January 18, 2005
Governor's budget would invest in Upstate jobs, cap Medicaid growth
Plan would accelerate phase-out of income-tax hike, but also increase other taxes, fees
Governor Pataki has proposed a 2005-06 budget that includes funding for his new Upstate economic-development plan, Medicaid cost-containment measures designed to contain growth in local taxes, a faster phase-out of the 2003 personal income-tax surcharge, and a variety of new increases in taxes and fees.
The proposed budget would increase state-funded spending by 5.4 percent, which is about twice the projected rate of inflation for 2005. Without proposed changes in Medicaid and other programs, spending would rise by billions more, the Governor’s Budget Division said.
Some members of the Legislature immediately said they plan to propose to increase spending beyond the amount proposed in the Executive Budget.
The budget would spend a total of $105.5 billion, including federal funds. The Governor said his proposal closes a budget gap of $4.2 billion and increases the state’s “rainy day” fund to $864 million, the maximum allowed by law.
The Governor’s release noted that the state Division of the Budget (DOB) is projecting annual growth of state tax receipts of 10.2 percent in 2004-2005 and 6.5 percent in 2005-06. DOB is also projecting 5 percent annual growth in New Yorkers’ personal income, and an improvement in job growth from 0.4 percent in 2004 to 1.1 percent in 2005. The national job-growth rate for the 12-month period ending in November 2004 was 1.6 percent.
The budget would also put all programs and funding for the Health Care Reform Act (HCRA) on budget, a reform that The Business Council and other advocates of fiscal restraint have long advocated.
The Governor said that all of the state’s educational, environmental, and health-care goals “depend on two important factors—the fiscal strength and integrity of our state, and an economic climate that encourages job creation, growth and investment.”
The Governor’s executive budget would:
- Cap local Medicaid costs to provide relief to county
property taxpayers and protect localities. The Governor
said this would generate more than $2 billion in local government
savings over the next three years. Some of the savings would
go directly from the state to homeowners and farmers, but
not to most businesses.
“New York State has the most expensive Medicaid program in the nation that—if left unchecked—would exceed $47 billion next year, far more than any other state,” the Governor’s release said. The Governor’s budget proposes reducing the growth in Medicaid spending, “right-sizing” the state’s health-care system, making new investments in health-care facilities, and improving long-term care options for seniors.
Under the Governor's proposal, the state would:
- Accelerate the state takeover of Family Health Plus programs, which the Governor said would save local governments $312 million in 2005-06 and $576 million in 2006-07.
- Create a bi-partisan Commission on Health Care Facilities in the 21st Century to consider options for eliminating excess capacity in New York’s health-care system.
- Increase, by $1 billion, health-care spending by creating a new Health Care Efficiency and Affordability for New Yorkers (HEAL-NY) program for facility improvement, reconfiguration and consolidation, and for upgrades to information and health care technology and promotion of efficient operations
- Extend HCRA payments and programs through June 30, 2007.
- Close Medicaid loopholes that the Governor said allow individuals to refuse to contribute any of their assets towards the cost of health-care services.
- Create a preferred drug program for Medicaid, which would seek to reduce costs by limiting physicians’ options in prescribing drugs for patients. Eliminate several optional Medicaid programs for adults.
- Increase state spending on schools by $526 million, the
largest increase ever proposed by any governor. The Governor
also proposed capping the growth in local school budgets.
The Governor noted that New York’s taxpayers already pay enough taxes to support the nation’s highest per-pupil spending on schools. “The challenge now facing us is to apply these resources to ensure that every child in every school receives the quality education they need to succeed in the 21st century,” the Governor said.
- Provide funding for Operation SPUR, the Governor’s seven-point plan for targeted economic development in selected Upstate communities through various tax cuts and tax credits, including a single sales factor tax reform, which would base corporate taxes for manufactures on just one factor, in-state sales. Operation SPUR also includes a new exemption from the state’s alternative minimum tax (AMT) that will apply to a company’s entire state tax liability.
- Enacting the single-sales factor tax reform for manufacturers. This reform would base corporate taxes for manufacturers on just one factor, in-state sales. Corporate taxes are now based on three factors: in-state jobs, payroll, and property. Because state taxes now increase as in-state jobs and sites increase, companies are effectively encouraged to put jobs and plants elsewhere.
- Offer a new property-tax relief rebate program for county taxpayers in counties that hold growth in their general-fund budgets at or below prescribed levels. Most homeowners would get a property-tax rebate of $50 under the program.
- Propose new incentives to encourage consolidation of local governments and improved management in local governments. The Governor’s budget would increase state aid to localities to more than $1.9 billion, which the Governor said would be the biggest increase ever. The new Aid and Incentives for Municipalities (AIM) program would reward improved local fiscal performance with state funding increases of nearly $164 million over the next two years.
The Governor also said he is advancing a budget-reform plan that would:
- Require binding revenue forecasts by an independent body if Legislature and governor don’t agree.
- Establish legislative conference committees to reconcile differences on the budget to ensure active participation by individual legislators and enhance public debate.
- Require "sunshine” reporting that would provide all legislators an assessment of the multi-year financial impact of proposed budget changes before any vote on the budget.
- Require the Legislature to enact a balanced budget as certified by an independent entity.
The Governor's Executive Budget also:
- Renews his call for constitutional debt reform, including a ban on “back-door” borrowing.
- Urges unspecified reforms to the state’s Empire Zone program.
- Enact public-employee pension reforms that would save
local governments an estimated
$621 million in 2005-06.
- Implement sweeping mandate relief for localities, including full repeal of the Wicks Law. The Wicks Law requires local governments and school districts to use more than one contractor on any public construction project with estimated costs of $50,000 or more. The requirement significantly inflates the costs of any public construction project in New York State.
- Allocates $36.6 billion to a five-year transportation capital program and financing plan.
- Allocates $2 million to create a new Office of Educational Accountability and Efficiency.
- Creates a competitive matching capital program for private colleges.