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April 15, 2005

Governor signs 'single-sales factor' tax reform, long-time Council priority
Governor, lawmakers also agree on $1.4 billion in new spending, and some new reforms

Governor Pataki has signed into law the revenue bill that includes the so-called "single-sales factor" tax-code reform, a long-time priority of The Business Council. The reform, which has been adopted for most Article 9-A taxpayers, will reduce corporate taxes for companies that have proportionally high levels of employment and capital investment in New York State. It will be phased in through 2008.

The agreements announced Tuesday include a stipulation that transportation industries—rail, trucking, and air transit—will be unaffected by the change and will retain existing formulae for calculating their taxes.

The Governor and and state legislators have also agreed on some $1.4 billion in new spending initiatives in the final $106.6 billion state budget, along with a few additional new steps to rein in Medicaid spending and a bill that cleans up and clarifies an earlier measure to extend and expand the state's Empire Zone program.

The agreements helped lawmakers avoid the prospect of wholesale vetoes of parts of the legislature's budget plan, which legislators approved on March 31.

Spending initiatives include: $1.1 billion for social-services programs; $150 million for environmental programs; $150 million for private college construction projects; and $37.8 million for new voting systems. The final budget increases spending by $3.5 billion compared to last year.

Here are some highlights of the late budget changes.

Health-care spending and Medicaid reform: Lawmakers agreed to reduce spending by an additional $91 million, with the goal of attracting $1.5 billion in new federal funding that is contingent on cost-containment efforts in New York.

Lawmakers also authorized creation of a commission to consider how to "right-size" New York's hospital sector, which has been widely criticized for being too costly and for maintaining excess capacity. Lawmakers agreed to increase a tax on nursing-home receipts. And lawmakers agreed to moderate slightly spending on the state's Family Health Plus program by increasing co-pays and reducing some benefits offered under the program.

Lawmakers had previously agreed on a cap on growth in the local share of Medicaid costs beginning in 2006. Under this plan, the state would be responsible for any growth in the plan exceeding 3.5 percent in 2006; 3.25 percent in 2007; and 3 percent in the following years. A “Preferred Drug Program” for Medicaid was adopted along with strengthened Medicaid fraud programs. (See a separate story, below, on a Senate proposal to curb Medicaid fraud.)

Empire Zones: Lawmakers agreed to modify the Empire Zone extender bill which the legislature passed on March 31 and, in the process, cleaned up some technical problems with that bill. Importantly, the legislature agreed to maintain Empire Zone benefits for already-certified businesses.

The legislature abandoned its idea of a control board giving it significant oversight responsibilities for the program. This board would have required a unanimous vote for new or reconfigured zones, and certifications of businesses, and it would have replaced a zone designation board now dominated by gubernatorial appointments. But the bill does impose a new requirement for a unanimous vote of the existing zone designation board (which includes five administration appointees and one each from the Senate and Assembly) to approve initial reconfigurations of existing zones mandated under this bill.

The bill also authorizes 12 new zones to be designated over a four-year period and specifies that 11 counties currently without a zone and the Chinatown section of Manhattan are eligible for zone designation.

Lawmakers have also added to the program the possibility of benefits beyond zone boundaries for projects that are deemed "regionally significant."

There were no major changes to other key provisions of the bill passed March 31, including: a 10-year duration of benefits and modified benefit calculations for newly certified businesses; extension of the program through 2015; reconfiguration of boundaries for existing zones; new benefit criteria for manufacturing and technology industries; and new program management and accountability provisions.

Environmental funding: Lawmakers agreed on how to spend the $150 million Environmental Protection Fund, which they had previously increased from $125 million, as follows: $82 million on “open space” programs, including land acquisition and local resource conservation; $46 million for state and municipal parks, waterfront revitalization projects, and open-space access programs; and $21 million for general environmental and recreational programs. Lawmakers also created a separate $500,000 appropriation for block grants to enable community groups to study “multiple environmental risks.” And lawmakers created an $850,000 trail program for all-terrain vehicles.