January 17, 2006
Governor Pataki proposes budget with major tax reductions, new programs for math/science education
Governor Pataki sent the Legislature a 2006-07 Executive Budget that calls for $3.6 billion in tax cuts, including $786 million in business-tax reductions, while providing new funding for math and science education, and advanced research initiatives.
Most of the new tax cuts would phase in during the state fiscal years starting in 2007 and 2008. This coming year, business taxes would be reduced by $86 million.
Major business-tax reductions included in the Governor's budget include:
- Reduction in the corporate tax rate from 7.5 to 6.75 percent, which would benefit more than 400,000 firms that pay the tax as C corporations or S corporations. Taxpayer savings are estimated at $110 million when the change is fully effective in 2009.
- Allowing immediate expensing of capital investments, such as new plants, facilities and equipment, in the state. Savings are estimated at $560 million when fully effective in 2008.
- Elimination of the alternative minimum tax and the "capital-base" tax. The Business Council has strongly supported reduction of the AMT, which limits the value of the investment tax credit for manufacturers and securities firms. Businesses would save $330 million annually, when the change is fully effective in 2008.
The budget calls for reducing the top personal-income tax rate from 6.85 to 6.75 percent and raising the income level at which the top rate becomes effective. Such changes would benefit some 200,000 Subchapter S corporations, partnerships and sole proprietorships that pay the personal-income tax rather than corporate tax.
As Governor Pataki announced previously, his budget also calls for repealing New York's estate tax, a major step for family-owned and closely held businesses in the state. Exemptions allowed under the tax would increase in 2007, and the tax would be eliminated entirely in 2010.
The largest tax savings in the coming year would go to homeowners, who would see $600 million in new savings under the STAR property-tax reduction program.
The plan calls for some $30 million in new business fees. The Department of Environmental Conservation would raise fees by $9.8 million, including $6.1 million for Title V air permits. The Banking Department proposes $8 million in new fees and fines. In addition, the budget would continue a $40 million increase in the "fixed-dollar minimum" tax on businesses that make little or no profit in the coming year. A change in tax treatment of real-estate investment trusts and related organizations would raise taxpayer costs by $100 million when fully effective in 2008. The state's cigarette tax would rise by $1, generating an estimated $310 million.
Echoing proposals from The Business Council, Governor Pataki called for 500 new scholarships annually, up to the cost of SUNY tuition, for students at the state's public and private colleges who commit to teaching math or science in New York's public schools for five years.
The governor also proposed $5 million in grants for middle and high schools to develop pre-engineering programs; and another $5 million for "summer institutes for math/science" at community colleges and universities. Both programs are intended to stimulate student interest in science, math and engineering. A third $5 million program would provide recruitment incentives and tuition reimbursement to expand the pool of math and science teachers who enter the profession via alternative certification.
Governor Pataki proposed a $6 million Empire Innovation Program to attract new research faculty over three years, and to retain existing faculty, at State University campuses. Another $3 million would go to "increase the number of students in priority academic programs in areas critical to New York's economy, such as information sciences, engineering, nursing and other allied health professions." Such funding would support 420 additional students. The Empire Innovation Program would also provide $5 million for City University of New York campuses "to support critical research projects, academic programs and Master Plan initiatives."
The budget calls for raising the "cap" on charter schools from the existing 100 to 250. Charter schools would also be made eligible for state building aid.
Other legislation submitted as part of the budget would enact the Governor's workers-compensation reform package, which would reduce costs for employers while increasing benefits for injured workers; and create a State Task Force on Pension Reform, to examine "alternative benefit designs and funding methodologies" for public employees.
The budget would help restrain local property taxes by repealing the Wicks Law, reforming binding-arbitration and tort laws affecting localities, and creating incentives for municipalities and school districts to share services.
The proposed budget totals $110.7 billion, including federal funds. The state's spending from taxes, fees and its other own sources would total $75 billion, an increase of 6.6 percent. The Budget Division estimates that increase at 4.8 percent after adjusting for the state's takeover of some local Medicaid costs and the increase in funding for the STAR property-tax rebate program. Inflation in the coming year is estimated at 3.1 percent.
The Budget Division predicts that overall employment in the state will rise 0.8 percent in 2006, half the projected national growth rate of 1.6 percent.
"Since 1960, the State's rate of employment growth during expansions has been consistently below that of the nation," according to the the division. Private-sector employment is expected to grow by 0.9 percent, or 60,000 jobs, and public-sector employment by 0.3 percent. The budget predicts the state will lose 6,200 manufacturing jobs while gaining 24,200 in health care and social assistance; 11.700 in leisure, hospitality and other services; and smaller numbers in other major sectors.