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Immediate -- Monday, February 11, 2008

Lawmakers should control spending and resist closing budget gaps with increased taxes and fees, Council testifies

ALBANY— Controlling state spending and promoting economic growth should be the main objectives in building the state's budget for the coming year, Business Council President and CEO Kenneth Adams has told lawmakers.

"We need to promote new investment in existing businesses and in the emerging industries of our innovation economy," Adams told lawmakers at a February 11 joint hearing on the budget. "We have to find ways to reduce obstacles to private sector growth, especially the high costs of health insurance, taxes and energy."

"We need to avoid budget actions that add to our cost structure, and further erode our attractiveness and competitiveness as a state," Adams testified. The testimony highlighted concerns The Business Council has with Governor Eliot Spitzer's proposed budget plan for fiscal year 2008-2009.

New York State does not have a revenue problem, Adams said, pointing to data from the state's Division of the Budget showing that total state tax receipts are up $2.2 billion this fiscal year and will grow another $2.4 billion in 2008-09 without any change in our tax code or regulatory fees.

The problem is spending, Adams said.

“Even with the recent revisions, state spending is still projected to rise by 4.8 percent. In our view, this is too much,” Adams testified. “It is too much because this growth in spending requires raising taxes and fees on private sector employers by some $1.3 billion during an economic downturn.”

The Executive Budget would allow state spending to grow at about the rate of long-term growth in personal income, which is now about 5.3 percent, Adams said. He argued that spending growth should be more in line with the projected rate of inflation of 2.8 percent. To bring spending down to that level, New York State needs to impose additional cost-controls in areas such as health care expenses and the size of state government.

The Business Council also argued against a number of the revenue measures included in the Executive Budget, including the proposed increase on health insurance plans' covered life assessment as among its most significant concerns.

The increase in the HRCA covered life assessment would raise this tax by $190 million to more than $1 billion per year, Adams testified. “We simply cannot support these proposed tax increases that will add to the cost of employer-provided health coverage.”

Adams' testimony also questioned the proposed elimination of the current $1 million cap on corporate franchise tax liability based on taxpayer's in-state capital and plans to establish a “financial nexus” for out-of-state credit card operations where no physical in-state nexus exists.

The testimony also argued against several non-tax revenue measures that the Council believes could have adverse economic impacts, including a proposal to increase the cap on Title V air permit fees, increase some some gas and electric assessments, and levy new charges on nuclear power plants.

“Instead of raising taxes, we urge the Legislature to champion tax reforms that promote capital investment and job growth and retention,” Adams testified. “Recent experience with targeted tax credits clearly illustrate their positive impact on business investment, creation and retention of jobs, increased economic activity and, ultimately, increased state and local revenues.”

The Council urged lawmakers to let businesses realize the full value of investment tax credits (ITCs) that are nearing expiration by using them to offset new capital investment in the state. “Under this approach, old ITCs could be used to offset 50 percent of the cost of new investments, and 90 percent of the cost of new R&D spending,” Adams said. “To increase the value of this incentive, unusable credits would be treated as refundable overpayment of taxes.” Adams said the Senate had passed the proposal in both 2007 and 2008 and similar measures had been introduced in the Assembly.

Adams also urged lawmakers to:

Adams' testimony also asked lawmakers to pass significant and real property tax and mandate relief. While STAR provides state tax dollars back to lower- and middle-income New Yorkers, it imposes no controls on growth of school taxes and has no benefits for the state's businesses, Adams said.

"The key to a permanent solution is to adopt real mandate relief, and downsizing reforms, that will enable local governments to get by on less,” Adams said. “The legislature needs to roll back costly state mandates on local governments—and then help them consolidate, share services, downsize and realign their workforces to save taxpayer dollars.”