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Testimony of
Daniel B. Walsh, President
The Business Council of New York State, Inc.

Senate Finance Committee
and Assembly Ways and Means Committee
February 15, 2000

Chairman Stafford, Chairman Farrell, and honorable members of the committees:

Two weeks ago, the Legislature delivered an early Valentine's Day message to an important group of New Yorkers. It was a message that said New York loves you, and we want you to stay here.

The message was the repeal of New York State's added estate tax, which took full effect on February 1. Before then, New Yorkers who owned a family business, or had other significant assets, faced a tough choice. One option was to move out of this state, to keep those assets in the family. The other choice was to have their heirs pay a New York estate tax that ranged as high as 21 percent.

We know that many business owners moved away in recent decades to avoid this costly tax. We lost jobs as a result. And there were other losses. Charitable organizations lost key supporters, for instance. When the tax department needed to determine whether an individual had been a New York resident for tax purposes, it went so far as to look at whether a burial plot had been purchased in the state.

You and Governor Pataki acted in 1997 to eliminate the extra estate tax, fully effective this year. The state will still collect a tax of up to 16 percent. But estates can subtract that much from the federal estate tax, so New Yorkers are no longer penalized for dying in the Empire State. Our death tax is now even lower than those in some competitor states, such as New Jersey and North Carolina, which still impose a tax beyond the federal credit amount.

We congratulate you on this important and historic reform.

It's such an important change that I will shortly be writing letters to newspapers in Florida and the Carolinas, urging them to tell their transplanted New York readers that they can come home now. New York has ended its confiscatory death tax policy.

We've already earned national attention. For instance, the business section of the Sunday New York Times carried an article on the change several weeks ago.

This change took time. And it was the right thing to do.

You have made other important changes in our tax code. The personal income tax cuts, business tax cuts, expansion of the earned income tax credit, and other tax reforms you have enacted are paying off in new jobs all around the state. Congratulations!

But we truly have more work to do. We've said for years that business executives who move to New York are unpleasantly surprised by the taxes here. Recently we read in the newspapers that a certain new homeowner in Westchester County said she was "stunned to discover the tax burden faced by state residents." We like the idea of people moving to New York from our nation's capital, or anywhere else. Let's not hit them with tax sticker-shock when they do.

One other major change you have made in our tax code deserves special mention. As of this January 1, the gross receipts tax on utility customers is now 3.25 percent. That's down from 4.25 percent three years ago. Your action is returning $400 million a year to taxpayers. That was a great way to start Y2K.

But we are all aware that our energy costs are still too high. A new briefing paper being issued today by our Public Policy Institute shows that electric rates for industrial companies in New York were 41 percent higher than the national average in 1999. Commercial rates were 54 percent above average, and residential rates 62 percent above average. Natural gas prices are higher in New York, also.

Let me translate those figures into real dollars. The Edison Electric Institute reports that a typical, medium-sized manufacturer in New York State pays $23,894 a month for electricity. In Pennsylvania, the same load factor would produce a monthly bill of $19,223. In Michigan and Illinois, the cost would be around $15,000 a month. Over a full year, this medium-sized company pays more than $100,000 extra for power, just by virtue of calling New York State home.

The single most direct step that you and Governor Pataki can take to reduce energy costs for all customers is to eliminate the GRT.

We strongly applauded the proposals made first by Senator Bruno, Chairman Stafford and their colleagues in the Senate Majority, and now by Governor Pataki as well, to repeal the GRT as part of the coming year's budget. Speaker Silver has indicated he does not oppose repeal of the GRT and wants to address other energy issues as well.

It's extremely important that this harmful tax be eliminated as quickly as possible. Every day, New Yorkers are paying more than their fair cost for electricity and natural gas. The sooner we eliminate the GRT, the sooner our economy will benefit from reduced energy costs and greater economic growth.

Governor Pataki's proposal includes a very important element-making the GRT repeal retroactive to January 1 for industrial customers.

Manufacturers are the lifeblood of countless communities in New York, especially Upstate. The Governor's proposal truly would make a difference. Companies such as GE, Oneida Ltd., Lockheed Martin, Carrier, Welch Allyn, Ford Motor Co. and others are key employers in their regions and bring home hundreds of millions of dollars from around the world every year.

We all know that Upstate is not doing as well as we'd like. Governor Pataki recognized as much in his budget. Speaker Silver and Chairman Farrell have pointed it out in their special reports on the regional economies of New York State.

Let's do the Upstate economy a favor: Repeal the GRT as quickly as possible, and repeal it immediately for every manufacturer in the state.

There are other tax priorities I'll mention in a minute. Before leaving the subject of energy, it's important to mention Power for Jobs. The work you have done in creating and expanding this program is paying off. Hundreds, if not thousands, of New Yorkers are employed today because of Power for Jobs.

The Governor proposes expanding Power for Jobs by 200 megawatts. It's important to our economy. You and the Governor have come together on this program before, and we urge you to do so again this year. However, we believe the proposal to allow utilities only a 50 percent tax credit for lost revenues under Power for Jobs would create additional stranded costs on utility companies and their shareholders. That's not equitable. It's not true to the original idea of Power for Jobs as the Senate-Assembly conference committee negotiated it. We cannot afford to place New York utilities at a disadvantage, as they begin to compete in an open marketplace with companies from around the globe.

The Governor's energy-tax package includes other important proposals which we strongly support, such as eliminating the natural gas importation tax, and repealing the tax on so-called excess dividends.

Additional tax priorities

We ask that you consider these additional tax priorities this year:

Building the economy of the future

New York is one of the worldwide centers of Internet activities. We can strengthen our competitive position in this major new industry, as Governor Pataki has proposed, by providing a sales-tax exemption for equipment in the remodeled warehouses and other large facilities now used as web-hosting facilities. These facilities house the big computers that, in turn, provide the infrastructure for the Internet. One major Internet service provider announced last week it will open a $250 million sales and service center in Queens, creating 450 jobs. We want more of these good jobs in the Empire State. This step would make New York the first state offering such an incentive, creating a significant competitive advantage in growing this key industry.

Reducing local taxes

A few weeks ago, our Public Policy Institute released a new book called The $163 Lightbulb: How Albany's Mandates Drive Up Your Local Taxes.

We all know the problem. Laws enacted by governors and Legislatures over many years drive up costs for school districts, for counties, and for municipalities. Most or all of these mandates are well-intentioned. But, clearly, the cost has become too great for taxpayers to bear.

The $163 Lightbulb shows that local taxes statewide could be cut by $5 billion or more a year, through real mandate relief.

In the social services area, for instance, local governments across the state spend more than $1.5 billion a year just on bureaucracy. For historic reasons that may or may not make sense any more, New Yorkers pay for one huge social-services administration at the state level, and another at the local level. Why not look at consolidating the bureaucracies? Taxpayers could save hundreds of millions a year as a result.

We also looked at the cost of public construction. The book estimates that reforming prevailing-wage laws and the Wicks Law could save taxpayers more than $1 billion a year, and speed up construction of schools and other projects at the same time.

We strongly support Governor Pataki's proposal to exempt all school districts from the Wicks Law, and to raise the exemption level for other public building projects. We urge you to enact the Governor's proposal into law.

We also support the Governor's ideas for improving the STAR program. When the program began, we warned that school districts would be tempted to take back much of the savings you and the Governor intended for hard-pressed taxpayers. Unfortunately, we were right. You have provided record school-aid increases totaling $2.6 billion over the last four years - an astonishing amount of money. But many school districts are not satisfied. They are adding, on top of record school aid, new tax increases that take back 50 percent or more of the savings that you and the Governor directed toward taxpayers.

This is an insult to residential taxpayers. It's even worse for businesses. They are not eligible for STAR. They are forced to pay not only the high property taxes they were paying before STAR; and not only the inflation-level increase that might be justified in any year; but also the additional tax increases that school boards are hiding behind the STAR benefits.

I mentioned earlier the shock that the newest residents of Chappaqua, in Westchester County, experienced with property taxes in New York. The Legislature can reduce those costs by enacting real mandate relief this year.

The workforce, and New York's record of innovation

Last year, at the urging of The Business Council and other employer groups, you and the Governor created the Strategic Training Alliance program. The Executive Budget includes $6 million for this important program. Much of the greatest need for the employer-directed training funded through the program is in Western New York and other areas of Upstate that are lagging far behind the nation's job growth. We urge that you expand on the Governor's funding proposal.

In the long run, of course, nothing is more important to workforce development than the implementation of higher standards in education. We wholeheartedly support the Regents' standards. Test results show our students are doing better. The Legislature has been generous in financial support for the schools during this period. But we believe that without the pressure of the new standards, we would not be seeing significant improvement. We need to stick to those standards.

If the Legislature wants to be more generous with education funding in this budget, we would urge you to remember that there's more to education than elementary and secondary schools.

Our higher education system is vital to workforce development-and to the new ideas and new technologies that will support this state's economic development. Industry-university partnerships are becoming increasingly important to our companies.

This state has a long and proud history of supporting colleges and universities-and their students-in both the private and public sectors. It's important to remember the economic benefits our higher-education system provides today, and the key role it must play in our economy of tomorrow.

Proposed new fees

By enacting reforms to the state's "superfund" program, the Legislature can assure that more sites are cleaned up, and that sites are cleaned up more quickly, making these properties available for redevelopment. As demonstrated in many other states, these reforms can assure that cleanups are fully protective of public health and the environment, and they can be adopted and implemented with wide public support. The Legislature has a unique opportunity to enact these reforms as we are considering the financial future of the state "superfund" program.

We appreciate Governor Pataki's efforts last year to develop a consensus on superfund reform. However, The Business Council has many serious concerns about the Executive Budget proposal. In our view, it would fail to provide New York with effective programmatic reforms, and in some instances would make the state's program more bureaucratic and less equitable.

I have written to Governor Pataki, Senator Bruno, Speaker Silver and the chairs of the Senate and Assembly Environment Committees, respectively, summarizing The Business Council's concerns regarding the Executive Budget proposal, as well as our recommendations on alternative approaches. This morning I will address the environmental fee proposal included in the Executive Budget.

The Business Council supports the adoption of a "pay as you go" approach to refinancing the state's "superfund," but we strongly oppose the excessive business fees included in the Executive Budget.

Under the proposal, companies would be required to pay increased fees to help finance clean-up of contaminated sites for which they are not responsible, and from whose cleanup they will derive no benefit. At the same time, these companies retain full liability to clean up any sites for which they are a responsible party. "Responsible parties" have already committed more than $1billion in remediation projects at state and federal superfund sites in New York State.

Most state-financed cleanups are either at municipally-owned sites, or at private sites where there is no financially viable "responsible party." State-financed cleanups provide significant benefits to all New Yorkers, through reduced risks to public health and the environment and by increasing the potential for new economic activity at such sites. Since these cleanups produce broad public benefits, these expenditures should be financed through broad-based general revenues, not narrowly targeted business fees.

The Executive Budget would impose surcharges as high as $360 per ton, and up to $360,000 per facility, on New York State businesses that generate hazardous wastes. Under this proposal, just 52 large facilities would be hit with nearly $7 million in new fees. At the other end of the spectrum, small to mid-sized facilities would be subject to increases of up to nineteen times the current fee.

These surcharges would also be on top of existing state-imposed hazardous waste program fees, hazardous waste facility permit fees, and per-ton "special assessments" on the disposal and treatment of hazardous wastes. These fees have already generated nearly $150 million for the support of the state's environmental remediation programs.

We recommend that the "superfund" program be refinanced with General Fund resources. The state's current cash outlay for hazardous waste site remediation - $80 million - represents only about .2 of 1 percent of General Fund outlays. The 70 percent increase in annual outlays proposed by the Governor would increase this to less than .4 percent of the General Fund - or just slightly more in General Fund resources than has been dedicated to the annual support of the Environmental Protection Fund. The Legislature could use a mechanism similar to that used for the EPF to create a dedicated funding stream for future "superfund" expenditures.

The Business Council believes that continuation of the state's superfund program is of sufficient priority that it deserves this relatively modest investment of General Fund resources. This approach would provide a highly reliable revenue stream to support state-financed cleanup efforts, and - equally important - it would avoid the need to impose onerous new fees on narrow sectors of the state's economy.

Thank you.

February 15, 2000