Touching the bases on the budget

by E.J. McMahon |  | NY Torch

723px-a_worn-out_baseballGov. Andrew Cuomo is calling New York’s newly enacted budget a “Grand Slam.“ But while the fiscal 2014-15 spending plan enacted last week certainly can’t be written off as the worst swing and miss ever, it’s far from a base-clearing, walk-off home run.

Prolonging the metaphorical torture, here are some budget scoring notes from a taxpayers’ perspective.

Base hits:

  1. Corporate tax reform and reductions. The budget effectively advances several runners with an across-the-board reduction in the Article 9A corporation franchise tax, from 7.1 percent to 6.5 percent. It also merges the outmoded state Bank Tax into the corporate tax; eliminates the alternative tax on corporate capital assets; and corporate taxes on the net profits of incorporated “qualified New York manufacturers.” The majority of manufacturers, which are closely held companies subject to the personal income tax (PIT), will not benefit from the corporate change but will be able to claim a state PIT credit for 20 percent of their property taxes, and the credit can be “carried forward” from lean years to more profitable ones when necessary.
  2. Estate tax reform. New York is one of only 14 states still imposing an estate tax–and to make matters worse, as of the start of this year, the tax kicked in on estates valued just above $1 million, less than one-fifth the federal estate tax exclusion, with a top rate of 16 percent. Cuomo originally proposed both cutting the rate, to 10 percent, and raising the state exclusion level to match the federal level in effect as of 2019, which will probably be close to $6 million. The enacted version of the budget increases the exclusion as Cuomo proposed, but doesn’t change the rate. As a result, total projected taxpayer savings under the plan when fully implemented were cut by more than half, from over $750 million to $355 million, and there will be no net change in New York’s taxes on estates exceeding the federal exclusion. If Cuomo’s original estate tax plan was a triple, the enacted law is a ground-rule double. Even in amended form, the enacted reform eliminates taxes on 90 percent of estates now subject to it, including many small businesses and family farms, which is a big step toward the desirable ultimate goal of repealing the tax. Since the wealthiest residents are most likely to move to avoid state estate taxes, there remains plenty of work to be be done in this area.
  3. Overall spending restraint. Projected state operating funds spending growth will be just over 2 percent, roughly equal to the projected inflation rate. This is low by historical standards–but it could have been lower still if not for at least one of the items on the next list.

Strikeouts:

  1. “Property tax relief.” Under a slightly modified version of the convoluted scheme proposed in Cuomo’s Executive Budget, the state will reimburse property tax increases paid by homeowners to school districts, municipalities and counties that stay within their 2 percent tax levy growth caps (including local allowances for other costs). The program is temporary, beginning with the 2014-15 school year and continuing through calendar 2016 county and municipal fiscal years. In the second year, homeowners will be eligible for a tax credit only in localities that have a plan to save 1 percent a year for three years. Through this mechanism, the state will spend $1.5 billion over three years to, as Cuomo describes it, “incentivize” mergers and consolidations of services — as if his 2011 property tax cap, a truly significant accomplishment, hadn’t already created a stronger incentive for free. This is an election-year gimmick, pure and simple. It distracts attention from the continuing need for real mandate relief. And it’s based on a false narrative about localities to boot. All in all, a real swing-and-a-miss.
  2. “Universal Pre-Kindergarten.” To placate New York Mayor Bill de Blasio, who wanted Cuomo to approve a $500 million city-only pre-K program funded by a tax hike on city residents earning more than $500,000, the budget commits the state to spend $340 million in fiscal 2015 and $1.5 billion over the next five years on a program that very few educators outside New York City actually wanted. The good news: state-subsidized pre-K won’t be truly “universal,” which would cost billions more. The bad news: it’s a foot in the door for a program based on questionable policy premises that the state couldn’t really afford if limited to its permanent-law, recurring revenue base. Ironically, while taking credit in big business circles for having prevented de Blasio’s soak-the-rich tax hike, Cuomo will fund the state program with proceeds from his own, much larger soak-the-richer “millionaire tax,” which he has twice extended since 2011. It’s increasingly evident that the governor has no plan to phase out that tax hike, much less allow it to expire on schedule in 2018.
  3. “Smart Schools Bond Act.” The $2 billion bond issue would divert scarce capital financing capacity from transit, roads and bridges to iPads, white boards, and new pre-school classroom space — all this despite the fact that school districts weren’t even asking for it. Fortunately, the voters will be given a chance to review the play and reverse the call in November.

Budgetary errors range from the $1.1 billion school aid hike (unaccompanied by mandate relief that would give school districts leverage to spend less); a $338 $380 million giveaway to healthcare workers belonging to SEIU Local 1199; and, on a smaller but no less objectionable scale, a new $8 million tax credit for touring theater companies. The governor booted another one, even before the final budget vote, when he added a project-labor agreement (PLA) clause to language extending authorization of the more cost-effective “design-build” approach to major capital projects. The enacted budget bills are silent on design-build, leaving the issue for extra innings; i.e., either before end of session, or perhaps even in a post-election session in December.

Other noteworthy aspects of the budget are more difficult to classify in baseball terms.  For example, the Governor had proposed following up the temporary property tax credit with a permanent circuit-breaker and renters’ credit, which would have cost a combined $1.4 billion a year. If enacted, that would have been another big strikeout. However, the permanent property tax credits were dropped from the enacted budget. This could be thought of as a really unwise roster move that was not made; we can only hope it’s not a rain delay.

Important as it is, the state budget doesn’t represent the whole ballgame when it comes to boosting or hindering the economy. A potential home run, repeal of the Scaffold Law, will be decided in what remains of the session, or perhaps in extra innings (i.e., a post-election session). And a true grand slam–natural gas exploration in the economically stagnant Southern Tier region–remains bottled up in Cuomo’s Health Department.

Meanwhile, the policy strikeouts and bad managerial decisions continue on other fronts. For example, even as the budget bills were being finalized last week, the governor was announcing his latest appointment to a working group that will “explore options for development and construction of a new Buffalo Bills stadium that will continue to serve as the catalyst of economic growth in Western New York.”

Yes, you read that right. On the heels of last year’s $221 million pledge of public funds to keep the Bills in Buffalo, the state is actually considering (or pretending to consider) how it might build an entirely new stadium for the highly profitable (albeit chronically losing) NFL franchise, while claiming with a straight face that this can be “an economic catalyst” for the region, despite ample evidence to the contrary.

Hey–it could have been worse. Onondaga County Executive Joanie Mahoney might have overcome objections to Cuomo’s offer of state funding for a new arena in downtown Syracuse to replace the well-maintained and non-decrepit Carrier Dome.

Some games, it seems, never end.

- E.J. McMahon is the President at the Empire Center for Public Policy.