Assembly Ways and Means Committee
New York State Budget Crisis
President & CEO, The Business Council of New York State
November 13, 2008
Good morning, Chairman Farrell and members of the committee. And thank you for this opportunity to speak with you about the budget crisis our state is facing.
I am Kenneth Adams, president of The Business Council of New York State. The Council is the largest statewide employer advocacy group. We represent more than three thousand employers of all sizes and in all sectors of our economy. Our members employ more than one million New Yorkers.
The Business Council typically advocates for an improved business climate, lower taxes, lower regulatory burdens, and reductions in other state-influenced costs of doing business.
At this point in time, however, we see only one public policy priority — Controlling state spending.
The Business Council, and some others, argued earlier this year that the proposed Executive Budget spent too much. Way too much.
While New York's revenues are now weakening, that hasn't been the case over the past several years. Division of Budget data show that total state tax receipts were up $2.2 billion last fiscal year and were targeted to grow another $2.8 billion in 2008-09 without any change in our tax code or regulatory fees.
And even with those increased revenues – and nearly $1 billion in newly adopted revenue measures – we still passed a budget we couldn't afford.
While there are differences in magnitude, the Division of Budget, Comptroller, Senate and Assembly all illustrate, in their most recent revenue/disbursement projections, that we cannot afford to pay for the budget adopted in April 2008. Even with administrative and legislative reductions in spending growth imposed earlier this year, we are still facing a shortfall of more than $1 billion, by some estimates, much more.
Moreover, the spending trend line established over the past several years will push our future years' budget gaps into the tens of billions of dollars.
Frankly, New York needs to make fundamental changes in governmental structure, and governmental programs, in order to achieve long term budget stability, and long term improvements in the state's economic climate and economic performance. These include an emphasis on costs and effectiveness, on re-assessing and realigning priorities and – often- on cutting programs and expenses that are no longer essential and/or affordable.
While we won't argue that government should be “run like a business”, we have little doubt that state government needs to adopt approaches that are common place in the private sector, that were adopted in order to remain competitive. These include an emphasis on costs and efficiencies, on re-assessing and realigning priorities, and – often – cutting programs and expenses that are no longer essential and/or affordable.
We applaud the Governor's intense focus on reductions in state spending, including the recently proposed “special session” agenda, and we applaud his decision to NOT recommend any broad based tax increases.
We also commend Speaker Sheldon Silver for his statement that recognizes the magnitude of this crisis and the urgency to deal with it before it gets worse.
The Business Council supports the majority of the Governor's proposed spending cuts, although we question several of the revenue proposals, which I will discuss later.
While there are some advocating tax increases to close the budget gap that would be absolutely the wrong policy choice for New York. A recent survey by the non-partisan Tax Foundation rated New York's business tax climate as the next to worst in nation. In recent years we have seen businesses and millions of New Yorkers leave the state due to New York's crushing tax burden. Increasing that burden when businesses and individual taxpayers are struggling to survive in this economy would do terrible harm.
It is near impossible to achieve major reforms without addressing the two biggest spending items: Medicaid and education. Frankly, we see the proposed reductions in spending growth as relatively modest, given the state's current fiscal situation and recent spending increases.
For example, holding growth to 3% – about the projected inflation rate – would produce FY 2010 savings of about $2 billion in Medicaid, compared to about $500 million in proposed Medicaid program cuts, and $1.5 billion in savings in education spending, compared to $844 million in proposed reductions. Extending this 3% growth cap to FY 2011 would yield aggregate savings in these two areas of about $10 billion.
We need to end incremental budgeting and take a hard look at all programs, including Medicaid to see what is working and what is not. We need to look at program objectives and outcomes and eliminate programs that don't work.
We also view the proposed savings from state workforce actions as fairly modest.
We, as much as anybody, understand the value of jobs. However, the private sector has had to make unavoidable changes in their level of staffing and the way in that employees are compensated. We believe, similarly, public sector compensation needs to undergo more fundamental reforms.
For example, the Governor has proposed to change the state share of retiree health premiums from 90% to a minimum of 50% (retirees with 10 years of service) or a maximum of 90% (for employees with 30 or more years service) for a savings of $15 million. A retirement benefit this generous is virtually unheard of in the private sector. Based on 2007 survey data, only about 25% of private employers offer supplemental retiree health benefits, and about half of those require 100% employee payments.
We understand these changes result in real impacts on real people; but the alternative is to impose new or increased taxes – an alternative that in our view will have even greater negative impact on New Yorkers.
While we applaud much – indeed most – of the Governor's proposals, we question several revenue proposals.
NYS employers tell us year after year that the cost of employer-provided health insurance is the most significant cost of doing business issue they face.
In contrast, by our math, the proposal includes $640 million in new or increased insurance and/or health-related taxes and fees for the FY 2010 budget. Some of these revenues are across the board on insurance (e.g., the Timothy's law and public health costs, shifted to broad insurance assessments), and some are specific to health insurance – the covered lives assessment is a direct assessment, and we expect a large share of the $370 million in increased hospital assessments will eventually hit private sector payers.
While we are concerned about any new taxes and fees, we especially question the policy objective of taxing private health insurance, at a time when the state is struggling to find money to pay for government provided or subsidized health coverage.
Finally, we would also emphasize what's NOT in the Governor's proposal – proposals that have been on the table for the past several years. While some of these items provide savings in the long term they need to be considered going forward.
- freezing STAR at its 2006-07 level of $4 billion, saving the state $1 billion in FY '08-09. We continue to believe that a real property tax cap, coupled with local government mandate reform, will provide increased savings for New York residents and business.
- eliminating all consideration of tax increases in the new budget.
- rolling back costly state mandates on local governments—and then help them consolidate, share services, downsize and realign their workforces to save taxpayer dollars. Those reforms could include elimination of the Wicks law—requiring municipal governments to issue multiple contracts for construction projects drives up local construction costs by as much as 30 percent.
- there are many recommendations in the Lundine Commission report that would streamline and reduce the cost of local government while maintaining services.
- reform of the Taylor Law and repeal of the Triborough Amendment would give local and state government managers the flexibility they need to manage their workforce in a fair but cost-efficient manner.
- and consideration should be given to implementing a Tier V in the pension system.
- full implementation of a performance based budget system that would ensure that governmental spending is accomplishing the intended purposes, and where it isn't, the spending should be eliminated or redirected.
As Speaker Silver said yesterday this crisis is unlike any we have faced in our adult lives. It will require that difficult choices be made. I thank you for serious consideration of what we are facing in this crisis. Working together, New York can reform the way it does business and come out of this crisis stronger and ready to move on to a better future.