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The Business Council Growth Agenda
Making New York Competitive Again

January 2011
Staff contact: Ken Pokalsky

New York State’s budget continues to grow at unsustainable levels.  Spending growth coupled with a continuing economic downturn has resulted in massive, multi-billion dollar state budget deficits.  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 over the past two years.  New York has 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 has taken away already-earned tax incentives for job creation and investments.

In short, even as New York continues its long record of underperforming the nation in terms of job creation and new investment, its budget and policy actions have produced an even less competitive economic climate.

The state desperately needs to bring its financial house in order to provide broad-based tax relief at the state and local level, and needs to adopt policies and programs that promote private sector reinvestment in key growth sectors that result in new jobs and new opportunities for all New Yorkers. 

Improving the state’s economic competitiveness is the only real mechanism for restoring the Empire State. Renewed economic growth will provide revenues necessary to finance essential government functions, and allow the state to re-invest in areas crucial to supporting private sector investment: transportation infrastructure, higher education and others.

In the following, we present a comprehensive and achievable plan to reform and restructure state and local government financing, and make the state more attractive for investment, job creation and economic growth – recommendations that address issues of priority concern to Business Council members.

We look forward to working with the new Administration and the State Legislature in adopting this blueprint for restoring New York’s private sector economy and its governmental finances.

Fiscal Reform

The New York State budget has increased more than $30 billion in the last five years, and even with significant tax increases, the state is looking at upwards of $40 billion in structural deficits over the next 3 years.  

The Business Council believes that basic fiscal reforms are essential to returning the state’s budget to a sustainable level and putting New York back on the path to economic growth and jobs.

Some of the following recommendations are designed to drive short-term savings for the state; some are longer-term solutions.  However, we believe they are all part of a necessary, comprehensive fiscal reform plan for Albany.

Cap & Reform Property Taxes - Local property taxes in New York are 59 percent above the national average. When property taxes are measured as a percentage of home value, 15 of the 25 highest taxed counties in the nation are in New York State.

A cap on property taxes is a necessary reform to bring local real property taxes under control.  To be effective, a property tax cap must have two key features:  it must apply to all local taxing jurisdictions, and it must apply to all categories of real property.  So-called “circuit breakers” and reliance on STAR are not solutions, as they merely shift the cost of property tax payments from local to state taxpayers. 

To help make a cap “workable” at the local level, it is essential that the state also reduce costly mandates on local government, and further consolidation of local governmental entities and services needs to be achieved.  Mandate reform should include repeal of the “Triborough” amendment, Wicks law, and other broadly applied mandates. The extensive work conducted by previous commissions on mandates should be revisited, rather than new commissions appointed, key municipal associations should be consulted, and mandates across all levels of programs and services should be reviewed. 

In addition to a cap, there are real property tax administration issues of significant concern to business.  Important administration reforms include:

Cap State Spending - Over the last decade Albany has increased spending at more than twice the rate of inflation. Our current state budget would be at least $18 billion smaller - and there would be no deficit - if the state had just kept spending hikes within the rate of inflation during this period. We need a cap to limit annual increases in state spending.

As an immediate step, the Administration should propose a budget for FY 2011-12 at the FY 2009-10 expenditure levels.

For long term budget stability, the state should adopt a spending cap at a level that is realistic and related to inflation and performance-based analysis.

Reduce the Tax Burden - The burden of state and local taxes simply makes New York uncompetitive.  Study after study show New York with among the highest combined state and local tax burdens. High taxes are among the reasons that we are losing residents, businesses and jobs to other states.  New York State needs to reduce its real property taxes and reduce its marginal personal income tax rates – which affect both residents and small businesses.  It needs to reduce taxes, fees and assessments on energy.  It needs to reduce taxes imposed on key business sectors such as manufacturing and financial services.

Reform Public Employee Pensions - Pension costs are a growing, and an increasingly unaffordable, share of state and local government budgets. 

The state 2010-2011 budget includes approximately $1.5 billion as the state’s contribution to the retirement funds on behalf of its workforce, an increase of $552 million from the prior year.  The State Financial Plan projects the state’s  pension contribution rate as a percentage of salary to grow from 12.1 percent in FY 2011 to 23.5 percent in FY 2014.

In 2009, a new pension tier with reduced benefits was created for newly hired public employees - called Tier V. But more must be done to control public employee pension costs.
Since the state Constitution guarantees pension benefits for current employees, pension reform needs to be understood as a strategy that will impact state and local finances for the next generation of government workers and taxpayers, not current workers and taxpayers. 

A minimum step would be to implement a new tier (VI) of the current pension system model which reinstates the employee contribution of 3 percent, lengthens the number of years of service required to reach maximum benefit levels, and makes other changes to limit the cost of the benefits to be provided.

For the long term, New York needs to consider alternative approaches for public sector pensions, and adopt plans more comparable to what is typically provided in the private sector.  This would mean a shift to defined contribution plans, like a 401Ks, rather than defined benefit plans, for future hires in the public workforce.

Limit Government Borrowing - New York State and local government debt has grown by 32 percent in the past five years. Our state and local debt per-capita is nearly double the national average. Increasingly, state and local officials borrow money in order to pay operating expenses.

Government debt should only be issued to finance capital needs. New York should strictly prohibit government borrowing to pay state and local operating expenses.

Further, the state should build on the 2000 debt reform legislation to place a hard limit on state-funded debt to a fixed percent of New Yorkers' personal income.

Performance-Based Budgeting - New York’s budget process is an incremental one.  Each year, the process builds off of prior year spending, resulting in ever increasing overall budget figures. The result is a spiral of spending that usually outpaces inflation and revenue growth, resulting in the current crisis. 

Performance-based budgeting is a tool for improved expenditure prioritization — that is, helping to shift limited public resources to the services of greatest benefit.

In the short term, the state needs to identify areas where agencies are duplicating efforts and streamline those functions.  Likewise, state agencies need to define their core mission and shed programs that do not advance that mission.

Longer term, the Administration should require state agencies to submit goals and objectives to execute their core mission with their annual budget request, and tie the funding to performance criteria.

As a transition step, agencies should submit a “zero base” budget for FY 2011-12, which forces an explanation of each budgetary request, permitting only existing contractual costs (i.e., collective bargaining agreements) to be carried over from the prior year.  By doing so, the executive could more effectively determine which functions are critical to the core mission of the agencies, and eliminate programs that stray from that mission until such time as the state is in a more stable financial condition. 

Economic Climate/Taxation/Economic Development

New York’s job growth and levels of capital investment have lagged behind national trends for the past two decades.  New York grew at about half the national rate during the 1990’s, and at about 60 percent of the national rate in the 2000’s.  Too many New Yorkers, especially the young and well educated, continue to leave for better job opportunities in other states. New York’s high cost-of-doing business – taxes, especially real property taxes; energy costs, health care costs and others – discourage new investments by existing business, smother entrepreneurs and limit the creation of new businesses and new jobs in emerging technology sectors.

Because of our weak competitive position, New York has lagged significantly behind national trends in recovering from the last two recessions. We need to become more competitive, not less, in order to fully participate in the eventual national economic recovery.

We believe that the most effective economic development program would be a more competitive business climate.  We need to control state-imposed cost mandates on employers, reduce the cost of energy, and lower real property taxes.

Tax Reform – The Council on State Taxation, in its annual business tax climate study prepared by Ernst and Young, found that only California levied more in total state and local taxes on business than did New York, and New York’s state and local taxes as a share of its gross state produce was exceeded by only ten other states.

Over the past two budget cycles, New York adopted nearly $10 billion in new taxes, as it attempted to close massive gaps between projected incomes and desired spending levels.

It is crucial that New York bring its tax burden under control, and make the state’s tax climate more attractive for new investment, in order to repair its economic climate and position itself to compete in a national economic recovery.

First, and foremost, the Administration and Legislature must oppose new and increased business taxes, fees, assessments and other adverse “revenue actions” in addressing the expected FY 2011-12 budget gap.

The next Governor should consider additional business tax reforms that help make New York a more attractive place to invest, create and retain jobs, develop new business, and locate new investments.  These include:

Incentivizing Investment and Jobs - Recognizing that major business climate improvements will take time, we also believe the state needs to continue to offer effective, efficient economic incentive programs that target strategic industries and that produce significant returns on the state’s “investment.”

First, the state needs to improve the Excelsior program adopted in 2010.  We are concerned that the design of tax incentives in the Excelsior program will be ineffective in attracting significant new investment to New York State. 

The program should be improved basing the real property tax credit on improved value of property and giving Empire State Development flexibility to increase the percentage credit and provide a longer duration of credits, compared with current law. 

The Excelsior investment tax credit should provide a range of 2 percent to 5 percent; or, alternatively, allow the Excelsior ITC to be taken in conjunction with the existing ITC. This would give ESD an enhanced ability to negotiate higher incentives for high value projects, yet would not increase the cost of the program beyond its statutory hard cap.

The state should also repeal the requirement that, to qualify for any Excelsior credit, a taxpayer has to rescind any current or future Empire Zone credit.  There is no reason a business should have to forfeit already earned Empire Zone credits, if it is proposing an entirely new project that otherwise would be eligible for the Excelsior program.

The law also needs to clarify the eligibility of projects in targeted industry sectors; for example, assuring that manufacturing jobs and investments qualify for Excelsior credits regardless of the overall makeup of the taxpayer making the investment. 

Last year’s three year deferral of most major business tax credits was incredibly bad policy, imposing increased tax liability on businesses that had already made investments in New York State.  Before this policy causes any further lasting damage to the state’s economic development efforts, it should be repealed.

The state should adopt a permanent extension of the investment tax credit for the financial services industry, which is set to expire October 2011.

Local industrial development agencies (IDA) have proven to be one of the state’s most effective, efficient economic development tools, supporting large, mid-sized and smaller investment projects deemed to be strategically important at the local level.  Unfortunately, recent legislative efforts threaten to greatly reduce the ability of IDAs to support new investments in New York State.  The new Administration and legislature should support the role of IDAs in the state’s economic development “toolbox,” and reject proposals to impose new wage mandates on IDA-assisted projects.  The Business Council has shown that increased costs that would result from proposed construction and building service prevailing wage mandates will outweigh the financing and tax abatement benefits available through IDAs.   And while some additional IDA reforms may be warranted to assure their efficient operation and public transparency, new proposals must be evaluated in context of the recent Public Authorities Reform Act.

As a final measure to promote new investment and economic growth, New York should become the thirty–sixth state to allow the sale of wine in grocery stores. This widely supported proposal would result in expanded markets for New York wineries, more choice for consumers and much needed increase in New York State revenues.

Supporting Innovation – The Business Council agrees that New York needs to promote investment in new businesses in emerging technology sectors.

To become more competitive in fostering these business sectors, we support both extension and expansion of the existing qualified emerging technology company (QETC) tax credit by increasing revenue eligibility threshold from $20 million to $40 million; increasing the credit for investment in R&D property from 18 to 30 percent; and increasing the credit for “qualified research expenses” from 9 to 15 percent.

There is broad agreement that continual investment in research and development is key to promoting future economic growth.  The Business Council believes that New York can and should do more to promote research and development investments within its existing business community. Specifically, we recommend adoption of a new, refundable R&D tax credit of 15% for investments in R&D property and 7.5% for "qualified research expenses" such as in-house research and processes; the preparation and submission of patent applications; and other expenses directly related to R&D efforts.

Labor Issues

Unemployment Insurance - As the economic recovery continues to lag, the insolvency of New York’s unemployment insurance trust fund has become a larger problem for New York’s employers.  As a benefit funded solely through a dedicated employer tax, the solvency of the trust fund needs to be prioritized.

New York employers recognize that benefit levels have not increased in over ten years, but only “Albany as usual” would tie fund solvency to a benefit increase.  Bringing the trust fund into solvency and putting it on a more stable footing will require business tax increases for at least the next five years.  Many state employers will be hit with significant tax increases, even though they were able to maintain a stable workforce throughout this economic downturn.  To hit those same employers with additional tax increases to pay for immediate benefit increases is unreasonable.

First and foremost, the state needs to address the solvency of trust fund. 
To do so, it needs to adopt reasonable increase in UI taxable wage base and adopt more progressive UI tax tables.  Any amendments to UI tax tables must avoid shifting significant additional tax burden to stable employers.

Importantly, New York needs to avoid any benefit increases until trust fund solvency is addressed and achieved. 

The state should reject any proposal to index UI benefits or taxable wage base.  Proposals have been advanced which would allow for “automatic” tax increase authority to be granted to the Department of Labor, removing the Executive and Legislature from their role in setting policy and practice.  This “automatic” tax authority also removes the incentive to negotiate systemic reforms for a system fully funded by employer taxes.

Finally, unemployment insurance was never intended to act as wage insurance.  The model for unemployment insurance has not changed significantly since its inception in the 1930s. It is worth a conversation to discuss new models for unemployment insurance which might include a wage insurance component – and offer the opportunity for employee buy-in.  In a few states, unemployment insurance is an employee-employer tax; in most states it is a 100% employer funded tax.  Indexing of benefits provides the illusion of wage protection – but in the modern world of work, new models should be explored which maintain a base benefit level but provide employees with the option to provide additional coverage, at employee expense, for some form of “wage insurance.”

Workers’ Compensation - Employers remain frustrated by the pace at which the executive agencies implemented the 2007 reforms.  The reforms were a much heralded successful negotiation between business and labor which called for sizeable benefit increases and a series of actions which would help to offset the cost of those increases while not diminishing the quality of care to injured workers. 

Four straight years of benefit increases have occurred; and benefits are now permanently indexed to increases in the state’s average weekly wage.  Medical treatment guidelines for only four body parts - guidelines which were a key part of measuring the cost savings to pay for the benefit increase and to help limit friction costs within the system – are just now, almost four years later, coming out of the rulemaking process. Rulemaking on how to evaluate impairment under the 2007 reforms has yet to be published. 

Concerns remain over numerous other aspects of how the 2007 reforms have been implemented: the benefits from the pharmacy fee schedule and pharmacy networks have not been fully realized because many believe the rules were so onerous as to limit participation.  Procedural issues within the Workers’ Compensation Board raise concerns as the number of forms required continues to proliferate, seen by many as nothing more than a way to generate penalty revenue for state coffers. 

Workers’ Compensation remains a significant cost of doing business in New York State and without a vigilant eye and strong leadership on ensuring that the system remains in balance – that process does not trump outcome – employers and workers will not be well served by a system whose very purpose was to provide seamless care and benefits for those with workplace injuries. 

Importantly, all legislative reforms must be fully and effectively implemented to offset cost of benefit increases.  2007 reform measures, and additional workers’ comp reform issues, include: 

Workforce Development - New York State’s economic competitiveness is inextricably linked to the success of our workforce preparation system: the K-12 education system; the post-secondary education and training system; and the ancillary employment preparation services captured in certificate and non-degree granting programs provided through organizations such as unions, community colleges, BOCES and employers.  It is an economic issue when data shows that eight out of ten new jobs will require workforce training or higher education by the end of this decade.  And it is an economic issue that efforts to align the services and investments (public and private) have still resulted in a fragmented system with fragmented accountability to both the investors (taxpayers, business and individual) and the end-user (students and workers).

The adoption by the SUNY trustees of a strategic plan which encompasses both a vision and a roadmap on how to leverage the tremendous public investment in SUNY into regional economic development success is an important first step for this statewide asset.  For the plan to be realized, however, state elected leaders need to show the political will to allow SUNY campuses the flexibility to enter into public-private partnerships; to align campus objectives with regional economic goals; and along with providing flexibility, compel accountability to ensure the goals are being attained. 

New York State is rich in higher education assets – both public and private – and these assets need to be more fully integrated into the overall economic success of our state.  Merely graduating students is no longer an acceptable goal; and certainly not acceptable when substantial public investments continue to support higher education.  If higher education institutions are to be equal partners in the economic development agendas of their regions, they need to be able to operate with flexible, modern business models.  Private higher education institutions across New York State have shown the way for decades on how these public-private partnerships can lead to innovative practices, can better integrate applied learning into the workplace, and can respond to business training needs in real time.  Now is the time to allow for this innovation within the public higher education system.

Workforce training, however, is not limited to higher education.  A lack of a cohesive vision for the vast public resources across state agencies has perpetuated investments without ensuring those investments are aligned toward state or regional goals.  Regardless of the program -  these funding sources represent an opportunity to harness the power of a strong vision to provide the best economic opportunity for our citizens, and the best economic climate for businesses to remain viable in New York State. 

Energy

New York can support revitalization of the state’s economy by making New York’s energy costs more competitive.  While new sources of power generation and other energy solutions are needed, New York must balance the benefits to be derived by investments in energy efficiency, alternate sources of electricity generation, and infrastructure with the costs of those investments and the burdens they place on New York’s businesses and consumers. 

Research done by our Public Policy Institute shows that state imposed taxes, fees and assessments account for more than 25 percent of the cost of electric power in New York State – a total of more than $6 billion a year – adding to the state’s already un-competitively high energy costs. These include the Energy Efficiency Portfolio Standard, Renewable Portfolio Standard (“RPS”), System Benefits Charge, and increased Public Service Law §18-a assessment.  Additionally, the Department of Environmental Conservation has implemented or will implement a host of new regulations that will impact energy costs. These measures include the Regional Greenhouse Gas Initiative, limitations on SO2, NOx, CO2, and mercury; more stringent New Source Review requirements and regulations for cooling water intakes; and a new “policy” on considering GHG emissions and energy use under SEQRA. 

New York must do a better job of balancing the benefits to be derived by investments in energy efficiency, alternate sources of electricity generation, and infrastructure with the costs of those investments and the burdens they place on New York’s businesses and consumers. While New York has historically been a national leader in environmental and energy policy, the state needs to be aware of the economic costs imposed by its environmental and energy initiatives.  

The Business Council recommends that the Administration and State Legislature adhere to the following principles to stimulate economic development in New York while not jeopardizing the continued viability of the state’s existing businesses.

Health and Health Insurance

Among Business Council members, large and small, self-insured or in the commercial market, the rising cost of health care has been their number one concern for the past six years. Even with the United States spending much more on health care than countries with similar kinds of economies, Americans do not see doctors more often, or live longer, healthier lives, according to data from the Organization for Economic Cooperation and Development. Costs need to be examined more closely if we are to ever attain the goal of cost containment of federal health care reform.   

Health Insurance Coverage Mandates & Assessments - With the advancement of federal health care reform and the changes this is bringing to the commercial and self-insured products, New York should impose a moratorium on any new coverage mandates.

Existing coverage mandates need to be evaluated in terms of how they align with federal mandates, and whether any form of mandate relief can be considered. The State Department of Health never convened the statutorily-authorized mandate commission, examined closely what is mandated, or what the costs of those mandates are with a commitment toward quality not quantity.

Health insurance taxes, sales taxes on hospital and nursing home stays, and similar costs imposed by the state on the privately insured in New York total over $4.1 billions dollars per year. These taxes are not just a burden. They can prove to be the tipping point on whether a business can maintain coverage or not.  Public policy should not squeeze the commercial insurance market to sustain the subsidized pool without a full evaluation of the gap subsidized plans are intended to fill, how best public policy should be supporting those subsidized pools, and a measurement on the effectiveness and efficiency of the subsidized pools.

To address this, New York must begin repealing health insurance taxes, sales taxes on hospital and nursing home stays, and similar costs imposed by the state on the privately insured.

The Business Council opposes legislation aimed to undercut the effectiveness of health insurance.  Every year, numerous bills are introduced to weaken health insurer network requirements and restrict use of tools such as prior authorization and medical necessity.  Not only are these tools critical to ensuring that high quality of care for consumers, but they are also critical to controlling the underlying costs of health care.  The Business Council will oppose discrete pieces of legislation that fail to align with federal health care reform and comprehensive state policy and statutory objectives.

We also support fair implementation of "Prior Approval."  In 2010, legislation was enacted to require that all health insurance rate increases be approved by the Department of Insurance, using subjective review standards.  Insurance rates are developed to reflect the underlying costs of health care. Failure of the Department to review the rates using objective factors, will compromise health insurers and the availability of affordable, diverse products to businesses across the state.

New York also needs to ensure that state legislation enacted to implement Health Insurance Exchanges as required in federal health care reform reflects the concerns and needs of New York businesses.  The Business Council will advocate for an Exchange that facilitates the purchase of health insurance coverage, without adding yet another unnecessary layer of regulatory oversight. 

Medicaid Spending - New York’s Medicaid spending exceeds that of any other state. We spend 22 percent more than California, which has almost twice as many people and more than twice the national average on a per capita basis.

“Cutting Medicaid spending” and “reducing reimbursement rates to hospitals and nursing homes” are not solutions to the underlying problem.  New York’s spending problem with Medicaid is long and well-documented. This calls for a New York solution to a New York problem. The solvency of Medicaid cannot continue to be borne by New Yorkers through taxes on private health insurance, and through General Fund revenues, without a critical look at the delivery system and the menu of services provided to identify real efficiencies.  A program of this size and scale compels serious review of the results, not just the spending. What is often lacking from the public policy dialog on Medicaid is an accountability analysis to evaluate where effective spending on particular services is achieving better health care outcomes.  It is time to turn the tables and bring heightened scrutiny to solutions that retain the integrity of Medicaid with a critical eye toward targeting investments toward results.

Environment

New York is seen as having an overly stringent and costly environmental regulatory climate.  Business supports environmental regulations that are necessary to protect environmental resources and public health and maintain a high quality of life in New York. But New York State often displays a regulatory mindset in which “more stringent” is always the right approach, regardless of existing federal and state requirements, the marginal environmental or public health benefit to be achieved or the increased cost of compliance.

The state often exceeds the scope and requirements of the federal environmental laws and regulations it is charged with implementing, adopts state-specific mandates and restrictions, and is ahead of the nation on some major regulatory initiatives.

This regulatory climate imposes costs and operational restrictions on business that impede economic development projects and discourage new investments and jobs in New York State.

The new Administration needs to consider both incremental benefits and new costs, and look for solutions that are economically efficient as well as environmentally effective, and that allow flexibility in how regulated business achieve new compliance standards.  The state also needs to avoid imposing new, unnecessary procedural obstacles to new investment in the state.  These include proposals to dramatically expand the definition of, and state regulation of, small wetlands; and broad proposals to subject projects to lengthy “essential habitat” reviews and permitting.  These proposals are layered upon already existing wetlands and SEQRA requirements that provide adequate protection for environmental resources.

Climate Change - New York is already among the most energy and carbon-efficient states, a result of our fuel mix for electric power generation, including significant nuclear and hydro capacity; downstate’s extensive mass transit system; as well as our regulatory structure and incentive programs that restrict emissions and promote efficiency. 

The Business Council supports reasonable, cost-effective emissions reduction goals and strategies based on consideration of emission impacts and compliance costs.

The Business Council believes that recent legislative proposals for state-specific, economy-wide greenhouse gas emission reduction mandates will have insignificant impact on global carbon emissions yet put the state at additional economic disadvantage compared to other states and nations. Moreover, stringent, single state carbon limits will have the effect of shifting activity from New York to other jurisdictions, further limiting the impact of such mandates on actual greenhouse gas emissions. 

Chemical Regulation - The Business Council is concerned with any legislation that imposes state specific chemical use bans and restrictions. Regulation of chemicals in interstate and international commerce is more appropriately done at the federal level, rather than having individual states impose inconsistent, and at times unwarranted, standards for chemical and product safety. 

Hazardous Materials - New York should allow Congress to continue its review and reform of the federal Toxic Substances Control Act (TSCA) and EPA’s completion of its designated chemical action plans. This would provide a sound, national statutory and regulatory system that all businesses and manufacturers, including those in New York, could follow. New York should work with the federal government and take advantage of its resources in addressing issues of importance to the state in terms of chemical regulation.

Expanded Private Rights of Action - The Business Council opposes legislation which would allow for expanded standing and private "citizen suits" to be brought in response to alleged violations of SEQRA and the Environmental Conservation Law. We believe that these types of bills will not significantly enhance environmental protection in New York, and are simply unnecessary given the significant enforcement authority and resources available to the Department of Environmental Conservation and the Office of the Attorney General.

Remediation and Development - Despite its arduous procedural requirements, the state’s brownfield program has been a tremendous success, supporting more than $1.25 billion in new capital investments in New York. Unfortunately, through administrative actions, the state has been trying to limit participation in the brownfield program by denying approval to clearly contaminated sites.  Through legislative actions, the state has been pulling back on redevelopment tax credits, including a 2010 change that reduces tax credits available to businesses already accepted into the brownfield program – putting into jeopardy over $20 billion in proposed cleanup and development projects.

An effective, workable brownfield program is an essential tool for meeting the state’s urban redevelopment and “smart growth” objectives, and the state must stop imposing new hurdles for brownfield developers.

Natural Gas Exploration - New York has a long history in natural gas production.  New York drilling companies drill approximately 1,000 wells each year in New York. Marcellus shale production will yield extensive new job opportunities, provide increased state and local tax collections, boost local economies, and provide long-term growth particularly to the Southern Tier, an area in desperate need of economic growth.    We support reasonable and appropriate environmental safeguards that allow for timely development of the Marcellus shale formation.  We encourage the Department of Environmental Conservation to finalize its drilling regulations and begin permitting wells and policing New York’s production operations. 

Project Review and approval - The state’s regulatory climate imposes costs and operational restrictions on business that impede economic development projects and discourage new investments and jobs in New York State.  In developing environmental policies and regulations, the new Administration needs to consider both incremental benefits and new costs, and look for solutions that are economically efficient as well as environmentally effective, and that allow flexibility in how regulated business achieve new compliance standards.  

Financial Services

The financial services industry is New York’s largest sector in terms of its contribution to New York’s gross state product (GSP) and total payroll.  The sector is composed of companies that engage in financial transactions, including the creation, liquidation or alteration of financial assets, or are involved in the facilitation of such transactions. Covered firms include traditional banking firms, investment banks and security firms, mutual funds, stock and commodity exchanges, insurance companies and trust and other financial instrument and asset managers. In 2008 the financial sector directly contributed $187.2 billion or 14 percent toward New York’s $1.145 trillion economic output, making it the largest single driver of New York’s GSP.

Despite the importance of this industry, the state continues to impose punitive new taxes, mandates and restrictions on the financial services sector, eroding the competitive climate for these key businesses and jobs.

In 2010, the New York State Legislature introduced no fewer than 94 bills and resolutions aimed at punishing Wall Street for the effects of the current recession. These proposals included increased business taxes, new taxes on Wall Street bonuses, regulations restricting or adding costs to specific financial services activities, and more.

The new Administration and Legislature has to recognize that New York is in an intense global competition to maintain its position of “Financial Capital of the World.”  Keeping that leadership role will require a cooperative spirit that places New York’s international status and promise at the constant forefront of policy discussions.  The state must:

Legal Reform

New York’s legal environment consistently ranks as one of the worst in the nation. According to a 2009 report commissioned by New Yorkers for Lawsuit Reform, New York’s legal system is the second most costly in the country and is costing taxpayers millions of dollars through higher taxes and increased costs for goods, insurance and health care.  New York needs meaningful legal reform that respects the rights of all parties and helps reduce the state’s hidden “lawsuit tax.”

To effectively address these issues, the state should:

Telecommunications

Telecommunications, with innovative new services and expanded service areas, is the new economic infrastructure of the 21st century.  It is essential that New York adopt policies to promote continued private sector reinvestment in its telecom network investments that will help make New York’s economy more competitive.

As is too often the case in New York, the state’s policy initiatives for this sector focus on new regulations, new restrictions and new and expanded taxes, rather than the promotion of new investment.

The state needs to resist new, state-level regulatory schemes, such as imposing so-called “net neutrality” requirements on broadband services, new restrictions on the Public Service Commission’s ability to approve telecom mergers, mandates on business practices such as the provision of call center services, and others.

The telecom industry has become increasingly competitive and innovative, largely due to the hands-off approach taken by all levels of government.  Now is not the time to begin imposing state-specific regulations on telecom and internet services restrictions that would only inhibit investment and innovation.

Construction and Transportation

New York’s vast but aging transportation infrastructure is a key economic asset. Roads, bridges, ports, airports and railroads are critical for the goods and services, workforce, tourism, and other trade that drive our diverse economy. 

New York’s aging transportation infrastructure is at a critical crossroads.  Roads, bridges, ports, airports, railroads and public facilities require massive investments from the state and federal government for continued maintenance, reconstruction and modernization to ensure the efficient flow of goods, services and employees. In addition, we cannot overlook investments for energy distribution, telecommunications, water treatment and other economic assets. 

The enormous task of rebuilding New York’s aging infrastructure is further complicated by a sluggish economy, burdensome state laws and regulations, already unsustainable state spending levels and rising taxes which limit the types of financing available.  The federal and state government’s inability to enact fully funded infrastructure capital plans threatens the viability of New York’s economy.

Rebuilding New York’s aging infrastructure requires alternatives to the standard approach of financing, constructing and operating our transportation system. The global financial crisis and environmental concerns have created the perfect storm for private transportation infrastructure investment.

The growing use of public-private partnerships for infrastructure projects in the United States and across the globe demonstrates a sensible alternative to traditional funding and procurement. Carefully crafted public-private partnerships would help to reduce additional transportation taxes; reduce the State’s reliance on borrowing; adapt to a changing global economy; and create jobs.

Pursue public-private partnerships would help to reduce additional transportation taxes; reduce the State’s reliance on borrowing; adapt to a changing global economy; and create jobs. 

Corporate Governance

New York has long been considered a prime “headquarters state,” and in past years the state took specific action designed to encourage business to locate and maintain corporate offices in New York, (e.g. the 1945 corporate tax reform act).

In 2005 there were 602 stand-alone headquarter operations for major companies in the city of New York, and, according to Fortune magazine, 56 of the 500 U.S. corporations with the largest revenues in 2009 had headquarters in the state, including 42 headquartered in New York City.  The economic benefit of the presence of these companies in New York is manifested in jobs, income tax revenue, increased economic activity, business tax revenue, local property tax revenue and more.

There is renewed interest in corporate governance issues since the passage of the Sarbanes-Oxley Act in 2002. It is critical that the State take great care to balance the well-intended desire to restore public confidence in corporate governance against creating a structure that makes New York State uncompetitive with other states. 

In recent legislative sessions, bills were introduced which would place additional undue burdens on corporations formed under the laws of New York State, including bills which would:

The Business Council has consistently argued that New York State should develop corporate law that makes incorporation under New York State more attractive. Currently, the vast majority of New York companies are incorporated under the laws of Delaware, which provides clear and consistent standards regarding corporate governance. 

Conclusion

2011 will bring a new Administration to Albany and a new opportunity shape the future of New York State. 

Unfortunately, the state’s daunting fiscal problems will continue into the next Administration. Until they are addressed head on, the new Governor’s ability to launch other policy initiatives will be limited. Reducing spending and taxes, and achieving long-term fiscal stability for the state, is job one.

Fiscal stability over the long term is a key component in any effort to improve the state’s business climate.  It is crucial for the state to become more competitive and more attractive for private investment, so we can assure that the state will participate fully in the national economic recovery. 

In this plan, we attempt to focus on issues that we know are of priority to our large, and diverse membership, and offer practical, implementable solutions to some of the state’s more pressing problems.

We greatly appreciate the opportunity to share the viewpoints and concerns of importance to The Business Council and our members across the state. 

We welcome the opportunity to work with the Cuomo administration, Senate and Assembly on any issue addressed in this plan, and in supporting their efforts to restore the economic strength of the Empire State.