FY 2014 NYS Budget Overview
Contact: Ken Pokalsky
In the big picture, the agreed-to budget for Fiscal 2014 limits the growth of state government to less than 2 percent for the third straight year, reversing a long trend of unsustainable budget growth – an outcome that we strongly support.
However, the budget will also add to the cost of doing business by extending assessments on electric, natural gas and steam energy, for a total cost of nearly $1.5 billion, half of which will be paid by business, and by increasing the minimum wage – a measure whose impact will be felt by many business, with total cost estimates as high as $2 billion per year once fully implemented. While the final agreement on both of these measures is an improvement over the original Executive Budget proposals, they are not consistent with a strategy to promote economic growth and the creation of good paying jobs.
These cost increases are only partially offset by cost-savings reforms in the state unemployment insurance and workers compensation system, and by tax reductions for manufacturers under the corporate franchise tax.
Highlights of the final FY 2014 state budget – both positive and negative – are summarized below. You can read The Business Council's complete recap of the final budget agreement here.
- Minimum wage
The Executive Budget proposed an immediate increase to $8.75, and the Assembly countered with 9/hour with future increases indexed to the inflation rate. The final agreement is a “less bad” three year step up, going to $8 on 1/1/14, $8.75 on 1/1/15 and $9/hour on 1/1/16. The final agreement also includes tax credits to offset the cost of increased minimum wage payments to young students. Even so, the direct and indirect impact of this mandate is estimated at well over $1 billion per year, and will impact a wide range of business and non-profit entities. The other credits and reforms in the budget do not come close to offsetting these mandatory labor cost increases.
- Energy assessments
The budget agreement included a three year, $1.5 billion extension of assessments on energy purchased through utilities. A direct pass thru, we estimate that more than half the total cost will be paid by commercial and industrial energy users, with some large energy intensive manufacturers paying $1 million or more per year in these new assessments. In a state where nearly 25% of energy bills are already consumed by state and local taxes and assessments, we fought hard against the Governor's initial $2.3 billion, five year extension, and are disappointed that any extension made it into the final agreement.
- Income tax
The budget extended the “temporary” income tax rates adopted in December 2011, for another three years. This both maintains higher rates on incomes over $1 million/year (for singles, double that for joint filers) and lower rates on income below $300,000. The negative impact of keeping the aggregate local, state and federal marginal rates for higher earners in NYC above 50 percent is offset by reduced rates for most business owners in sub-s corporations, partnerships and LLCs. The $2 billion in increased revenue generated from the high earner tax will be a substantial down payment on, but will not eliminate, multi-billion budget gaps projected for Fiscal 2015 through 2017. The budget also includes a $350 per year personal income tax rebate to residents with one or more dependent children under the age of 17, and with adjusted gross income between $40,000 and $300,000. This credit applies to tax years 2014, 2015 and 2015, and is projected to cost about $370 million per year.
- Unemployment insurance
The final budget largely adopted the Governor's innovative proposal for repaying $3.5 billion in federal UI debt and restoring the state's UI fund to long term solvency. The agreement includes more than $300 million per year in permanent program savings related to qualifications for and calculations of UI benefits, and provides modest short-term maximum benefit increases with longer term increased dependent on the financial strength of the state's UI fund.
- Workers' compensation
The budget made several changes to state imposed workers comp assessments, producing an estimated $350 million dollar savings for employers. An additional reform, repeal of mandatory payments to the state's “aggregate trust fund” imposed only on commercial carriers, estimated to save $150 million and speed up the classification process, was strongly opposed by the Assembly Democrats, backed by the claimant's attorney bar, and did not make it into the final agreement. The budget also includes a new bonding mechanism designed to help former members of defaulted self-insured trusts re-finance their outstanding liabilities, and a “sweep” of assessment reserved held by the State Insurance fund to the general fund for "debt management and fiscal uncertainties” as well as “reducing budget gap”, reserves that under different circumstances could have been rebated back to SIF's business customers.
- Tax Reductions/Tax Credits
The budget includes a six year, 25 percent phased-in reduction of corporate franchise tax rates for manufacturers; a new tax credit for hiring unemployed veterans; an tax credit against the cost of the increased minimum wage; a five year extension of the $420 million per year “film production credit,” and a handful of other targeted tax provisions. It also includes a $370 million dollar per year personal income tax rebate program that unfortunately diverts limited financial resources to a program with no particular economic or tax policy objectives.
- Economic Development
The new budget fully funds the Regional Economic Development Councils, while rejects a proposed $165 million appropriation for general economic development assistance. Proposed restrictions on IDA's ability to offer state sales tax abatements were rejected, but the pre-2002 restriction on IDA financing of retail projects was re-imposed.