Compiled by the Government Affairs staff of The Business Council.
August 6, 2010
Contact: Ken Pokalsky
This week, the Senate gave final approval to the revenue bill, and both houses passed a FMAP contingency plan, completing – for now - legislative action on the state's budget for Fiscal 2011.
With an extension of FMAP funding now moving in Congress, the legislature will have return to Albany to appropriate up to $800 million in new federal funds for health care and $600 million for education spending.
Governor Paterson, in July, also vetoed $800 million in spending approved by the legislature; it remains to be seen whether there will be attempts to override any of those spending vetoes.
Although the final spending plan figures have not been released, preliminary analysis from the State Comptroller shows that All-funds spending (including all state and federal funds) for the state will rise 7.6% to $136.5 billion. This figure includes $2.1 billion in education payments that were initially approved last year, but would be spent in the current fiscal year. Excluding this budget gimmick, overall spending increases by $5.4 billion, or 4.2% over last year's adopted figure – a rate of increase double the rate of inflation. These figures do not account for the new federal education funds that will increase All-fund spending to over $137.1 billion. The resulting 8.1% spending increase is nearly eight times the increase in the consumer price index.
The Governor's office has said that the budget contains $2.5 billion in spending actions, including some actual cuts in spending, as well as reductions in anticipated spending increases. School aid, the second largest budget item, was reduced by about $580 million, or 3 percent – about half the reduction initially proposed by Governor Paterson. The Administration's description of spending actions is available here.
The Comptroller also cautioned that overly-optimistic revenue projections could leave the state with a $4.8 billion gap in the newly finalized budget. Moreover, the lack of significant spending constraint in this year's budget will likely result in at least a $7.5 billion structural gap in Fiscal 2012. Earlier, the Budget Division projected out-year deficits of up to $40 billion over the next three fiscal years.
Despite earlier pledges to oppose all new taxes and fees, the final budget includes over $2 billion in new revenue measures for Fiscal 2011; this figure increases to over $4 billion next year as the taxes, fees and deferrals take full effect.
The revenue bill passed this week contains about $1.2 billion in revenue actions (see details here). Previously, the legislature approved a $290 million increase in tobacco taxes, a tobacco tax enforcement initiatives expected to generate $150 million per year, and more than $200 million in various fees, fines and other revenue measures.
The Business Council and other business interests did successfully push back against a range of additional tax and fee proposals, including taxes on sugared beverages, increases in health care surcharges and assessments, state and local tax increases on energy sales, and others.
The legislature failed to act on a widely supported proposal to allow supermarkets to sell wine – a measure that would have generated up to $300 million this fiscal year.
Business investment in New York will take a major hit through a three year deferral of most major business tax credits. This bill will deny New York firms over $200 million in tax relief and investment support this fiscal year, and over $1.2 billion each of the next two years.
Despite pledges that the enacted budget contains no new borrowing, the revenue bill also included a provision to allow the state and local government to defer billions in present pension obligations although these payments will have to be made in future years at interest rates that could be substantially higher than current lending rates.
The budget included a number of significant policy changes as well. It:
- Adopted an amended version of the Governor's proposed Excelsior Program (summary here), which replace the expiring Empire Zones program, and which provides up to $1.2 billion in tax credits over the next ten years for capital investment, new jobs, R&D spending and real property taxes for businesses in targeted sector, limited to no more than $50 million in new credits per year for the next five years.
- Significantly increased the cap on the state's film production credit, by $420 million for each of the next five years.
- Addressed unintended impacts of last year's reform package, including continuance of tax credits, such as the EZ investment tax credit, that are dependent on specific zones. It also makes QEZE de-certifications under last year's amendments effective for 2008 tax year.
- Eliminated the Timothy's Law (mental health parity) subsidy for small businesses, thereby raising the cost of group health coverage for small employers.
Despite the overall dysfunction of the state's budget process, no final action was taken on any significant fiscal reforms or improvements in the budget process. Proposals such as a cap on state spending and further pension reforms were not enacted. The Senate did pass a broad local property tax cap, but the measure was not taken up by the Assembly.
The Business Council's budget/end of session legislative summary is available here.