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January 16, 2001

Governor Pataki's budget cuts taxes, invests in R&D
Spending would increase 4.9 percent; plan would put $1.4B surplus into reserves

Governor Pataki proposed a 2001-02 budget that would cut taxes on manufacturers and other employers, invest hundreds of millions of dollars in high-technology partnerships between universities and businesses, and provide significant new incentives for redevelopment of brownfields while restraining overall spending growth.

The $57.4 billion state-funds budget would increase aid to local schools by $382 million on a school-year basis, while simplifying the aid formula to give districts more flexibility in using state assistance. It also would expand a wide variety of health-care programs; for example, it includes provisions for new access to Medicaid coverage for working disabled New Yorkers.

State-funded spending - the total figure minus federal assistance - would increase by 4.9 percent after an increase of 9.9 percent in the current year. Reflecting continuing economic growth, personal income tax revenues would increase more than 11 percent in 2001-02.

The Governor announced he expects the state to end the current fiscal year with an unallocated surplus of $1.4 billion, and proposed setting that amount into a new reserve fund to balance the budget in future years in case of an economic downturn. Including other reserves already accounted for, the state would end the 2001-02 fiscal year with a projected balance of more than $2 billion.

Key elements of the Executive Budget include:

Tax cuts. As Governor Pataki announced earlier this month, his plan would change the state's corporate income tax on manufacturers so that a company's New York taxable income is based only on sales, rather than a combination of sales, property and payroll in the state. The effect of this "single-sales factor" would be to reduce taxes for companies with a higher proportion of jobs and property in New York than of their overall sales.

The budget would also eliminate the alternative minimum tax on corporations - a significant reform for manufacturers and securities firms. The AMT limits the value of New York's investment tax credit, which allows companies to reduce their tax after making capital investments in the state.

The Business Council has pushed successfully to reduce the AMT from 5 percent in the mid-1990s to 2.5 percent this year; Governor Pataki proposes eliminating it entirely over five years.

Both proposals are among The Council's top priorities for further improving the state's tax competitiveness.

The Governor also proposed doubling the size of tax-free Empire Zones in certain upstate communities; creating new credits for redevelopment of brownfields; extending the investment tax credit to certain biotechnology companies; and extending the STAR property-tax relief program to reduce county property taxes for senior citizens and farmers.

"By cutting taxes and returning economic power to the people, we've created a strong economy that has helped to produce more than three-quarters of a million new private sector jobs," Governor Pataki said. New tax cuts would total some $300 million a year when fully effective, not counting the STAR expansion.

The proposed budget phases in tax cuts enacted in previous years, including a reduction in the corporate franchise tax rate from 8.5 to 8 percent for most businesses.

High-technology investments. The Governor proposed $283 million in state funds over the next five years to develop high-technology and biotechnology "centers of excellence" at state university campuses in Albany, Buffalo and Rochester. The centers would link university researchers with businesses in areas such as bioinformatics, photonics and optoelectronics, and nanoelectronics - another top priority for The Business Council.

"Companies across our state are poised to lead the nation in high-tech industries like biotechnology, computer miniaturization and fiber optic technology, and we can help them," Governor Pataki said.

The new state program, with initial state funding of $136 million in the coming year, would be intended to leverage another $700 million in federal, university and private investment.

Brownfields. New real property tax credits for sites throughout the state would provide more than $12 million in the coming year, and $41 million a year ultimately, for voluntary clean-ups of contaminated sites. Another new credit would provide targeted credits for brownfields in upstate areas, with additional savings of nearly $30 million a year.

State debt. The Governor renewed his call for the Legislature to approve a Constitutional amendment, approved by the Senate last year, that would restrict future borrowing.

The Executive Budget would use $250 million from an existing debt-reduction reserve fund to pay for important transportation projects that would have been funded through the bond act that state voters rejected in November. Debt service in the coming year would total some $2.2 billion.

The economy. The Governor's Budget Division forecasts that economic growth will slow both nationwide and in New York during the coming year. Total employment growth in the state is projected at 120,000 jobs - or 1.4 percent - in the coming year, compared to a national rate of 1.1 percent and an estimated statewide average of 2 percent in 2000. Inflation was projected at 2.7 percent.

"The State's population growth rate will remain below the national average, despite the fact that out-migration has slowed recently due to the State's improved economic conditions relative to the nation," the budget office stated.

School aid. In the last four years, the state has increased school aid by $3.4 billion, or 33 percent. The new Executive Budget would provide further increases of $382 million, bringing education aid to a total of more than $14 billion.

But, Governor Pataki said, "simply adding money isn't enough." He proposed new "FlexAid" that would allow school districts full discretion over 65 percent of newly available dollars, rather than the 17 percent that would be non-restricted under existing law.

Districts that show the most improvement in educational performance would receive additional incentive aid; the Governor said the $7.5 million program would "reward teachers in our major urban districts who work together to improve the school-wide academic accomplishments of their students."

Other increases would help districts pay for expanding pre-kindergarten programs, attracting math and science teachers and creating after-school programs.

The Governor announced he will appeal a recent state Supreme Court decision ordering a restructuring of the school-aid formula to send more funding to New York City schools. He said his budget proposal for education would help solve existing inequities by giving individual districts more discretion over use of state assistance and by funneling more money to low-performing students.

The Governor repeated his call for a legal cap on school district budgets, 4 percent or 120 percent of the inflation rate, to protect property taxpayers.

Health care. Medicaid spending in the state would total $32.5 billion in the coming year, with state taxes paying some $7 billion of the total.

Costs for nursing-home and other long-term care, which have been controlled in recent years, "are beginning to rise at a rate which places an undue burden on State and local governments," the Budget Division said. Inflationary payment increases for nursing homes would be eliminated, and other cost-reduction changes made, to provide savings of some $300 million for the state and localities.

Health-related spending increases would pay for expanded prescription-drug assistance for senior citizens, additional childhood immunizations and new coverage of more than 100,000 New Yorkers through the Child Health Plus and Family Health Plus programs. Total funding for AIDS-related treatment and research would reach $2.2 billion.

Mandate relief. Governor Pataki said he will continue to press for legislation to reduce the cost of state mandates on local governments and school districts. The Wicks Law, requiring multiple contracts for publicly funded construction projects, would be repealed for school districts and its impact on local governments reduced.

In binding arbitration of contract disputes between localities and public-employee unions, arbitrators would be required to give first consideration to the local government's ability to meet new costs without raising taxes.

The Executive Budget documents, including an overview, financial plan tables and the Article VII bills Governor Pataki has proposed to implement his budget, can be found through the Division of the Budget website at http://publications.budget.state.ny.us/executive.html.