as-you-go financing-is appropriate because it ensures that the costs of public improvements are borne by the beneficiaries of those investments.