The Legislature overrode Governor George Pataki's vetoes to impose the first increases in state personal-income and sales taxes in three decades, along with targeted increases in business taxes.
Despite multi-million-dollar lobbying campaigns by public-employee unions, however, The Business Council was successful in persuading legislators not to adopt the "New Jersey plan" of major, across-the-board corporate tax increases.
The Senate and Assembly voted May 15 to override the Governor's vetoes of the tax increases as well as $1.3 billion in spending the Legislature added to his budget proposal. The override votes mean that higher taxes are now in effect. Governor Pataki has said, though, that the Legislature's vote on the tax bill was unconstitutional, leaving open the possibility of legal challenge.
All 62 Republican and Democratic members of the Senate voted for a second time in favor of higher taxes, as did 104 of the 150 members of the Assembly.
The Governor also said he was vetoing $1.3 billion in "unsustainable" spending increases approved by the Legislature, saying those increases amounted to "false promises" given the state's fiscal limitations.
Vetoed spending items included the Legislature's additions to education and health-care programs, as well as $200 million in legislative "member items."
Under the Legislature's plan, the top tax rate on personal income in New York would rise from 6.85 percent to 7.7 percent, while the state sales tax would rise from 4 to 4.25 percent.
Leaders of the Senate and Assembly have said they are prepared to override gubernatorial vetoes with two-thirds majority votes in each house. Each of the 119 vetoes the Governor announced will require a separate vote in each house; the Legislature was expected to begin action before the end of the week.
Even with his vetoes, Governor Pataki said, the Legislature's refusal to enact cost-saving reforms in Medicaid and other areas will result in a budget that grows to $93.1 billion. Excluding federal funds, the financial plan totals $59.7 billion, a 3.6 percent increase from last year.
The Governor said the legislative plan would create a two-year "out-year" budget gap of $13 billion.
During a May 14 afternoon press conference, he lamented the lack of structural cost-saving reforms in the Legislature's budget. Unlike the Executive Budget, the plan approved by the Senate and Assembly includes no reform of Medicaid; the Wicks law, which drives up public construction costs; or tort laws that cost New York City and other local governments hundreds of millions of dollars each year.
The Governor's veto of the Legislature's tax-increase bill also affects tax and fee increases, including changes to the state Insurance Tax, that had been included in the Executive Budget. The Governor's office reportedly was preparing a new version of the original Executive Budget bill to present to the Legislature to implement those tax and fee increases, should his veto be sustained.
Governor Pataki said many of the Legislature's changes to his proposed budget are unconstitutional. He declined to predict whether he will challenge the Legislature's action in court, but noted that any citizen could file such a challenge as well.