Balancing New York State’s 2008-09 Budget

1. Balancing New York State’s 2008-09 Budget Frank Mauro Trudi Renwick Fiscal Policy Institute Ron Deutsch, New Yorkers for Fiscal Fairness March 2008

2. Economic Context • Four years of moderate job and income growth in New York appear to be coming to an end. • The U.S. economic expansion since mid-2003 was heavily fueled by debt, much of it related to an unsustainable housing bubble. • Wall Street’s turmoil bodes ill for New York and the nation. •  Mortgage foreclosure problems will worsen in New York.

4. While the economic slowdown takes center stage, New York also needs to understand and address four “troubling trends.” • The deterioration in job quality—less economic security, fewer benefits • Wage-productivity gap—New York’s productivity grows but outstrips wage growth •  The reality that just getting a job isn’t enough to lift families out of poverty—the increase in the working poor •  The widest income gap among states between rich and poor and between the rich and the middle class

6. Governor Spitzer estimates that New York is facing a $5 billion budget gap. • How best to balance the budget, and what to do if revenues decline more? • Cut back on school aid, property tax relief and other new commitments? • Raise fees and close corporate loopholes? • Raise taxes?

9. New commitments without new revenues Important (expensive) commitments made in last several years without any new revenue streams to pay for them • Family Health Plus Takeover and Medicaid Cap - $1 billion this year; $1.35 next year and $2.5 billion in 2010-11 • STAR – From $2.5 billion in 2001-02 to $6.0 billion in 2010-11 • CFE Settlement - $5.5 billion in new foundation aid by 2010-11. Facilities investment in 2005-06 budget.

10. Are New Yorkers overtaxed?

20. Policy Issues

21. Governor Spitzer is proposing to raise approximately $434 million in 2008-09 by closing tax loopholes. • The tax code should not allow certain taxpayers to avoid taxes they would otherwise owe through the use of unintended loopholes. Allowing one business or one group of businesses to use a loophole, unfairly shifts that tax liability to others. • Closing loopholes forces all businesses and individuals to compete on a level playing field. • The reforms proposed by Spitzer will generate over $434 million in previously uncollected State tax revenue.

22. “Amazon Tax” Study tax policy toward non-residents. Amend Definitions of Gain from Sales of Real Property for Nonresidents and “Presence in New York” for Residents Usually Outside the Country. Require reporting on Tax Shelters REITs and RICs Reform. Require Non-Profit Tax-Exempt Organizations to collect sales tax on certain sales, rentals and leases. Qualified Production Activities Income (QPAI) Decoupling. Classify Credit Card companies doing significant business in NY as taxpayers under the Bank Tax Merge fuel taxes into a single Petroleum Business Tax. Capital Base rate reduction and cap elimination. Restructure fees and minimum taxes on Limited Liability Companies (LLCs) Examples of corporate tax loophole closing proposals in 2008-09 Executive Budget:

23. Economic Development INITIATIVES • $1 billion for Upstate Revitalization Fund. • Power for Jobs and Energy Costs Savings Benefit extended through June 30, 2009. • Brownfields program reformed. • $400 million Housing Opportunity Fund to improve the availability of affordable and supportive housing statewide. COST SAVINGS • Eliminate inefficiencies in the Power for Jobs and Energy Cost Savings Benefit programs effective July 2009. • Empire Zone Reform – tighten up eligibility and eliminate benefits for businesses not living up to promised job creation: expected savings $50 million. • Neighborhood and Rural Preservation Program reforms resulting in $4.9 million of savings.

24. Many feel the Empire Zone program is so flawed it should just be eliminated. Governor Spitzer proposes to keep the program but reform it. • Of the 9,600 companies in Empire Zones, about 3,000 were meeting less than 60 percent of their goals to bring new jobs to the region. • New rules would make it harder to obtain benefits and eliminate eligibility for firms not meeting promised capital investment and job growth targets • Businesses must generate job growth in three years rather than five • Value of new economic growth must equal 20 times the value of the tax break – up from 15 • Future Empire Zone projects restricted to companies exporting a substantial amount of goods outside New York, in order to avoid simply redistributing economic activities • About 180 companies around the state would be dropped from the program in a few days due to not meeting the state's standards. between different communities.

25. How can we reduce pressure on property taxes? • Provide Revenue Sharing at Statutory levels • Gradual State takeover of County share of Medicaid costs based on ability to pay • Increase state share of education revenues • Replace STAR with a middle class circuit breaker – Little/Galef Bill

26. Executive Budget includes a $1.46 billion (7.5 percent) increase for school aid. This brings the cumulative, two-year school aid increase under Governor Spitzer to $3.2 billion. INITIATIVES • Foundation Formula • Contracts for Excellence • Reforming High Tax Aid. • Universal Prekindergarten. Increases funding for Universal Prekindergarten to a total of $452 million, providing funding for over 120,000 four-year-old children to receive these services, an increase of over 27,000. COST SAVINGS • Foundation Aid. Reduced by $93 million by phasing in the program at a slower rate and reducing the minimum and maximum increase provided to districts. • Preschool Special Education. Requires school districts to assume a greater portion of the costs • BOCES Reform. Reduces funding by $31 million and redistributes.

27. This year, Medicaid spending is projected to be $46.3 billion, an increase of 2.7 percent. Overall health care budget proposals include a few new initiatives and significant cost saving measures. INITIATIVES • Universal Access for Children – use state funds to expand Child Health Plus despite federal objections • Doctors Across New York – provide incentives for doctors to practice in underserved areas • Encourage Ambulatory and Primary Care and reduce hospitalizations- part “initiative” and part cost saving measure • Medicaid eligibility “portal” – Foster care eligibility until 21 COST SAVINGS • Overall Cost Containment. Reduces overall costs by $980 million. • Preferred Drug List. Saves $36 million by expanding drugs covered by the State’s Preferred Drug List (PDL) and expanding the Clinical Drug Review Program. • Nursing Home Reimbursement. Saves $85 million by not allocating nursing home rebasing funds from the prior year.

28. While for the most part, cost containment measures in the health care sector target providers, not beneficiaries; increased “assessments” on insurers may make it harder for employers to offer health insurance benefits. • Decreases in pharmacy reimbursement • Medicaid audit savings • Acute and long-term care reimbursement methodologies • Partial elimination of inflationary increases for hospitals, nursing homes and home care providers • Increased assessment on insurers • Reductions in planned premium increases for managed care, managed long-term care and Family Health Plus • Better managing high cost users • Eliminating the inflationary increase for the Early Intervention Program.

29. Economic Security Agenda INITIATIVES • Increase child support pass through from $50 to $100 per month • Comply with court order on SSI invisibility • Increases shelter allowances for public housing residents – helps public housing but decreases food stamps for recipients • Moves non-OTDA programs from the TANF block grant to the general fund. • Funds Summer Youth Employment and some TANF initiatives COST SAVINGS • NO INCREASE IN THE BASIC GRANT – DESPITE 18 YEARS SINCE LAST INCREASE • Child care funding included in the Flexible Fund for Family Services • Funding for education and training less than $100 million • Increased local share of TANF and Safety Net by two percentage points • Increase in TANF financing for the Earned Income Tax Credit

30. Economic security concerns • Welfare grant increase – 18 years • Fund EITC from the General Fund • Earned income disregard/185 percent rule • More funds needed for education and training • Time to take EITC out of TANF Block Grant • Fund Transitional Jobs and Career Pathways proposals • Child Care out of the Flexible Fund • Good time to strengthen UI system • Minimum wage needs to be increased

36. Federal economic stimulus needs to pass the three “T” test: timely, targeted and temporary! Recently approved federal stimulus package meets these tests but could have gone further. • Rebates are timely, targeted to lower income families and include rebates for lowest income taxpayers. • Accelerated depreciation provision may further reduced state revenues • No state fiscal relief included. In 2003 Congress increased FMAP and general revenue sharing – New York received $2 billion of $20 billion program • Did not include an extension of unemployment insurance benefits beyond 26 weeks

37. Reductions in federal grants to New York put pressure on state and local governments • New York depends on the Federal government for almost one third of its total revenues (31.65%) $35.6 billion • President’s budget would cut grants to New York State by $1 billion – in nominal terms; $1.7 billion if factor inflation – outside Medicaid cuts • Cuts in almost all domestic discretionary programs • Education; employment services and training; Head Start; LIHEAP • These cuts come on top of seven years of cuts – single year cuts sometimes not dramatic cumulative impact great • Presidents budget may be dead on arrival but will influence spending targets set in the congressional budget resolution

38. Federal policies can encourage state initiatives to expand services to low and moderate income New Yorkers or create roadblocks. • Child Health Plus expansion – best example. New budget funds child health plus (not adequately) at the expense of Medicaid. Threatens to restrict eligibility to 200% of poverty. August CMS directive • Food Stamps. Benefits will be strengthened in the new Farm Bill…House makes improvements permanent; Senate version only funds for 5 years. • Numerous Medicaid cuts by regulation that will impact New York • New budget proposes to reduced reimbursement rates for certain services; e.g. family planning and administration • Significant cuts to Medicare spending while holding harmless Medicare Advantage plans

39. Better Choice Budget Campaign Revenue Raising Options Increase top marginal rates of the personal income tax Restructure and economic development subsidy programs (Empire Zones and IDAs) Close remaining corporate tax loopholes Force lower prescription drug prices Enact “Bigger, Better Bottle Bill” and reclaim unclaimed deposits Stop contracting out work to pricey private consultants if state workers can do the work

40. BCBC: Supported By: • Over 100 major human services, faith-based, labor and grassroots organizations • Representing hundreds of thousands of New Yorkers • Sign on to our Statement of Support at: www.abetterchoiceforny.org • For moe detailed policy positions: www.fiscalpolicy.org