Tax Committee Update
February 18, 2010
Staff Contact: Ken Pokalsky
Business Council President Kenneth Adams testified at the February 1 joint legislative budget hearing on “economic development” issues. Our testimony, available here, covers all of the Council's major concerns regarding the Executive Budget proposal, including revenue proposal. The basic message was for the legislature to further restrain state spending, in order to address both this year's $7 billion plus budget gap, and an estimated $30 billion or more in structural gaps over the next three fiscal years.
Additional Tax and Tax Credit Proposals
In his “21 day amendments” to the Executive Budget, Governor Paterson is proposing several significant additional changes to business taxes and tax credits. They are summarized below. Your input on these issues would be appreciated.
MTA Mobility Tax. The Governor is proposing to increase the MTA payroll tax rate from 0.34 percent to 0.54 percent for employers within New York City, and to reduce the rate to 0.17 percent for elsewhere in the MTA service territory. Under this proposal, New York City businesses would pay 88 percent of all the total tax, up from 70 percent and increase projected payroll tax revenues for 2010 by $200 million. The proposal would also exempt self-employed individuals and partners with income below $100,000 from the payroll tax, up from the current threshold of $10,000, eliminating tax liability for an estimated 400,000 small businesses. While we support the reduction in the suburban county tax rate, The Business Council is opposed to increasing the payroll tax on New York City residents. The bill text is available here. Our press release on the MTA tax issue is here.
Brownfield Redevelopment Tax Credit. The 21 day amendments would impose limitations on brownfield program tangible property tax credits to all projects that were accepted into the program prior to June 23, 2008, but that had not received a “certificate of completion” for the remedial work prior to February 2, 2010. Under current law, as amended in 2008, new limitations on the tangible property credit ($35 million or 3 times site preparation and cleanup costs, or $45 million and 6 times cleanup costs for manufacturing projects) only apply to projects accepted into the program on or after June 23, 2008. This proposal is consistent with recent policy and program implementation efforts to significantly reduce access to brownfield tax credits. The Business Council opposes this “de-grandfathering” of projects already in the brownfield program. The bill text is available here.
Empire Zone Investment Tax Credits. The Business Council supports a final proposed change that would clarify that access to Empire Zone investment tax credits for qualified empire zone enterprises would continue after Empire Zones formally expire on June 30, 2010. Current law makes these ITCs contingent upon location within a zone, calling into question their validity after the zone expiration date. The Administration concurred that this was an unintended consequence of the 2009 Empire Zone program reforms, and clarifies that these zone credits remain in effect post June 30. The bill text is available here (see page 7 of this document, proposed changes to page 85, line 47 of S.6610/A.9710)
NY Finances Continue to Deteriorate
New data on the state's financial condition reinforces the need for significant financial restraint and budget reform:
- Governor Paterson recently announced that the projected $7.4 billion budget gap for the new fiscal year had increased by $750 million, due to reduced projections of personal income tax revenues (down by $550 million), a higher than expected Medicaid caseload (increasing costs by $400 million), somewhat offset by $200 million in lower than expected spending in other areas.
- State Comptroller Thomas DiNapoli has also warned that the current year deficit will likely be larger than projected by the Governor, and that the Governor's Executive Budget proposal “relies on unrealistic revenue projections and other questionable proposals.” The Comptroller also issued an analysis of the Executive Budget. Among its most significant finding was that the proposed budget includes $11.3 billion in “temporary funds,” and that “approximately 20 percent of permanent General Fund spending is supported by revenue that disappears over the next three years.” This includes $4.7 billion in Federal stimulus funds, $5.5 billion in temporary personal income tax surcharges, and $557 million in temporary energy assessments.
- The Paterson administration also announced that the MTA “commuter tax” adopted last April will likely bring in $350 million less in 2010 than projected, in part prompting the payroll tax amendments discussed above.