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JANUARY 1998

Governor proposes spending increases, mixed with fiscal safeguards

New budget would boost spending by 7.6 percent, speed up tax cuts, increase state's reserves

Harvesting the benefits of tax cuts, economic growth and fiscal discipline, Governor Pataki has proposed a new state budget that significantly increases spending, while also bolstering the state's financial reserves.

The Governor said the state will end its current fiscal year with a surplus of $1.8 billion -- the largest in its history. He proposed using about half of that to speed up tax cuts and property-tax relief already on the books; most of the rest would be put in reserve funds, or used to reduce state debt.

Overall state spending in the fiscal year beginning April 1 would jump to $71.89 billion -- an increase of 7.6 percent, compared to a 6.1 percent increase in the current fiscal year.

Last year, by contrast, the Governor proposed an "all-funds" spending increase of only 2.2 percent, but then the Legislature added over $2 billion to his budget. The Governor said that must not happen this year; "we're not going to allow a budget to be adopted which I don't consider to be solidly balanced, and balanced in a way that allows us confidence in the future."

Aside from conforming to federal provisions for exempting up to $1.3 million in the value of a family-owned business from the estate tax, the Governor's budget proposed little in the way of new tax cuts. But he proposed using $724 million from the surplus to allow immediate implementation of school property-tax relief for farmer and for the elderly, which was supposed to be phased in over three years under the STAR program enacted last year. And he proposed using another $100 million to speed up some of the other tax cuts that are already on the books and are being phased in -- a list that includes reductions in the gross receipts tax on utility customers, and the elimination of the state's extra estate tax.

Since Governor Pataki took office, New York has reduced state taxes by a cumulative total of $12 billion -- more than all the other 49 states combined. The state's job growth has started to catch up with the nation's, and the Wall Street boom has helped bolster state revenues.

"Three years of conservative fiscal policies and smart economic policies have turned crisis into comeback," the Governor said. "Today, the comeback marches on."

Some fiscal critics argued that the Governor's proposed spending increases could lead to fiscal problems in the years ahead. Spending from all state sources (all taxes, fees and the like, but excluding federal aid) would actually grow 8.5 percent in the new year.

But the Governor pointed to his proposals to reduce debt and increase the state's reserves -- and to his record of producing three straight years of surpluses in the face of similar predictions of "out-year" trouble. The proposed budget's revenue estimates were based on fairly conservative economic forecasts -- assuming gross domestic product up 4.8 percent, inflation at 2.2 percent, and job growth in the state of 100,000 (or 1.3 percent).

The Governor's budget proposal included:

The Governor also proposed that in order to "ensure that the state does not someday return to a big-spending high-tax government," the Constitution be amended to forbid any tax increase of $50 million or more unless it is approved by a two-thirds vote of both houses of the Legislature.

January 20, 1998