Testimony of Daniel B. Walsh


President/CEO, The Business Council of New York State, Inc.
Senate Finance Committee and Assembly Ways and Means Committee February 16, 2005

Chairman Johnson, Chairman Farrell and distinguished members of the committees, thank you for inviting us to appear before you today.

This is the last, but by no means least important, of your scheduled hearings on the budget. We applaud the long and conscientious hours you have spent in gathering public comments. To truly show our appreciation, I'll keep my remarks short and to the point. The Legislature has taken some hits in the past year, from the Brennan Center, editorial writers and others. Some of the criticisms may be justified, and some are not. But I'm not here to give you advice on how to run your shop. We're all for any procedural changes that you believe will make the legislative process more efficient.

We also believe this: The process is important, but results matter most. I'd like to suggest that certain results from this year's budget would not only restore public faith in the Legislature as an institution, but would represent better results for the people.

First, enact a budget that is on-time and in balance.

A truly balanced budget is one that pays for itself not only in the immediate year ahead, but in the following year as well. The Budget Division projects a strong increase in tax revenues for the coming fiscal year. But those billions in new revenues are not enough to pay for projected spending because the one-shots that were part of the 2004-05 budget will be gone.

We know you face enormous demands for increased spending, from education to Medicaid, to transportation and other programs. We strongly urge you to limit those spending increases to a level that is affordable not only in 2005, but in 2006 as well. Chairman Farrell, you and the Speaker are on record as saying the state must meet its obligations to New York City school children under the Campaign for Fiscal Equity decision. I would point out there is one primary reason the Legislature has not sent more dollars to New York City schools over the years: Medicaid. The more we control the cost of Medicaid, the more the state and New York City itself can do for kids in public schools.

Two years ago, the Legislature enacted what were described as "temporary" tax increases. The $2 billion- plus in tax increases were said to be necessary in light of what was then a low level of revenue growth. Those tax increases were described as a bridge that would get the state over a short-term downturn in revenue. We're now over that short-term downturn. Revenues are growing strongly. There is no justification for keeping those tax increases in place. We urge you to support the Governor's proposal to eliminate the 2003 tax increases not only on time, but ahead of schedule.

The teacher unions, hospital-workers unions and others are telling you to raise taxes. We urge you to remind them that New York's workers and businesses already pay the highest taxes in the country. A recent study by the Federal Reserve Bank of Boston found that our combined state and local taxes are 43 percent higher than the national average, far ahead of the second-highest state. The Federal Reserve study said our high taxes do not appear to be justified by a need for more government services, compared to other states.

Besides keeping your promise on eliminating the 2003 tax increases, we have one other major suggestion regarding taxes: Repeat the success you had last year in cutting taxes, and once again you will help create more jobs for working New Yorkers.

Last year, you enacted the Empire State Film Production Credit to encourage film and television production, primarily in New York City. Along with a similar credit enacted by the city, your work is paying off. As Alair Townsend pointed out in Crain's New York Business, "Films that were to be produced in Canada will now be made here. That means more rental income for studios and equipment companies, more work for caterers and technicians." In short, more jobs for New Yorkers.

This year, we urge you to act again to make our tax code more competitive for key industries including manufacturing, financial services and broadcasting. Both houses have considered proposals to create single-sales factor taxation, which would reduce taxes on businesses that create a disproportionate number of jobs in New York State. Cutting taxes on businesses that create and keep jobs here is good tax policy.

You've heard a lot about the need for "reform" in recent months. I'd like to mention two reforms we believe would truly improve New York.

I mentioned earlier the need to pass a budget that is on-time and in balance. The Legislature is considering Constitutional changes to address the balance of powers between the legislative and executive branches. We also believe there is a need for Constitutional change.

The biggest budgetary problem facing the state involves not who has what powers, but how those powers are used. This year's projected deficit is nothing new. We've looked back through old Executive Budget books and have not been able to find one that did not project a budget gap in the immediate "out year." In other words, virtually every year's spending plan creates a problem in the following year. New York State should not be budgeting based on a HIP conversion and a hope for revenue. We urge you to consider amending the Constitution to require more careful attention to the impact of one year's budget on the following year. Governor Pataki has proposed an amendment to require enactment of a balanced budget, and to require that the Legislature detail the impact of its budget on the following year. We would suggest instead that the requirement for budgetary balance include both of the coming two years. That would solve most of our problems with big budget gaps.

The second fiscal reform New York needs is real limits on state borrowing, as both the Governor and Comptroller Hevesi have proposed. The Legislature and the Governor took a first step in 2000. But the recent report from the comptroller makes it clear that wasn't enough. In Washington, Senator Schumer is talking about the "birth tax" that the federal budget deficit imposes on future taxpayers. Here in Albany, too many years of too much borrowing have created a birth tax as well. Let 2005 be the year that we start limiting the state's debt, instead of adding more.

Mr. Chairman, last year we began rating members of the Legislature with our Vote for Jobs Index. Many of the issues I've discussed today will be included in our 2005 Vote for Jobs Index. Attached to my testimony are more complete descriptions of those issues, as well as others I have not mentioned today. We look forward to talking with you about the non-budget items on that list, shortly after you pass a balanced budget on March 31.

Thank you for your attention.