Senate Finance Committee and Assembly Ways and Means Committee
Joint Legislative Public Hearings on the
Executive Budget Proposal
Acting-President & CEO
February 14, 2011
The Business Council has been, and continues to be, a vocal supporter of the Governor's Executive Budget. In our testimony this morning, we urge the Senate and Assembly to follow the Governor's lead and adopt important fiscal reform, spending constraints, and governmental restructuring included in the Executive Budget. We need to adopt a no-growth budget, and avoid adding spending and taxes that are simply unaffordable for both the state's economic, business sector and its residents. Importantly, our response to the state's ongoing fiscal crisis can also result in more efficient, more effective governmental agencies and programs.
Excessive spending growth coupled with a continuing economic downturn has resulted in massive, multi-billion dollar state budget deficits. And even as New York continued its long record of underperforming the nation in terms of job creation and new investment, its budget and policy actions produced an even less competitive economic climate.
During a time of declining employment and personal income, New York has imposed more than $10 billion in new taxes and fees on its slumping economy. We have increased tax rates on personal and business income, adopted new taxes on payrolls, new taxes on health care and health insurance, new taxes on our vital financial services industry, new assessments on already high cost energy supplies, and taken away already-earned tax incentives for job creation and investments.
And even with those $10 billion in new levies, we still face a $9 billion budget gap for Fiscal 2012, and $50 billion in gaps over the following three fiscal years.
High state and local taxes, coupled with a high regulatory burden, has produced a poor business climate, as illustrated by our recent record of job growth and private investments.
Job growth in New York State has lagged behind national trends for the past two decades. New York grew at about half the national rate during the 1990's, about 60 percent of the national rate in the 2000's. Think of how much better the fiscal and economic situation our state would be in today - with increased economic activity and the state and local tax revenues it would produce – if New York had merely been “average” the past two decades.
Data shows a similar lag with regard to private sector investment. For example, in 2007, Texas saw $17.7 billion in new capital invested to expand its manufacturing base; California had $15.5 billion, Illinois got $9.9 billion, Ohio $7.7 billion and Pennsylvania $6.9 billion. In contrast, in the same year, New York saw only $4.6 billion invested, a pattern that New York has repeated every year in this decade.
Improving the state's relative economic competitiveness is the only real long term solution to meeting the state's financial, education, social service and infrastructure investment needs. We need to promote new private sector investment and the creation and retention of good paying private sector jobs, resulting in improved economic opportunity for all New Yorkers. Renewed economic growth will provide revenues necessary to finance essential government functions, and allow the state to re-invest in areas crucial to support private sector investment: transportation infrastructure, higher education and others.
Reforms included in the Executive Budget are important not only for bringing the state's fiscal house into order, but for improving New York's economic climate.
We support controlling spending, restructuring programs and agencies, and placing statutory limits on state spending and real property tax levies – along with much needed mandate relief.
Even now, calls to extend the so called “millionaire tax” would only close a fraction of the Fiscal 2012 gap, and a progressively smaller share of future years' gaps. (Estimates of surcharge income in the $4 to $5 billion range for the new budget year are based on fairly optimistic personal income growth projections of 4 percent, in contrast to zero growth in New York State personal income in the 3rd quarter of 2010.) If the Executive Budget was adopted in its entirety, it leaves $9 billion in out year gaps that might be closed by improving economic conditions, or may require additional spending controls.
With few exceptions, most states facing significant budget gaps are taking the same approach, and making the same kind of tough decisions, as proposed in the Executive Budget. Adoption of the Executive Budget will help New York simply keep pace with key competitive states; failure to implement this plan will further erode the state's economic competitiveness.
In short, we simply cannot tax our way out of our current fiscal and economic problems.
In addition to expressing our general support for the Executive Budget, we would like to highlight several specific provisions of interest to The Business Council and our membership.
We generally support the Executive Budget's proposed changes to the Excelsior Jobs program. When adopted last year, in addition to our concerns about its limited size, we expressed concerns with the design of the Excelsior tax credits – especially the real property tax credit – and with other program components. We believe the Executive Budget makes sensible amendments that will improve the programs effectiveness.
For example, the Executive Budget would correctly apply the Excelsior real property tax credit on the improved value of a property, rather than the real estate taxes paid before the site was accepted in the program. As the state's new flagship economic development program, we also believe it makes sense to extend the program by another five years. The program's impact is improved by allowing for larger real property tax, job creation and research and development credits. We also support provisions that will allow a taxpayer to use tax credits upon achievement of interim job, investment and/or R&D targets
On one important provision, the Executive Budget provides only a partial fix. Under Excelsior, a taxpayer would have to forego any remaining Empire Zone tax credits in order to qualify for the Excelsior program. To us, this makes no sense, if there are two wholly separate investments and job creation activities that serve as the basis for Empire Zone and Excelsior benefits, respectively. This year's proposal would disqualify a taxpayer from receiving Empire Zone benefits at any location admitted into the Excelsior program, rather than requiring the taxpayer to relinquish all statewide Empire Zone credits. This provision needs further amendments, in order to preserve tax credits already earned, and to be fully effective in promoting new investments and job creation.
Overall, these amendments make Excelsior a stronger program, and will assure significant economic payback to the state. At the same time, the program's cost to the state will remain fixed at last year's level, while overall economic development capital is reduced by about 25 percent.
We also strongly support the “Recharge NY” proposal that was introduced with the Executive Budget, and now has been introduced as a Governor's program bill. “Recharge NY” is a much needed replacement for Power for Jobs and related economic development power programs. The current proposal has a number of key features that we support. These include: allocation-based benefits; longer term, seven year contracts; a more appropriate range of criteria rather than exclusive consideration of head count; and others. It also results in nearly double the amount of benefits currently available, and will allow for new applicants and new participants for first time in 6 years.
This new statewide program will be effective in encouraging new capital and efficiency investments, the retention and creation of well-paying jobs, and will produce significant economic returns to the state.
The Power for Jobs program has eroded in size and effectiveness over the years, as it has limped along on one year extenders. Perhaps most telling, even thought the program is authorized at 450 MW of benefits, currently less than 300 MW are allocated.
The need for a new program is clear. As a stand-alone Article VII bill with little fiscal plan impact, we urge both houses of the legislature to pass it NOW.
Department of Financial Regulation
The Business Council and its financial service industry members are evaluating the Executive Budget proposal to merge the Banking and Insurance Departments into a new Department of Financial Regulation. This proposal raises many questions regarding the future regulation of one of the state's most significant, dynamic industry, and is being done at the same time the industry, and the federal and state governments, are working on implementing major federal regulatory reform.
We urge the Governor and Legislature to assure a thorough review of this proposal before final legislative adoption. In particular, the Council and the industry are evaluating the budget's proposal for expanded regulatory and enforcement authority for the new Department of Financial Regulation, and the appropriateness of proposals that would increase the legal exposure of the business community and taxpayers. This consolidation proposal does not significantly impact the state's deficit reduction efforts, as both Insurance and Banking departments are fully funded by industry fees, so final action could be taken outside the budget adoption process, if necessary to allow for a complete and thorough review.
We support several contract procurement reforms included in the Executive Budget. For example, one proposal would eliminate certain non-instructional shared services provided to school districts by BOCES from reimbursement through state aid. This change does not preclude a BOCES from providing services to a school district; it merely stipulates that if this service is being provided it is not eligible for state aid under the shared services reimbursement state aid category. This proposal addresses concerns raised by businesses about BOCES providing services beyond their intended mission and about unfair competitive advantages BOCES enjoyed by being able to bill the state for the services, masking the true cost of the service being provided. This amendment is particularly important to small business, including MWBEs, that do business with local government.
The Business Council of New York State supports Governor Cuomo's plan for fundamental changes in how New York State develops its budgets, and for advancing innovative approaches to managing State government.
Controlling spending will force us to make programs more efficient - and likely more effective at the same time – and will help produce an economic climate that will support restored economic growth with new investment and private sector jobs.
We believe the Executive Budget provides the right blueprint for the future of New York State and, with few amendments, support its adoption.