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Blueprint for a Better Budget - Part 3

By: E.J. McMahon and Josh Barro
Complete report in PDF format
January 04, 2010

V. A Template for Pro-Growth Tax Reform

 

New York is a high-tax state by any measure. In 2006, New York State and its local governments and school districts collected $6,403 in taxes per resident, 160 percent of the national average. Relative to personal income, New York's state and local tax take is 133 percent of the national average. 

 

State taxes alone in New York are 130 percent above the national per-capita average, but this figure does not reflect the full burden of local expenses effectively dictated by the state. To help finance those mandates, including a share of welfare and Medicaid expenses, New York's counties and New York City are authorized to impose their own sales taxes of up to 4.75 percent on top of the state's 4 percent state rate, and New York City adds its own resident income tax rate to the state income tax. If spending mandated by Albany was paid for entirely by the state with no further programmatic reform, the tax burden wouldn't be any lighter—it would simply be collected at a different level.

 

Taxes were even higher 30 years ago. In 1977, state and local taxes came to 15.48 percent of New Yorkers' personal income. This fell somewhat over the next two decades, reaching 13.10 percent in 2000 after the last significant round of state tax cuts. However, collections as a share of income rose through the current decade, due to the upward march of local property taxes, strong capital gains and Wall Street bonuses in most years, and the 2003-2005 temporary income tax surcharge. By 2006, tax collections reached 14.57 percent of personal income, less than one percentage point below the 1977 figure.[95

 

 

Throughout this period, New York's tax take has far exceeded the national average. Because other states reduced their tax burdens during the 1980s and 1990s, New York's tax reforms did little to improve tax competitiveness with other states. As shown in Figure 4, New York's state and local taxes as a share of income were 143 percent of the national average in 1977. By 2007, they were still 135 percent of the national average.

 

While maintaining a high tax burden, New York has seen anemic private sector job growth over the last 30 years. During that period, we have matched or exceeded national private sector job growth only during three periods: the 1980-1983, 1999-2000, and 2007-2008. All of these periods came after the implementation of income tax cuts or expiration of temporary tax increases.

 

Falling tax rates have not meant falling tax burdens

 

In the last 30 years, New York's nominal income tax rates have fallen drastically. New York's top personal income tax rate peaked at 15.375 percent in 1977. By that point, a bipartisan consensus had emerged that high taxes hampered New York's competitiveness and were a driver behind the fiscal crisis that nearly bankrupted New York City. Taxes pose the same threat today.

 

In response, Governor Hugh Carey initiated a one-third reduction in the marginal tax rate, to a maximum of 10 percent on "earned" wages and salaries by 1981. Under Governor Mario Cuomo, higher rates on "unearned" income from dividends, interest and capital gains were eliminated, and the regular income tax rate dropped further, to under 8 percent. Finally, the top rate reached 6.85 percent under Governor Pataki. The reforms of the 1990s also expanded credits and deductions for low- and middle-income people, spreading more tax relief to all levels.

 

Why have drastic rate cuts only resulted in modest revenue cuts? The rate cuts were partially offset by two other phenomena: base broadening, which significantly increased the amount of income subject to tax; and "bracket creep", or tax brackets that remained fixed even as inflation increased nominal incomes.

 

The fall in personal income tax rates have led some observers to wrongly conclude that New York's tax system has been shifted to favor the rich over the last several decades. That is a misreading that ignores both the expansion of the tax base and the introduction of credits (principally the Earned Income Credit) that have reduced the tax burden on middle- and especially lower-income New Yorkers. Indeed, from 1995 to 2007, the share of New York income taxes paid by the top 1 percent of filers rose from 26 percent to 41 percent.

 

From bad to worse

 

The "temporary" personal income tax increase and other new taxes included in the 2009-2010 budget have increased tax collections, even as personal income falls in nominal terms. We estimate that New York state and local taxes as a share of income reached just over 15 percent in 2009, approaching the high-water mark of 1977. Current laws would produce tax revenues between 15 percent and 16 percent of income over the next three years; however, these revenues would be insufficient to fund New York governments as they are currently structured. If state taxes are increased to close the projected budget gaps based on the "current services" spending projections from the Governor's Office of the Budget, we project taxes will reach 16.21 percent of income for 2010 and 17.22 percent by 2012—far higher than peak 1970s levels.[96

 

 

A pro-growth tax policy agenda for New York

 

It is shocking that New York failed to reduce its tax burden further despite the windfall reaped the state since the 1970s, in the form of a rapidly expanding financial sector. By 2006, financial sector salaries (including bonuses) accounted for 20 percent of all personal income in New York State, up from just 4 percent in the late 1970s. Over the same period, personal incomes rose from 110 percent of the national average in 1977 to 120 percent in 1996.

 

Just as Alaska used the discovery of oil reserves as an opportunity to repeal its income tax, New York could have seized on the historic growth in the financial industry as an opportunity to more significantly reduce taxes while continuing to grow government at a slower pace. Reducing the tax burden also would at least have lessened the anti-competitive impact of tax increases. However, raising taxes now will put New York even farther out of line with other states than it was to start with.

 

It is possible to balance the state's budget without repeating the mistakes of the past. We recognize that fundamental tax reform is not likely to be on the table this year, especially because across-the-board tax cuts are out of the question with the wide budget deficit. However, there are three key tax actions that New York can and should pursue immediately:

 

  1. Allow temporary income tax rates to sunset on schedule.
  2. Index income tax brackets to inflation.
  3. Eliminate unwarranted personal income and corporate tax credits.

 

In the long term, New York needs fundamental tax reform to encourage economic growth and end boom-bust budget cycles. Such a reform should reduce the total tax burden and make the tax code simpler, more neutral, and easier to comply with. At the end of this section, we lay out broad principles for such a reform.

 

1. Allow temporary personal income tax increases to sunset on schedule in 2011

 

Legislation enacted with the 2009-10 state budget raised New York's highest personal income tax rate by nearly one-third, from 6.85 percent to 8.97 percent for filers with incomes above $500,000. A second "surcharge" rate of 7.85 percent was imposed on taxpayers with incomes below $500,000 but above $200,000 for single filers (or $250,000 and $300,000 for heads of household and married joint filers, respectively). These tax increases have put New York further out of step with its surrounding states, especially in New York City where the largest concentration of high-income earners is located. New York cannot afford to permanently enshrine these rates, further discouraging wealth and job creation within its borders.

 

Substantial out-year budget gaps may serve as an excuse to extend the temporary tax increase—although the taxes alone raise barely enough revenue to close one-quarter of the projected 2012-13 gap. Enacting the spending-side recommendations in this report and aggressively pursuing other cost-saving options are a better alternative.

 

 

2. Index PIT brackets to inflation as part of 2010-2011 budget.

 

"Bracket creep" over the last 30 years, where tax brackets remained fixed while inflation devalued the dollar, led to New Yorkers' average and marginal tax rates rising from year to year through no action of the legislature. This is unwise policy; tax rates should remain fixed on a real basis unless the Legislature acts. For this reason, the federal government annually adjusts tax brackets, personal exemptions and standard deductions in line with the rate of inflation.

 

New York should follow the federal governments lead and index its own tax brackets to inflation. Because inflation is near zero today, this reform has negligible short-term fiscal cost, but would protect New Yorkers from bracket creep over the long term.[97

 

3. Eliminate unwarranted tax credits and preferences.

 

In 1986, the federal government implemented reforms that greatly simplified the income tax and broadened the tax base, while sharply cutting tax rates. Many of these reforms flowed through to New York's income tax due to the state's adoption of many federal definitions. Unfortunately, since 1986 the trend has been to create new credits and exclusions and make New York's taxes more complicated.

 

Some larger incentive programs—such as the Investment Tax Credit—should be eliminated in the long term in conjunction with a reduction in tax rates. However, businesses have made investment decisions in expectation that this credit would reduce their effective tax rates. Eliminating the credits now without an offsetting rate cut would be tantamount to a marginal tax rate increase on businesses—not a good act in a recession or a good way to burnish New York's image as a place to invest.

 

Other credits, however, do not resemble a complex reduction in tax rates. Rather, they are more akin to subsidy programs that could just as easily run through the expenditure side of the state's books. These programs should be viewed as what they fundamentally are—spending programs—and reviewed with the same critical eye as any other budget area. By eliminating the tax credits and preferences identified below, we believe New York could reduce its 2010-11 budget gap by about $95 million, with savings growing to $139 million in subsequent fiscal years.

 

 

Empire State Film Production Credit

 

The Empire State Film Production credit subsidizes movie and TV productions in New York State. It's an expensive corporate welfare program whose costs are unjustified, and it should be abolished. A similar program subsidizing production of TV commercials should also be ended. 

 

The film credit equals 30 percent of "below the line" production costs for film and television series in New York State. New York City provides an additional 5 percent credit for productions within its borders. "Below the line" expenses generally include all production expenses incurred in New York except payments to writers, directors, producers, and performers with speaking roles.

 

This credit is fully refundable against both personal and corporate income taxes, meaning that producers may receive credit payments in excess of income taxes due to New York State. As such, while the program operates through the tax code, it is economically indistinguishable from a simple subsidy program for film production.

 

And it's an expensive subsidy program: the state budgeted $515 million for credits in 2008 and allocated all of it to 120 projects within a year. With New York facing its greatest fiscal crisis since the Depression, Governor Paterson and legislative leaders authorized an additional $350 million. In announcing the renewal, Paterson's office touted the program's "enormous success," as though giving away free money to a favored industry is a surprising or difficult feat.

 

Supporters argue that the program creates jobs. On a gross basis, this is true, just as a negative 35 percent tax rate (on gross expenditures) for any industry would create jobs in that industry. What's not seen is the jobs and economic activity that are lost because New Yorkers must be taxed an extra $4 million for every production the program "brings" to the state—some of which would have been shot in New York anyway, as the TV series Law & Order has been since 1990. At that kind of expense, New York taxpayers should at least be getting a share of profits (or what Hollywood producers would call "backend points") on these productions, instead of serving as uncompensated partners.

 

There is no way of knowing for sure how much of the film production credit had been exhausted by the end of the calendar year—a lack of transparency that is yet another flaw in this program. However, assuming 25 percent of authorized funds remain unallocated, this would result in $87.5 million in savings spread over the next three fiscal years. Eliminating the advertisement subsidy would save $7 million per year.

 

Environmental Credits

 

The state offers tax incentives for environmentally friendly building practices, including the purchase of recycled building materials and installation of solar panels. Generally, the credits focus on high-visibility actions like installing solar panels and fuel cells, to the detriment of less sexy but often more efficient actions like improving insulation of existing buildings or placing enterprises in transit-served locations.

 

However, it is hard to see the rationale for subsidizing "green" activities at the state level. The benefits of reduced fossil fuel consumption accrue at the private level (lower energy bills), the national level (reduced dependence on foreign oil), and the global level (decreased atmospheric carbon dioxide levels). For this reason, the federal government has its own set of programs to encourage energy efficiency. What public good from installing solar panels or producing biofuels accrues specifically to New York taxpayers, and justifies state programs atop the federal ones?

 

These credits were intended to demonstrate a commitment to environmentally responsible practices. But as New York seeks a solution to its budget emergency, feel-good measures are the first place to cut. These credits just don't pass the necessity test. Eliminating them will save a total of $24 million a year.

 

Qualified Emerging Technology Company credits

 

New York's Investment Tax Credit (ITC) program is problematic, because it complicates the state's corporate tax code and provides an undue advantage to capital-intensive industries. However, ITCs are an embedded part of New York's tax code and serve to reduce the effective corporate income tax rate below the statutory 7.1 percent.

 

As part of a long-term reform, we would propose eliminating the ITC and steeply cutting the tax rate at the same time. For the short term, we recommend retaining the ITC program while making a "down payment" on reform by eliminating the Qualified Emerging Technology Company (QETC) credit program, which provides especially large (and refundable) ITC benefits to one sector.

 

QETCs receive favorable ITC treatment. They are eligible for credits equaling 18 percent of R&D facility costs, 9 percent of R&D expenses, and 100 percent of employee training costs up to $4,000 per employee. (ITC credits typically only cover 4 percent of eligible costs.) Unlike ITC credits available to most firms, QETC credits are fully refundable, and are estimated to cost $15 million in 2009 ($5 million on the PIT and $10 million on the CIT). QETCs are also eligible for smaller credits for capital investment and job creation, with an estimated 2009 cost of $1.4 million. Like the Film Tax Credit, these refundable credits are subsidies for a favored industry that happen to operate through the tax code, and aren't properly considered to be "tax relief." These programs should be repealed and QETCs placed on the normal, less-generous ITC schedule.

 

Repeal Miscellaneous Credit Programs

 

These programs aren't very big, but they also aren't very useful. They should be eliminated for a small budget savings, because every little bit helps.

 

  • Credit for Rehabilitation of Historic Properties—The federal government already provides a tax credit for rehabilitating properties on the National Register of Historic Places; this program augments that credit by a further 30 percent. Eliminating New York's version will save $13 million a year, and ending the similar 
  • Historic Homeownership Rehab Credit program saves a further $3 million.
  • Rehabilitation Credit for Historic Barns—It is difficult to come up with a more narrowly targeted tax break than this one, which allows firms and individuals to claim 25 percent of the rehabilitation cost as a credit against Corporation Franchise Tax. The fact that the cost estimate for the credit is too small to estimate does not justify its continuation.
  • Security Training Tax Credit—Owners of buildings over 500,000 square feet-in other words, Manhattan office towers—get a $3,000 tax credit for every employee who has gone through a state-approved training program and receives at least a certain wage. This bill essentially represents a favor to a union representing building security guards. Its repeal will save New Yorkers $1 million a year.

 

Long Term Goals

 

While pursuing the short-term goals listed above, lawmakers should proceed with due speed to put New York on a course to fix its tax code for good, replacing the current tax system with one that fosters growth in the private sector. 

 

We suggest that any reform should meet the following criteria:

 

  • Impose a lower tax burden overall, measured by tax collections as a share of the economy. New York must stop being a tax and spending outlier, and especially must avoid its current trajectory which would take taxation to over 17 percent of income, a previously unseen level. Albany cannot achieve this goal without spending restraint, as emphasized in this report.
  • Apply low rates to a broad tax base. The state should eliminate most preferences that exempt certain kinds of consumer goods and services, or certain kinds of income, from taxation. This broadening of the tax base will allow steep reductions in sales and income tax rates without reducing revenue. Equalizing tax treatment of different kinds of economic activity will encourage businesses and consumers to make choices based on what produces the best economic outcomes instead of the best tax outcomes.
  • Simplify the tax code to reduce the compliance burden. The growing complexity of the New York State tax code is reflected in the size of the annual Tax Expenditure Report, a listing of tax preferences that over the past 10 years has swelled from 168 pages to 233 pages. Base broadening will have the added benefit of tax simplification, with businesses (for example) relieved of the obligation to figure out that Snickers is taxable candy and Twix is non-taxable food.
  • Raise more stable revenues. New York's outsized reliance on personal income tax revenues, driven by high salaries in the financial industry, has led to a boom-bust budget cycle and massive budget gaps each time there is a recession. The imposition of new high-income tax brackets only worsens this volatility. New York should shift its revenue mix to rely more on taxing consumption and less on taxing income, as the sales tax base moves less drastically with shifts in the economy.

 

Tax Models from Other States

 

California's Commission on the 21st Century Economy has made some positive suggestions for tax reform in that state, including a flattening and simplification of the personal income tax structure.[98] This approach is also worthy of consideration in New York, although the California commission's proposal for a "business net receipts tax" to replace that state's corporate and sales tax deserves to be treated with more skepticism. This tax would be similar to value added taxes ("VATs") levied in most wealthy countries other than the United States. A key feature of the typical VAT is that it is charged on the value of imports and rebated on exports. Because this is not possible for trade across state lines, significant reliance on a VAT-style tax could introduce serious distortions in a state's economy, particularly harming firms that produce goods for final sale in other states.

 

Massachusetts is an example of a nearby northeastern state with a relatively large public sector that nonetheless finances itself with a relatively sound tax system. Positive features of the Bay State's tax code include a flat income tax of 5.3 percent and a 6.25 percent statewide sales tax with no local add-on. These low rates are made possible by a somewhat more frugal public sector and by broader tax bases. Property taxes in Massachusetts are lower than those in New York—despite the lack of local sales or income tax—in large part due to the Proposition 2 ½ tax cap approved by Massachusetts voters in 1980.

 

CONCLUSION

 

Trends in the world and national economy obviously will have a powerful effect on New York's own recovery over the next few years. Federal policies on health care and taxation also threaten to hobble the state's efforts to climb out of the deep hole it has dug for itself. But the greatest risk facing New York in the short term is that state officials will draw the wrong lessons from the experience of the recent past.

 

In the wake of terrorist attacks, an economic recession and a sharp Wall Street downturn in 2001 and 2002, New York State faced multi-billion dollar budget gaps almost as daunting as those confronted by Governor Paterson and the state Legislature at the beginning of 2010. The Legislature chose to balance the budget in 2003 with a combination of massive temporary tax increases, borrowing and other gimmicks—and virtually no significant spending reductions. New York dodged a bullet: the national economy recovered faster and more strongly than anyone had expected, spurred by tax cuts on the federal level and rock-bottom low interest rates that ultimately gave rise to a speculative bubble. Tax revenues surged, and between 2003 and 2008, New York's state government embarked on its biggest spending spree in two decades.

 

This time is different, however. 

 

The economic landscape has been permanently altered, and notwithstanding the profitability of Wall Street's surviving big banks, the old financial sector model is not coming back to bail out Albany.

 

Billions in temporary federal stimulus funds have only postponed the inevitable. After living beyond its means for many years, the Empire State faces a day of reckoning. Raising state taxes even higher will only stifle the economic recovery. Continuing reliance on stopgap measures to balance the budget will prolong the crisis—leading to even deeper, more intractable problems in the future. Simply passing costs on to local governments and school districts will compound the already severe burden of local taxes across New York.

 

The solution is to permanently reduce the size and cost of both state and local government to a level New Yorkers can afford. That demands sweeping, fundamental and permanent changes in the way government does business—the kind of changes described in this report.

 

It can be done. 

 

And if New York is to avoid a California-style collapse, it must be done.

 

SUMMARY OF RECOMMENDATIONS

 

Rightsizing State Government

 

  • Save $7 billion in 2010-11, growing to nearly $14 billion over three years, through actions that include:
    • Reform and restructuring of Medicaid, more aggressive Medicaid fraud recovery targets, and reductions in other health spending commitments
    • Reduction and capping of growth in school aid
    • Merger and consolidation of state agencies
    • Targeted reductions in judicial and legislative budgets
    • Elimination or reduction of low-priority programs
    • Repeal of inequitable or inefficient tax credits
  • Link school aid and municipal aid reductions to the following:
    • Cap on school property tax levies
    • Freeze on teacher salaries
    • Reform of teacher discipline statute
    • Eliminate the charter school cap
    • Repeal of prohibition on changes to retiree health benefits
    • Procurement and contracting reforms
  • Pursue opportunities to raise needed cash, reduce recurring expenses and tap the expertise of the private sector through sale of state assets, public-private partnerships (PPPs), and competitive contracting.

 

Framework for Reform

 

  • Provide temporary taxpayer relief through a three-year freeze on state, local and school district employee wages.
  • Reform and repeal Taylor Law provisions including compulsory arbitration for police and firefighters, and the "Triborough" amendment that requires longevity pay increases in the absence of a new contract.
  • Pursue Suozzi Comission and Lundine Commission recommendations for local mandate relief and savings.
  • Repeal costly capital construction mandates including prevailing wages, Wicks Law, and project labor agreements.
  • Modernize capital contracting requirements to allow more PPPs and "design-build" projects.

 

Better Budget-Making

 

  • Impose a three-day rule for disclosure of budget bills and updated financial plans before legislative budget votes to improve transparency and accountability.
  • Mandate a balanced budget on the basis of Generally Accepted Accounting Principles (GAAP).
  • Shift start of the fiscal year to July 1.
  • Move to a two-year fiscal cycle to promote long-term planning.
  • Impose a binding constitutional limit on spending growth.
  • Close the "backdoor" on borrowing by limiting circumstances under which debt can be issued without voter approval.
  • Clarify the governor's authority to postpone and impound spending during cash-flow emergencies.
  • Manage for results by developing performance standards for state agencies, based on measurable outcomes compared to targets.

 

A Template for Reform

 

  • Focus on these short-term priorities:
    • Allow temporary income tax rates to expire on schedule.
    • Index state income tax brackets to inflation.
    • Eliminate economically inefficient or inequitable tax credits.
  • Establish these long-term goals:
    • Impose a lower tax burden overall
    • Apply lower rates to a broader tax base
    • Simplify to reduce the compliance burden
    • Raise more stable revenues

Endnotes:

 

  1. Wendell Cox and E.J. McMahon, "Empire State Exodus: The Mass Migration of New Yorkers to Other States," Empire Center for New York State Policy, October 2009. http://www.empirecenter.org/pb/2009/10/empirestateexodus102709.cfm
  2. Arthur B. Laffer, Stephen Moore and Jonathan Williams, "Rich States, Poor States: ALEC-Laffer State Competitiveness Index," American Legislative Exchange Council, March 2009. http://www.alec.org/am/pdf/tax/09RSPS/26969_REPORT_full.pdf
  3. New York's All Funds budget, which totaled $133 billion at the time of its adoption in 2009-10, consists of state government spending financed by all sources, including federal aid that is passed directly to local governments. The State Funds budget, which totaled nearly $86 billion, includes all spending supported by non-federal revenues, including special-purpose spending supported by dedicated taxes, fees, fines, Lottery receipts and college tuition. The state's budget-balancing efforts are focused on the General Fund, initially pegged at just under $55 billion in 2009-10, which is comprised solely of spending supported by unrestricted state revenues. The actions proposed in this report are thus designed to produce General Fund savings. Some proposals would close portion of the General Fund budget gap by freeing up money that would otherwise be committed for State Funds spending, such as increases in STAR tax breaks or health spending financed through the HCRA (HealthCare Reform Act) fund.
  4. Ravitch remarks at "States' Long-Term Budget Gaps: Are There Any Solutions," conference co-sponsored by Levin Institute and Rockefeller Institute, Nov. 30, 2009. Audio at http://rockinst.org/forumsandevents/
  5. Division of the Budget, "Mid-Year Financial Plan Update, 2009-10 Through 2012-13," http://www.budget.state.ny.us/budgetFP/midYear_update/2009-10_MidYearUpdate.pdf
  6. Revenue estimates from both the state Comptroller's Office and Assembly Ways and Means Committee would place the 2009-10 deficit over $4 billion.
  7. New York seemed to be heading in a similar direction in 2008 when Governor Paterson directed executive agencies to produce "core mission statements" assigning low, medium or high priorities to their activities. However, this exercise appeared to have a minimal impact on the 2009-10 budget. Most agencies identified the vast majority of activities as "high" priorities, usually reserving "low" grades for programs added to their budgets by the Legislature. The "medium" grade was often applied to administrative overhead, data gathering (which aids accountability) and public access to records. Few agencies could consistently identify meaningful performance standards or measures for their activities. The governor's directive did not cover education, higher education, the Judiciary or the Legislature
  8. In keeping with the state's accounting focus on the General Fund, the figures in Table 2 are reductions compared to the General Fund baseline under current law; in some categories, spending would continue to increase, but at a slower rate or with expected added support from special revenues (such as tuition).
  9. Comparative data on state Medicaid expenditures are from the Kaiser Family Foundation's statehealth-facts.org website. http://www.statehealthfacts.org/profileind.jsp?cat=4&sub=47&rgn=34
  10. Tarren Bragdon, "Medicaid In Depth: A Special Research Series," Empire Center for New York State Pol-icy, February 2007, http://www.empirecenter.org/pb/2007/02/ny_medicaid_rec.cfm
  11. Division of the Budget, "Mid-Year Financial Plan Update, 2009-10 Through 2012-13." See table on page 24. Due to fund shifts including the expiration of federal stimulus, the General Fund share of Medicaid was projected to increase 138 percent between 2009-10 and 2012-13.
  12. Division of the Budget, "2009-10 Enacted Budget Financial Plan," page 129. http://publications.budget.state.ny.us/budgetFP/2009-10EnactedBudget-FINAL.pdf
  13. Nelson A. Rockefeller Institute of Government, "Health Reform Poses Major Cost Questions for State Counties," forum summary at http://www.rockinst.org/forumsandevents/2009/12-16-federal_health_reform.aspx
  14. Programs are described at http://www.flmedicaidreform.com/
  15. University of Florida, "Evaluating Medicaid Reform in Florida: An Analysis of Medicaid Expenditures Before and After Implementation of Florida's Medicaid Reform Pilot Demonstration," June 2009, http://mre.phhp.ufl.edu/publications/
  16. Based on federal data, the Citizens Budget Commission estimated that New York's personal care utilization rate was 30 hours a week, compared to a national average of 11 hours. Citizens Budget Commission, "Options for Budgetary Savings in New York State: A Background Paper," October 17, 2007. http://www.cbcny.org/content/options-budget-reform-new-york-state
  17. Citizens Budget Commission, "Options for Budgetary Savings in New York State: A Background Paper," October 17, 2007. http://www.cbcny.org/content/options-budget-reform-new-york-state
  18. Ibid.
  19. State of New York, Executive Chamber, "Fact Sheet: $2.7 Billion Enacted Deficit Reform Legislation," http://www.state.ny.us/governor/press/press_1202091_factsheet.html
  20. Citizens Budget Commission, op. cit.
  21. "Senate Republicans Propose Budget Cutting Measures," News Release from State Senate Minority Leader, Oct. 14, 2009.
  22. Senate Republicans estimated this would save $100 million.
  23. Tarren Bragdon, op. cit
  24. Citizens Budget Commission, op. cit.
  25. "Senate Republicans Propose Budget Cutting Measures," op. cit.
  26. "New York Medicaid Fraud May Reach Into Billions," The New York Times, July 18, 2005, page 1A. http://www.nytimes.com/2005/07/18/nyregion/18medicaid.html?_r=1&pagewanted=2
  27. State of New York, Executive Chamber, op. cit.
  28. "DiNapoli: New York's Medicaid System Leaking Millions," New Release from Office of the State Comptroller, Dec. 22, 2009, http://www.osc.state.ny.us/press/releases/dec09/122209b.htm
  29. This is equivalent to less than 2 percent of the non-federal Medicaid spending in New York.
  30. "Closing the Gap: County Recommendations for Closing the State Budget Deficit without Shifting the Burden to Property Taxpayers," New York State Association of Counties, Oct. 6, 2009.
  31. Ibid.
  32. Federal health care "reform" legislation may complicate this task by replicating many New York insurance mandates on a national level; however, this does not constitute an argument for subsidizing one form of coverage for some employers.
  33. Two similarly affluent, urbanized and expensive northeastern states, Maryland and Massachusetts, spent $4,257 and $3,243 less per pupil than New York, respectively, but placed above New York in a recent national ranking of state educational systems. If New York spent at the Maryland rate in 2006-07, it would have saved $11.7 billion; if it had spent Massachusetts rate, it would have saved $8.9 billion.
  34. E.J. McMahon, "Enough is Enough: Why and How to Cap New York's School Property Taxes," Empire Center for New York State Policy, March 2008. http://www.empirecenter.org/Special-Reports/2008/06/PropTaxCap.cfm
  35. Terry O'Neil and E.J. McMahon, "Taylor Made: The Cost and Consequences of New York's Public-Sector Labor Laws," Empire Center for New York State Policy, October 2007. http://www.empirecenter.org/Special-Reports/2007/10/TaylorMadeReport.cfm
  36. Manhasset Union Free School District, 42 PERB.
  37. E.J. McMahon, "Teachers clean up on pension reform, NYFiscalWatch commentary, Dec. 2, 2009, at http://www.nyfiscalwatch.com/?p=2244
  38. New York State Schools Boards Association (NYSSBA), Quality Educators in Every School, 2008, at www.nyssba.org/clientuploads/nyssba_pdf/gr_3020aQualityEducators.pdf. According to NYSSBA, "a 3020-a proceeding takes an average of 520 days from the date charges were brought to the date a decision was issued, at an average cost of $128,000. Proceedings addressing charges of pedagogical incompetence are even longer, spanning on average 830 days and costing on average $313,000."
  39. "Paterson: Let's Not Race to the Middle," New York Observer, Dec. 15, 2009, http://www.observer.com/2009/politics/paterson-lets-not-race-middle
  40. See Tae Ho Eom, William Duncombe and John Yinger, "Unintended Consequences of Property Tax Relief: New York's STAR Program," October 2005, Abstract. Center for Policy Research, Maxwell School of Citizenship and Public Affairs, Syracuse University, http://www.cpr.maxwell.syr.edu/cprwps/pdf/wp71.pdf, and Rockoff, Jonah E., "Community Heterogeneity and Local Response to Fiscal Incentives," December 2003. http://www0.gsb.columbia.edu/faculty/jrockoff/papers/rockoff_local_response_dec_03.pdf
  41. Including tuition, fees and other non-General Fund revenue, total state operating funds spending for SUNY and CUNY was over $7.7 billion in 2009-10.
  42. xlii. Data for 2007-08 from U.S. Department of Education, National Center for Education Statistics, Integrated Postsecondary Data System, as reported by the National Association of State Student Grant and Aid Programs in its 39th Annual Survey Report on State-Sponsored Student Financial Aid.
  43. State Higher Education Executive Officers, "State Tuition, Fees, and Financial Assistance Polices for Public Colleges and Universities, 2005-06," at http://dev.sheeo.org/finance/tuitsurv-home.htm
  44. Given the state Constitution's requirement that all funds spent by state agencies be appropriated, the greater flexibility recommended here for SUNY and CUNY might require that the two university systems be statutorily reclassified as public benefit corporations.
  45. State of New York, 2003-04 Executive Budget Message, page 70.
  46. Cities would save $48 million and towns would save $63 million, assuming 3 percent average growth in personal service costs, based on 2008 financial data for local governments collected by the Office of State Comptroller at http://www.osc.state.ny.us/localgov/datanstat/index.htm.
  47. See "State Court Statistics 2007," A joint project of the Conference of State Court Administrators, the Bureau of Justice Statistics, and the National Center for State Courts' Court Statistics Project, 2008. New York's statistics are among those classified as incomplete for comparison purposes. http://www.ncsconline.org/D_research/CSP/2007_files/State Court Caseload Statistics 2007.pdf
  48. US Census data for fiscal 2007 indicate New York's combined state and local judicial expenditures were 37 percent above the national average.
  49. "A Court System for the Future: Report by the Special Commission on the Future of New York State Courts," February 2007, www.courts.state.ny.us/reports/courtsys-4future_2007.pdf
  50. The state Constitution does not allow the governor to make changes to the legislative requests of the Judiciary or the Legislature. However, the Legislature has the power to reduce expenditures for any branch of government.
  51. Jacob Gershman, "New York's Bloated Legislature," New York Post, Nov. 25, 2009. http://www.nypost.com/p/news/opinion/opedcolunists/ny_bloated_legislature_QrkhIVY5rKNT0yVzWr0WWL
  52. City of New York, Financial Plan, Fiscal Years 2010-13, Fiscal Year 2010 November Plan, p. 40. http://www.nyc.gov/html/omb/downloads/pdf/nov09_fp.pdf
  53. The state population outside New York City is 11,215,000 and the national per capita average for arts grant spending is $1.13.
  54. "Welfare Reform Turns 10: The Impact of Welfare Reform in New York," Transcript of an Empire Center Forum in Cooperation with The Donald and Paula Smith Family Foundation, October 2006.
  55. The Core Mission reports are posted online at http://publications.budget.state.ny.us/budgetFP/coreMissionBudgeting/coreMissionBudgeting08.html
  56. Citizens Budget Commission, op. cit.
  57. See http://www.texaspolicy.com/commentaries_single.php?report_id=1774
  58. "Construction of $4.2 billion computer chip plant begins near Saratoga," Associated Press, July 23, 2009. http://www.syracuse.com/news/index.ssf/2009/07/construction_of_42_billion_com.html
  59. Center for Government Research, "Capital Pork: How State Politicians Divvy Up Billions for Favored Capital Projects," by Kent Gardner and Erika Rosenberg, March 2006, http://www.cgr.org/articles/
  60. The Amtrak Adirondack Montrealer carried 112,000 passengers in FY 2008. See Amtrak "Monthly Per-formance Report for September 2008," p. A-3.5
  61. This calculation assumes a freeze in personal service costs for state agencies at 2009-10 levels, based on figures on page 249 of the Budget Division's "Economic, Revenue, and Spending Methodologies" report, dated Nov. 5, 2009.
  62. See Exhibit 8-2 in "New York State/SUNY GASB 45 Postemployment Healthcare Benefits, April 1, 2006 Actuarial Evaluation," May 15, 2007, Buck Consultants.
  63. Assumes the change would take effect on June 1. Ideally, the retiree contributions would be restruc-tured so that employees who worked the minimum vesting period of 10 years received the smallest premium subsidy, as Governor Paterson proposed unsuccessfully in 2009.
  64. Memorandumin Support, 2009-10 PPGG Article VIII Section AA. http://publications.budget.state.ny.us/eBudget0910/fy0910artVIIbills/PPGGConsBMwtoc.htm#partAA
  65. New York State Association of Convenience Stores, "Perspectives on the Cigarette Tax Fairness Issue," November 2008, at http://www.nyacs.org/documents/PerspectivesBook.pdf
  66. Testimony of William J. Comiskey, Deputy Commissioner, Office of Tax Enforcement, before the Senate Standing Committee on Investigations and Government Operations, Tuesday, October 27, 2009
  67. The bill, A.9037, was passed by the Assembly on June 22 but defeated in the Senate on July 9. For more background on this measure, see the analyses linked at http://www.nyfiscalwatch.com/?p=1411.
  68. This proposal also assumes the rate for members of the police and fire system would be capped at the greater of the current rate of 18.4 percent or twice the required actuarial rate. The proposed capped rates are slightly higher than those proposed in the original amortization bill supported by the governor and the comptroller in 2009.
  69. Ravitch remarks at "States' Long-Term Budget Gaps: Are There Any Solutions," conference co-sponsored by Levin Institute and Rockefeller Institute, Nov. 30, 2009. Audio at http://rockinst.org/forumsandevents/
  70. Specifically, 38 percent of New York bridges were rated deficient, the fifth worst of any state; 7.69 percent of rural Interstate miles were rated in poor conditions, the second worst performance of any state; and 10.76 percent of urban interstate miles were rated in poor condition, the seventh worst performance of any state.
  71. See http://sanfrancisco.bizjournals.com/sanfrancisco/stories/2009/06/22/daily24.html and http://www.sacbee.com/static/weblogs/capitolalertlatest/2009/11/scif.html
  72. "New York City OTB to File for Bankruptcy," Thoroughbred Times, Dec. 3, 2009. http://www.thoroughbredtimes.com/national-news/2009/December/03/New-York-City-OTB-to-file-for-chapter-nine-bankruptcy-protection.aspx
  73. Maryland Tax Education Foundation, "New York State's $2 Billion Trifecta: NYRA, VLTs & OTB: Competitive Auctioning of Racing Assets Could Narrow NYS Budget Gap," February 2006. Posted at http://www.marylandtaxeducation.org/nystudyfeb27.pdf
  74. Charles Urstadt and Avrum Hyman, "A Battery Park Bargain," The New York Times, page A35, Oct. 21, 2009.
  75. State of New York, Commission on State Asset Maximization, Final Report, June 2009. http://nysamcommission.org/pdf/SAM_FINAL_REPORT.pdf
  76. Nicole Gelinas, "Financing Crucial Infrastructure," Manhattan Institute Center for Civic Innovation, http://www.citiesonahill.org/infrastructure/
  77. The latter measure, passed in December 2009, is Chapter 500 of the Laws of 2009. http://nysa.us/leg/?bn=A.40011
  78. Buffalo Teachers Federation et., al. v. Tobe et. al, 464 F.3d 362, http://cases.justia.com/us-court-of-appeals/F3/464/362/617048/
  79. Ibid.
  80. Based on annual municipal reports filed with the Office of the State Comptroller, the estimated salary freeze savings are $49 million for cities, $63 million for towns, $24 million for villages and $158 million for counties, and $688 million for school districts outside New York City. Annual pay base growth, based on prior-year averages, is assumed at 3 percent for counties and municipalities, and 4 percent for schools. The city's fiscal 2010 budget set aside $340 million for possible teacher salary hikes of 4 percent a year.
  81. O'Neil and McMahon, op. cit.
  82. City of New York, Comprehensive Annual Financial Report of the Comptroller for the Fiscal year Ended June 30, 2009, p.16; State of New York, Comprehensive Financial Report for Fiscal Year Ended March 31, 2009, pp. 86-87.
  83. http://www.cptr.state.ny.us/
  84. http://www.nyslocalgov.org/Default.asp
  85. "Closing the Gap," op. cit.
  86. Kent Gardner, Rochelle Ruffer, "Prevailing Wage in New York State: The Impact on Project Cost and Competitiveness," Center for Governmental Research, January 2008, http://www.cgr.org/reports/08_R-1532_PrevailingWage.pdf
  87. Chapter 57 of the Laws of 2008 raised the Wicks Law project threshold to $3 million in New York City, $1.5 million in downstate suburbs, and $500,000 upstate.
  88. Paul Bachman and David Tuerck, "Project Labor Agreements and Public Construction Costs in New York State," Beacon Hill Institute, April 2006.
  89. For example, the Minnesota Department of Transportation recently used design-build to accelerate completion of the I-35W Mississippi River replacement bridge project. The award-winning project came in under budget and ahead of schedule. See http://www.dot.state.mn.us/i35wbridge/rebuild/designbuild.html
  90. The existing legislative requirement that bills "age" on lawmakers' desks for three days before a vote is frequently waived under "messages of necessity" issued by the governor. The 72-hour rule proposed here would prohibit such waivers from affecting any budget legislation, except in case of emergencies involving single appropriations or temporary spending bills.
  91. The bill was A.9480 and S.6327 of the 2005-06 session.
  92. http://www.accountability.wa.gov/
  93. Cynthia B. Green, "The Way to a Better Budget," The New York Times, Aug. 4, 2003, p. A13
  94. William D. Eggers, "Show Me the Money: Budget-Cutting Strategies for Cash-Strapped States," Manhattan Institute Center for Civic Innovation and American Legislative Exchange Council, July 2002.
  95. As an alternative, tax burdens may be compared to state Gross Domestic Product, which is a broader measure of economic activity including corporate profits. State GDP reflects economic activity performed by people who work in New York State but do not reside here; it excludes economic activity that New York residents perform out of state. In practice, GSP and Personal Income are extremely closely corre-lated, and New York is similarly a tax outlier on either measure. In 1977, New York's tax burden equaled 12.55% of GSP, 141% of the national average. In 2007, this figure was 12.13%, 130% of the national aver-age.
  96. State taxes are actual through 2008 and as projected in the Mid-Year Update thereafter. The increase in tax revenues needed to close out-year budget gaps is also as reflected in the Mid-Year Update. Local taxes are actual through 2007 and projected to grow at 4 percent per year from 2008 and onward. This is a conservative estimate; average growth from 1977 to 2007 was 6 percent per year. Personal income growth is actual through 2009, 2 percent for 2010 consistent with the Mid-Year Update, and 4 percent thereafter.
  97. However, the Legislature has not neglected to regularly adjust campaign contribution limits to reflect inflation.
  98. The Commission's findings and reports are at http://www.cotce.ca.gov/.