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January 22, 2002

Governor Pataki proposes low-growth budget for 2002-03
Enacted tax cuts go forward; state-funded spending would rise 1.6%

Governor Pataki proposed a 2002-03 budget that would hold state-funded spending to an increase of 1.6 percent, while going forward with $300 million in already enacted tax cuts.

Overall spending, including a projected $3.1 billion in new federal aid, would rise 4.7 percent to $88.6 billion. The state-funds portion of the budget—including state taxes, fees, tuition and other non-federal revenue—would rise by 1.6 percent. The Governor's Budget Division projects inflation for 2002 at 1.5 percent.

Governor Pataki said the slowdown in the state's economy caused in part by the September 11 terrorist attacks created a two-year budget shortfall of $6.8 billion, compared to last year's revenue estimates. The shortfalls would be eliminated by using $1.1 billion in reserves, restraining spending, restructuring state debt, and reducing the state workforce by approximately 5,000 positions.

"We've met great challenges in the past," Governor Pataki said. "We will emerge from this crisis more free, more prosperous, more secure than ever before. We can and we will keep New York firmly grounded on the road to recovery."

Preserving enacted tax cuts: The Executive Budget implements tax cuts enacted in previous years and scheduled to take effect in 2002-03. The Budget Division estimates the value of the tax reductions at more than $300 million.

These tax cuts include: reduction in bank and insurance tax rates from 8 to 7.5 percent; continued reduction in energy taxes for commercial, residential and nonprofit utility customers; creation of an investment tax credit for equipment that insurance companies use in brokerage activities; and expansion of the earned income tax credit for working, low-income New Yorkers.

Daniel B. Walsh, president/CEO of The Business Council, noted that "despite our short-term setbacks, revenues are significantly higher than they were just a few years ago because of the economic growth Governor Pataki and the Legislature have helped create by reducing taxes and cutting the cost of doing business."

As outlined in his State of the State address last week, the Governor proposed several new economic-development efforts.

R&D investments: The budget includes $250 million in initial funding for technology-based initiatives such as the Centers of Excellence that bring universities and businesses together in high-tech research and development. Another $5 million would establish a Security Through Advanced Research and Technology (START) program to help colleges and universities secure federal and private research funding for the growing homeland-security industry and other high-tech businesses.

Empire Opportunity Fund: The proposed budget also provides $50 million as a down payment for a new Empire Opportunity Fund that would support projects such as industrial parks, brownfield redevelopment, research-and-development incubators and tourism destinations. The program would eventually be funded with state revenues from Native American casinos expected to open over the next two to three years.

The budget's jobs forecast: The Governor's Budget Division forecasts that the state will lose 102,000 jobs in 2002—a reduction in overall employment of 1.2 percent, compared to a national projection of 0.6 percent. The manufacturing sector will shed some 35,000 jobs, and the financial sector some 24,000 jobs, according to the forecast.

New and increased fees: The budget proposes new or higher fees on pesticides, food processing licenses, boat registration, weights and measures inspections, sporting licenses, and alcoholic and beverage control licenses. It would authorize counties and New York City to add up to 30 cents to the current 75-cent monthly surcharge on cellular phones and other wireless devices, for a total new cost to consumers of $28 million.

Superfund: The budget includes legislation the Governor proposed last year to reform the state Superfund for cleaning up hazardous waste sites and to adopt a new program to encourage the cleanup of brownfield sites. The bill would impose roughly a ten-fold increase in hazardous waste-related fees, paid mostly by manufacturers and utilities. The plans also includes $12 million in tax credits to encourage clean-ups of brownfields.

Mandate reform: Governor Pataki renewed his call for easing the mandate burden on local governments. Reform of the Wicks Law would exempt all school district construction projects, and many municipal projects, from costly requirements for use of multiple contractors. The requirement that localities engage in binding arbitration with police and fire unions would be amended to require greater consideration of the local government's ability to pay.

Health-care spending: The budget includes some $300 million to begin implementation of the health-care legislation the Governor proposed and the Legislature approved last week. The state's cigarette tax, raised by 39 cents a pack as part of that legislation, is projected to contribute $500 million to the General Fund and another $749 million to an off-budget funding pool for various health-care initiatives.

School aid: The Governor proposed an increase in school aid of $5.96 million. He also urged the streamlining of the state's $14.2 billion in aid to local schools to give districts new flexibility in using state assistance. Thirteen existing aid categories would be combined into one operating-aid fund representing more than two-thirds of state aid. The Charter School Stimulus Fund would receive $6 million to help promote school choice through construction and other assistance for charter schools. The Tuition Assistance Program would add a financial incentive for students to stay in college, with a portion of each individual's aid retained by the state until graduation.

New administration for cultural institutions: Legislation accompanying the budget would transfer the State Museum, State Library and State Archives from the Education Department to a new entity, the New York Institute for Cultural Education. The institute's board would be appointed by the governor, legislative leaders and the Regents. Its operations would be funded by an increase in the existing surcharge for recording, indexing and certifying of records by county clerks.

STAR property-tax program: The Governor proposed improving the enhanced STAR property-tax program for seniors by adjusting the income limit for inflation.

Future budget projections: The Budget Division forecasts General Fund gaps of $2.8 billion in fiscal 2003-04 and $3.3 billion the following year, not counting any additional spending that the Legislature may add to this year's budget. Overall spending is projected to rise from $84.6 billion in the current fiscal year to $96.3 billion in 2004-05, according to the Budget Division.

For the Budget Division Web site, with links to all the official budget documents, see www.budget.ny.gov/.