Summary of the FY2009 Budget
Updated April 14, 2008
The following provides a narrative summary of budget provisions of interest to Business Council members. We encourage you to follow up with Business Council staff if you need any additional information, or if you would like to discuss any of these budget provisions.
The legislature completed action on a reported $121.7 billion state budget for Fiscal 2009.
According to the Division of Budget, the final agreement cuts $1 billion from state agency operations (resulting in a state ops increase of just 1 percent); $828 million of savings with the state's health care budget (including pharmaceuticals, insurance, nursing homes, home care and others, resulting in a 1.2 percent increase in state Medicaid spending, excluding the local cap); a 2 percent ($270 million) reduction in local assistance programs (excluding local school aid); and one year delay in extending middle class STAR rebates (a savings of $354 million).
The final budget also includes about $950 million in new revenue measures, including nearly $700 million in new business taxes and fees.
Major spending initiatives included a $1.75 billion increase instate funding for elementary and secondary schools; funding for the expansion of Child Health Plus to cover an additional 70,000 uninsured children; a total of $1.6 billion in “economic development” capital; and nearly $6 billion of capital funding for SUNY and CUNY senior colleges and community colleges.
The final budget imposes nearly $950 million in new, modified and expanded taxes on business and individuals. In addition, the budget contained one broad-based tax rate reduction, and extended or increased two key investment tax credits. An overview of the most significant revenue measures in the final budget agreement is provided below. A more complete review of revenue measures included in the final budget, as well as the text of the tax provisions from the final revenue bill (S.6807-D/A.9807-D) are both available on our web site here.
Significant New/Increased/Expanded/Modified Taxes
- Increases the annual cap on capital base Article 9-A tax liability for non-manufacturers from $1 million to $10 million. This cap reverts to $1 million on January 1, 2011. Applies the Article 9-A investment tax credit definition of manufacturing to the capital base cap.
- Establishes nexus for out-of-state credit card companies based on number of card holders in New York and/or level of receipts from New York vendors. Precludes forced combination of “credit card banks” with Article 32 taxpayer unless it is necessary to properly reflect tax liability; combined reporting will be required based on percent stock ownership; applies to tax years beginning on or after 1/1/2008. Estimated revenues are $95 million in FY 2009; $75 million in FY 2010.
- Modifies combined reporting requirements for real estate investment trusts and real estate investment corporations; creates a 50 percent stock ownership threshold for defining a captive REIT and RIC. Applicable to tax years beginning after 2007 and before 2011; with these provisions deemed repealed January 1, 2011. No new revenues were projected; changes are defined as preserving revenues expected from 2007 amendments.
- Increases the state excise tax on cigarettes from $1.50 to $2.75 per 20 count; and adopts a $.96/oz. “snuff” tax. Revenue estimate are $265 million per year.
- The so-called “Amazon” tax, creates a sales tax nexus for on-line vendors who compensate New York residents for sales leads. Estimated revenues are $43 million in FY 2009; $73 million in FY 2010.
- “Decouples” from (i.e., excludes application of) the federal “qualifying production activity income” deduction for New York State business tax purposes. Estimated revenues of $56 million annually.
Tax Reductions/Modified Tax Credits
- Reduces the Article 9-A capital base tax rate to 0.15% from 0.178%.
- Extends the investment tax credit for the broker, dealer & exchange activities in the financial service industry (under the Corporate Franchise Tax, Bank and Insurance Tax) through October 1, 2011.
- Increases the Film Production Tax Credit from 10 percent to 30 percent of qualified production costs; increases the aggregate allowable amount of this tax credit from $60 million to $65 million in 2008 and eventually to $110 million by 2013.
The legislature REJECTED the imposition of the following fees:
- Title V operating permit program fees (avoiding $19 million in costs to permit holders)
- Fees for security services of the state organized militia at nuclear power plants (estimated financial impact was $11.7 million)
- Intervenor Fund fees associated with power plant siting that would have resulted in a 66 percent cost increase per application.
The Public Protection and General Government Article VII Bill (S.6806-C/A.9806-C) included a number of provisions related to government procurement and local government consolidation.
- imposition of a 0.5 percent Centralized Procurement Contract Fee to all contracts selected to offer centralized contracts through the State for commodities, services or technology. Fees are required to be electronically remitted to Department of Taxation & Finance quarterly, and are to be deposited in the state's General Fund. Businesses will be required to assess this fee as part of the contract, collect it from the governmental or not-for-profit entity using the centralized contracting process, and remit it to the State.
- creation of a Local Government Efficiency Grant program which restructures financial incentives for municipalities to consolidate and share services. The program will include an evaluation component, improved technical assistance, new state agency services for local governments and a new “21st Century Demonstration Projects” component promoting transformative regional pilot projects.
Many of the items proposed in the initial Executive Budget have been omitted from the agreed-upon bill; some issues are likely to be revisited post-budget. Among the items intentionally omitted from the budget bill include:
- permanent extension of the Procurement Stewardship Act.
- expansion of membership on the State Procurement Council membership.
- additional revenue opportunities to local governments, to “relieve the pressure on real property taxes”, including an option for counties to increase the mortgage recording fees and authorization for cities and villages to collect utilities gross receipts tax on mobile phone services.
- local government contracting flexibility which proposed to make permanent authorization to use electronic bidding tools; increase the competitive bidding thresholds from $10,000 to $20,000 for commodities and from $20,000 to $50,000 for public works projects; allow for services to be awarded on the basis of “best value” rather than lowest bid; and allows localities to purchase materials, equipment and supplies through certain contracts let by other states and local governments.
The Legislature adopted Wicks reform and Project Labor Agreement language in the ELFA Article VII bill (S.6807-C/A.9807-C). Key components include:
- Increasing the current $50,000 threshold to $3 million for projects in New York City, $1.5 million for projects on Long Island and Westchester County; and $500,000 in the remainder of the State.
- Project Labor Agreements: adds a new section to the Labor Law defining PLAs and permits various public entities to require a contractor to enter into a PLA during and for the work involved with the project.
- public work enforcement: adds a new section to the Labor Law providing the Commissioner of Labor with the power to enforce any provision of law requiring the preparation of separate specifications for public work contracts including the authority to issue stop-bid orders upon public entities.
The final budget agreement included a significant amount of new economic development funding, created several new development programs, and authorized the Dormitory Authority and the Urban Development Corporation to issue up to $1.285 billion in new debt to support these economic development initiatives. It also extended several existing economic development programs. Details are provided below. These changes are all included in S.6807-D/a.9807-D.
- The Investment Opportunity Fund, to provide grants, loans, equity investment or other aid to a wide range of infrastructure projects, including site acquisition and preparation; the design, planning and construction of new structures; the cost of production equipment; and other site development costs. Eligible project sponsors include state agencies, public benefit corporations and municipalities. Projects are to be approved by unanimous approval of the Division of Budget, Senate and Assembly. $50 million in funding for FY 2009.
- The Upstate Regional Blueprint Fund, to be managed by Upstate ESDC to provide loans and grants, and to support state-developed projects. Funding categories include projects identified through regional collaborations; support for the attraction or expansion of business; and funding of land acquisition and site preparation. Eligible applicants include business, municipalities, local development corporations and others. $120 million in funding for FY 2009.
- The Downstate Revitalization Fund, to support investments in distressed communities, to support business and technology development, and to support public private cooperative efforts that promote new investments in the state. Funding categories and eligible applicants are similar to that for the Upstate Blueprint Fund, discussed above. $35 million in funding for FY 2009.
- Upstate Agricultural Economic Development Fund, to support the construction, expansion or renovation of agriculture-based economic development projects; to help retain existing farmers and recruit new farmers. Eligible applicants include non-profits, agricultural cooperatives, public benefit corporations, municipalities and education institutes. $40 million funding for FY 2009.
- The New York State Economic Development Assistance Program, which will provide grants or loans for economic development, university, homeland security, infrastructure, utility, health care or other projects, to be identified by the State Senate. Individual project funding will be a minimum of $250,000. $350 million in total available funding.
- The New York State Capital Assistance Program, available to the same category of projects that are eligible for the EDAP discussed above, with projects to be identified by the State Assembly. Individual project funding will be a minimum of $250,000. $350 million in total available funding.
Modified Economic Development Programs– The following actions were taken with regard to existing economic development programs.
- The Power for Jobs and Energy Cost Savings Benefit programs were extended, without modification, through June 30, 2009, thereby preserving current recipient-specific benefit levels. A proposal to create a seven-year replacement program was not adopted.
- A 90 day moratorium was imposed on the Department of Environmental Conservation's acceptance of new brownfield program applications. Proposals to modify and cap brownfield redevelopment credits were not included in the final budget, however the moratorium is intended to “freeze” the current program in anticipation of further negotiations on program reforms.
- The Urban Development Corporation's general loan authority was again extended for one year, through July 1, 2009.
In what the Paterson administration is calling a healthcare budget that “enacts historic healthcare reform” and takes “an important step forward in transforming (New York's) healthcare system to lower costs, increase access and invest in primary and preventive care”, the State Legislature approved the healthcare portion of the 2008-09 State Budget (A.9808-C) on Tuesday, April 1.
Taxes on Health Coverage
- After opposition from The Business Council and other organizations, a proposed $190 million increase in the Covered Lives Assessment– a coverage tax on individual and family health insurance policies that would increase the cost of health coverage - was rejected. However, a $70 million increase was approved, and will go into effect October 1, 2008. The $190 million increase that was originally proposed in the Executive Budget would have gone into effect January 1, 2008.
- The Insurance Department assessment– a tax on all insurers (health, life, property & casualty, etc.) that funds the Insurance Department's budget and that is reflected in premiums paid by businesses and individuals - was increased by $37 million to fund the transfer of a number of healthcare programs from the Department of Health to the Department of Insurance. These programs include the Cervical Cancer Vaccine Program, Lead Poisoning Prevention Program, Childhood Lead Poisoning Prevention Program, Child Obesity Program, and others.
- A $160 million proposed premium tax on HMO policies was rejected.
Dependent Coverage Mandate
- A proposal in the proposed Executive Budget that would have required health insurance companies to cover dependents up to age 25 in family contracts regardless of whether they are an enrolled student was rejected. Currently, any child or children not over age 19 is considered a dependent in a family contract; if the individual is a student, dependent status is extended to age 23, and dependent status may be extended to age 25 at the option of the insurer pursuant to Section 4304 of State Insurance Law.
Local Health Planning Grant
- $7 million was included in the final budget for the purpose of funding local health planning initiatives, and will be awarded through an RFP process. The funds will be used to study healthcare disparities and consumer needs assessments.
- The budget includes $5 million for nursing education to help address New York's nursing shortage. The funds will be used to help nursing schools increase their student capacity; nearly $2 million will provided to nursing schools within SUNY, nearly $2 million to nursing schools within CUNY, and about $1 million for nursing education at private colleges and universities.
Trend Factor for Medicaid Reimbursement
- The 2.3 percent inflationary trend factor, or annual adjustment, paid by the state to hospitals for Medicaid inpatient services was reduced by 35 percent. The trend factor for nursing homes, home health and personal care providers was also reduced by 35 percent.
Movement Toward Healthcare Reform, Investment in Primary & Preventive Care
- Medicaid reimbursement reform will start to shift Medicaid dollars now spent on hospital inpatient services to more cost-effective primary and preventive care settings. A four-year process for updating or “rebasing” Medicaid reimbursement rates for inpatient services from a base of 1981 costs that is currently used to establish inpatient reimbursement rates for Medicaid enrollees, to 2005 costs will begin in SFY08-09. Hospital Medicaid reimbursement will be reduced by $51.1 million in the first year– savings that will be invested by the state in primary and preventive care initiatives. The approved budget also created a technical advisory committee made up of representatives from hospital associations, the healthcare industry, providers and consumers which will evaluate the new methodology and related issues as part of the state's plan to complete the rebasing process by 2012.
- A new methodology for reimbursing primary care for Medicaid patients was approved. The Ambulatory Patient Groups (APGs) methodology would base outpatient reimbursement rates on the intensity of the service(s) performed during a patient visit rather than on the number of visits.
- The methodology used by the State to reimburse hospitals for care provided to uninsured patients is being reformed. To enhance accountability, this measure will start addressing concerns that funds in the $847 million indigent care pool be directed toward the cost of caring for uninsured patients rather than hospitals' accounting losses. Under the new methodology approved in the budget, this fiscal year 10 percent of the $847 million pool will be distributed based on the number of services provided to the uninsured patients. The balance of funds, 90 percent or $762 million, will be distributed using the old reimbursement system. After two years, the Department of Health will revisit the impact of the new methodology.
- “Doctors Across New York”, a medical school loan repayment and grant program will help address the shortage of primary care and specialty care physicians in rural and poor urban areas. $1.96 million was appropriated in the budget. One-third of the funds will be allocated to NYC, and two-thirds to rest of the state.
- The State will fully fund the eligibility expansion of the State's Child Health Plus Program from 250% to 400% of the Federal Poverty Level without federal funding support. It is expected that the expansion will make coverage available to an additional 70,000 children. $25 million was budgeted for the expansion.
- A new prescription drug discount card program limited to disabled New Yorkers or those between age 50 and 64 who meet the State's EPIC income eligibility standards and who are not covered under other public or private third-party payment sources was created. The program will be funded through additional rebates from pharmaceutical manufacturers that agree to participate in the program; participation by manufacturers and pharmacists is voluntary.
Stem Cell Research
$50 million was appropriated for stem cell research as part of the stem cell initiative that was enacted in last year's budget. $100 million from last year's budget has been reappropriated and made available for awards during Fiscal 2009.
The most significant environmental initiatives proposed in the Executive Budget were not included in the final budget agreement. An overview of these proposals, and their outcomes, is as follows:
- Overall appropriation of $1.146 billion appropriation for the Department of Environmental Conservation.
- $255 million appropriation for the Environmental Protection Fund, offset by a sweep of $200 million in unspent EPF funds from previous years budgets into the General Fund
- A proposal to increase the Title V air permit fee from $45 per ton to $80 per ton, and elimination of the 6,000 ton per contaminant cap, was rejected. Additional General Fund support was provided to the operating permit account to offset the need for additional fee income.
- A proposal to extend the states bottle bill to non-carbonated beverages, and to capture unclaimed deposits for use in the Environmental Protection Form, was rejected.
- Proposals to modify the states brownfield tax credits, impose a cap on the brownfield redevelopment credit, and modify brownfield program eligibility were rejected.
- The legislature imposed a 90 day moratorium on the Department of Environmental Conservations acceptance of new brownfield program applications.