New York State and its numerous public authorities and agencies owe $186.6 billion to bondholders, the federal government, and future retirees, among others. Without borrowing, the Metropolitan Transportation Authority wouldn’t have been able to keep the subway running during the COVID-19 pandemic and the state unemployment trust fund wouldn’t have had enough cash to pay the benefits that kept many residents afloat during layoffs.

But such borrowing has had a less savory side as well. For years, New York has been a habitual user of debt to balance its annual budgets — a fiscally risky tactic largely avoided by most states. Reflecting this, New York was one of only four receiving a D average grade in Budget Maneuvers, the use of one-time actions to achieve balance, from the Volcker Alliance for fiscal 2015-19 (only Pennsylvania scored worse, with a D-minus, the lowest possible grade).

Large or frequent borrowing alone is not a problem for any state, particularly if borrowed funds are used to improve long-term fiscal resilience via investment in infrastructure and to reduce economic inequality. But such a strategy — if not disclosed well enough to convey the full economic linkages between borrowers and those repaying the loans — may limit transparency about the total amount of debt incurred.

Since the passage of the Debt Reform Act of 2000, New York has made substantial progress in simplifying its core borrowing programs. The state budget division now provides annual disclosures, quarterly updates, and occasional supplemental reports. The 2000 law defined the term state-supported debt and restricted its use to capital investments; set maximum debt maturities of no longer than thirty years; and imposed other limits, including restricting outstanding state-supported debt to no more than 4% of state personal income and capping debt service costs at 5% of total fund receipts. However, New York legislators have also passed laws adjusting state limits on debt, especially general obligation bonds backed by the government’s unlimited repayment pledge.

The most visible outcome of such budgeting and borrowing practices is to burden tomorrow’s New Yorkers with the cost of providing current services. As we point out in the recent Volcker Alliance issue paper, New York: State of Debt, when all debts — not just bonds — are taken into account, New York residents owe about $9,235 per person against California’s $7,577 and only $1,554 for Florida, the traditional refuge of those fleeing the North for lower taxes and balmier weather. But the diverse structure of New York’s debt poses an even more significant danger to the state economy’s financial wellbeing. It exposes ordinary New Yorkers and wealthy investors alike to the risk that the government and its public authorities might lose access to credit in a fiscal or market crisis.

While only $2.1 billion of state bonds are secured by a general obligation pledge, much of the $103 billion of debt securities sold by state government authorities and other entities is payable out of specific revenue streams, such as personal income or sales taxes, mass-transit fares, or appropriations by the Legislature. But “state authorities’ finances and operations are often closely intertwined with those of the state itself,” a 2017 report by Comptroller Thomas P. DiNapoli’s office concluded. The risk thus exists that in a future fiscal or financial crisis, investors might ignore distinctions among securities — as they did in the Detroit and Puerto Rico bankruptcies — and spark indiscriminate selling similar to the market rout during the Great Recession that sent bond prices down 12% in October 2008.

There are several steps that New York officials can take to remedy this policy shortcoming.

At minimum, New York should create a centralized advisory office modeled on Florida’s that is actively involved in debt originations of all kinds within state government and at least enable data collection and dissemination. New York’s budget division, which answers to the governor and already coordinates all borrowing via state-supported entities, is a likely candidate for this role — perhaps in partnership with the independently elected state comptroller, who already guides general obligation bond issuance and has broad oversight responsibility for state debt.

New York should also consider following California in simplifying debt structures and centralizing disclosures of borrowings. For instance, most of California’s $90 billion of outstanding bond debt has been approved by majority vote in a statewide election. The state relies heavily on one type of security — the general obligation bond — to minimize borrowing costs, maximize transparency, and improve trading liquidity. In addition, New York also should fold obligations for state unemployment trust fund loans and pensions and other post-employment benefits (OPEB), principally health care, into existing debt limits and transparency mechanisms to improve management and oversight.

While its pensions are almost fully funded — a rarity among states — New York carries on its books almost $75 billion of unfunded OPEB liabilities, which, unlike pensions, it funds on an annual basis. Add to that $9 billion of loans from the federal government to keep the unemployment system solvent in the pandemic era.

(Other states should do the same: California’s unfunded pension and OPEB liabilities total about $190 billion and its unemployment fund owes the feds $19 billion; while Florida currently has no unemployment debt, its $15.5 billion of pension and OPEB debt is about twice the face value of its bonds.)

New York having more debt than its peers is not, on its own, a concern. The problem lies with broad transparency, not only of bonded debts but also of other obligations the state has taken on. Even small amounts of debt should be clearly disclosed to the stakeholders who ultimately bear its cost. While some reforms, such as centralized disclosure of debts, may be easier to achieve in New York than simplifying the structure of borrowings, without such needed changes, New York and its residents and investors will remain vulnerable.

The risk is that market shocks could lead to budget shortfalls or tax hikes if too-big-to-fail state authorities, retirement funds, or other entities need to be rescued if they lose access to the state’s credit lifeline.

Matt Fabian is a partner and Lisa Washburn is managing director and chief credit officer at Municipal Market Analytics Inc. Glasgall is Director, Public Finance, at the Volcker Alliance, a nonpartisan 501(c)3 nonprofit.