Legislative Updates

The Riddell Group, LLC
119 Washington Ave., 2nd Flr.
Albany, N.Y. 12210
Phone: (518) 434-7400/Fax: 434-0558

Memo

To:	All Clients
From:	Glenn T. Riddell
Date:	8/9/10
Re:	Client Update for the Week of January 19th

Governor Paterson Unveils the 2010-11 Executive Budget

Spending Growth

Governor David Paterson yesterday proposed the 2010-11 Executive Budget that makes significant spending reductions in order to eliminate a $7.4 billion deficit and institutes key reforms to put New York State back on the road to economic and fiscal recovery. The total budget is at a level of $134 billion which increases State spending at a level of 0.9%. Total spending which includes Federal funds would increase by 0.6%. The Governor's Executive Budget proposal includes spending reductions across every area of the budget; limits State spending to far below both the Governor's proposed spending cap and the rate of inflation; implements the most significant public higher education reforms in a generation; and provides fiscal relief to local governments through an aggressive mandate reform agenda.

Growth in 2010-11 State operating funds of $745 million or 0.9% is composed of entirely of fixed costs related to prior commitments over which the State has limited control. In 2010-11, the State is projecting substantial growth in debt service of $844 million or 17.1% and fringe benefits totaling $437 million or 9.9% which relate to prior commitments. Debt service represents payment to bond holders on past capital projects for which a liability has already been incurred. Changes to pension and certain employee health care benefits are restricted by constitutional and contractual obligations. All other 2010-11 state operating funds spending outside of debt service and fringe benefits is expected to decline by $536 million or .08% from prior year levels.

Eliminating the Deficit

Governor Paterson's Executive Budget closes a $7.4 billion deficit through $5.5 billion in re-occurring spending reductions (74% of the overall plan), $1.0 billion in actions that increase taxes or fees (less than 14% of the overall plan), $430 million in revenue actions that do not increase taxes or fees, and $565 million in non-recurring actions. Overall, 92% of Governor Paterson's gap-closing plan represents re-occurring actions that will help the State continue to address its future projected budget deficits.

The deficit reduction plan that the Legislature enacted on December 2, 2009 achieved $2.7 billion in 2009-10 savings which was not sufficient to close the State's $3.2 billion current year deficit. Rather than proposing additional gap-closing measures in the current fiscal year, when the range of options for achieving re-occurring savings is increasingly limited, the State expects to carry this remaining $500 million deficit forward into the 2010-11, where it is addressed in the budget as part of a multi-year plan that emphasizes recurring savings.

Key Reforms

The Executive Budget proposes the most significant reforms to the State's system of public higher education in a generation. The Public Higher Education & Empowerment Innovation Act will provide the State University of N.Y. (SUNY) and the City University of New York (CUNY) with the flexibility they need to thrive academically and become centers of job creation. Governor Paterson's proposal would take tuition setting outside of the State budget process, allowing SUNY and CUNY to institute their own tuition policy, tied to the higher education price index, which makes the cost of public higher education more equitable and predictable for students. The reforms will also provide SUNY and CUNY with greater operational independence which would eliminate numerous burdensome State regulations while still maintaining appropriate accountability and oversight. The Governor's budget also proposes an aggressive mandate reform agenda that includes more than 100 mandate reform initiatives that will provide savings to local governments of nearly $1 billion over the next three years.

Mergers and Consolidations

The 2010-11 Executive Budget recommends eight proposals to merge or consolidate State agencies and public authorities producing a full annual savings of $14.8 million. This is the first step in an on-going process of streamlining State agencies that delivers essential services at a lower cost. They include the following: merging the Department of Economic Development and the Empire State Development corporation into a new Job Development corporation, the Office of Homeland Security, State Emergency Management Office, the State 911 board, the Office of Cyber Security and Critical Infrastructure Coordination and the Office of Fire Prevention will merge into a single State agency to be called the Division of Homeland Security and Emergency Services, the operations of the Crime Victims board, Office for the Prevention of Domestic Violence and Division of Probation and correctional Alternatives will merge with the Division of Criminal Justice Services, the Office of Real Property Services will merge into the Department of Taxation & Finance, the Employment Relations Board will be abolished and the Public Employment Board will absorb its remaining responsibilities for an annual savings of $1.3 million. The Office of Welfare Inspector General will share administrative services with the Office of Medicaid Inspector General and lastly, the Division of Housing and community Renewal and NY Homes will be consolidated under a single management structure producing a savings of $3.5 million.

Tax & Fee Increases

The 2010-11 budget includes a $1.0 billion in actions that increase tax or fee liability. It includes $923.2 million in taxes and assessments that would offset what would have been deeper cuts to healthcare services and account for 93$% of the total. They include a $1 per pack increase in the cigarette tax ($218 million) and a new excise tax of approximately one penny per ounce on sugared beverages linked to obesity ($465 million).Other proposed tax and fee actions include establishing a parental fee on a sliding scale for early intervention services similar to the policy of numerous other states ($1.0 million). It increases certain court filing fees to finance civil legal services and other criminal justice priorities ($41 million). It closes tax loopholes to ensure that all taxpayers pay their fair share ($30 million) and it imposes a 3% tax on severing natural gas from a gas pool in the Marcellus or Utica Shale formation using a horizontal well. Additionally, the Department of Taxation and Finance will withdraw its Advisory Opinion regarding the Department's policy of forbearance of sales by agents of unstamped product to Indian retailers. The Department will promulgate regulations for public comment which should take approximately 6 months. This action will permit the State to seek the lifting of the injunction preventing the State's statute prohibiting the sales of unstamped cigarettes to Indian retailers from going into effect. The purpose of this is to stop a handful of wholesalers from selling unstamped cigarettes. No revenue is currently assumed in the State's financial plan from tax collections related to these products as the regulatory process is not yet complete.

Workforce

The overall size of the State workforce is expected to total 195,700 at the close of the 2010-11 fiscal year or a decrease of 675 from the 2009-10 budget year. The portion of the workforce subjected to the Governor's control would also be reduced by 625 or a total of $131,900 at the close of the 2010-11 budget year. Since Governor Paterson took office in March of 2008, there has been a reduction in the State workforce of 5,775 positions. Indications are that the Governor will seek to partner with public employee unions to implement a number of targeted workforce actions that reduce state employee salary costs with these actions expected to save $250 million in 2010-11. Also, this budget eliminates for the second consecutive year a scheduled April 1, 2010 4% salary increase for non-union management/confidential employees, saving the State $28 million.

Major Elements of Governor Paterson's 2010-11 Budget Proposal

Aid to Localities

The Governor's proposal cuts aid and incentives for municipalities payment (AIM) outside New York City by 2% or 5% depending on how much a municipalities budget depends on AIM funds. This would amount to a $300 million savings and a cut to New York City. For other municipalities, it would amount to $15 million. Reduces video lottery terminals aid – paid to such cities as Saratoga Springs that house a racino, to cover the added cost of public safety services by 10%. Calls for reform of the WICKS Law, a slate of requirements on the construction of public facilities that, according to critics, causing inefficiencies and drives up costs.

School Aid

Cut school aid by 5% or more than $1.1 billion. This is targeted progressively based on local school district wealth and student need. Total school aid would be $20.5 billion down from $21.6 billion. This budget delays funding for universal pre-kindergarten and eliminates funding for teacher training centers.

Higher Education

Higher education will see a 6% reduction in overall spending from $3.3 billion to $3.1 billion. The State University of New York (SUNY) will see a 4.6% cut from $1.6 billion to $1.5 billion. The City University of New York (CUNY) will have its funding cut 4.1% from $780 million to $748 million. Higher education program elimination include the Tuition Assistance Program (TAP) for graduate students and also eliminates New Merit Award scholarships.

Health & Human Services

Increases the revenue tax from .35% to .75% for inpatient hospital services. Increases from 6% to 7% for nursing homes and from .35% to .70% for home care services. Eliminates the annual inflation increase on Medicaid reimbursement rates, saving $98 million. Requires prior approval before insurance companies can raise rates. Charges a 9.63% surcharge on surgical and radiological services provided in clinics and doctor's offices. Reduces cost of early intervention services to disabled children by $7.2 million by creating standards for eligibility. Delays a planned increase to welfare recipients. Closes loopholes that allow residents to transfer their assets in order to qualify for Medicaid. Eliminates some temporary assistance programs. Increases the number of residential beds for mentally and physically disabled patients and closes eight State psychiatric wards and transitions patients to out-patient programs, saving $9 million.

The Environment

Freezes the purchase of any property by the State for inclusion in the Forest Preserve in the Adirondacks and Catskills. Reduces spending under the Environmental Protection Fund to $143 million, a cumulative cut of $79 million from the year before. Eliminates the number of jobs at the State Department of Environmental Conservation, the State office of Parks Recreation and Historic Preservation and the Adirondack Park Agency. Closes several Adirondack Visitors' Centers run by the Adirondack Park Agency in Essex and Franklin Counties. Reduces the number of park police by delaying the training of new officers who replace those that have retired.

Economic Development

The 2010-11 Executive Budget recommends a number of initiatives to keep New York competitive, create new economy jobs and attract capital. The budget proposes merging the Department of Economic Development and the Empire State Development Corporation to streamline economic development activities and save $4.7 million in 2010-11. Establishes the Excelsior Jobs Program which would offer tax credits to businesses that "create and maintain" at least 50 jobs over a five year period. It would include funding for innovation economy matching grants, a new technology seed fund, a small business revolving loan fund, and include $45 million to support other economic development initiatives. It would impose a 3% tax on natural gas drilling companies that use a drilling technique called hydrofracking to harvest gas from the Marcellus Shale, a massive underground formation that stretches from the Catskills to the Southern Tier. Indications are that the tax could total $1 million by 2011-12. It reduces by $5.6 million annually funding for high-technology development but maintains support for certain research and development efforts including the Centers for Excellence. Finally, it cuts spending for tourism marketing by $1.8 million annually.

Transportation

Proposes a two-year, $7 billion, Department of Transportation capital plan that increases the General Fund subsidy for the Dedicated Highway and Bridge Trust Fund. It supports rail capital investments and preserves aid to local government for highway and bridge projects. It eliminates a mandated license plate re-issuance previously scheduled for April, 2010. Cuts one hundred positions from preventive maintenance and snow and ice control. New salt application techniques would result in $6 million in annual savings. The plan also calls for the State to also develop a highway rest area closure plan to save $1 million next year and $2 million annually after that. There would also be savings accomplished through $29 million in agency cuts and consolidations in the State Department of Transportation and $14 million in savings at the Department of Motor Vehicles.

Public Safety

State Police training classes will be delayed until after the 2010-11 fiscal year, producing $17 million in savings. Additionally, as a result of continued declines in the prison population, the Department of Correctional Services would continue to consolidate facilities and eliminate excess capacity. Two prisons would close in January, 2011: Lyon Mountain Minimum Security in Clinton County and Butler Minimum Security in Wayne County. Another two prisons would close in April, 2011: the Moriah Shock Facility in Essex County and the Ogdensburg Minimum Security Facility in St. Lawrence County.

STAR

The 2010-11 Executive budget would restructure the NYC personal income tax STAR benefit by limiting eligibility to the first $250,000 of taxable income saving $143 million. Currently, taxpayers who earn in excess of $250,000 receive more than 50% of the overall benefit from the NYC STAR Personal Income Tax Reduction, but represent only 2.9% of the total number of recipients. The proposed budget would also eliminate the STAR exemption for homes valued at $1.5 million or more, thus saving $30 million and would increase the maximum annual reduction in STAR benefits that can occur as a result in changes in assessed value or market value from 11% to 18% thus saving $40 million.

Reactions to the Governor's Budget

Speaker of the Assembly Sheldon Silver indicated that the Executive Budget proposed by Governor Paterson to the Legislature is a patchwork of painful decisions that will make life more difficult for working families throughout the State of New York. Speaker Silver indicated that while we understand quite clearly the immediacy of the fiscal challenge facing our State and are committed to balancing the budget through thoughtful and responsible cuts in spending, at the same time, we will ensure that the sacrifices called for in the final enacted State budget are shared. Speaker Silver took issue of the Governor's proposal to cut school aid as well as healthcare services, as well as the Governor's authorization to raise tuition at SUNY and CUNY in conjunction with proposed cuts to TAP.

Senate Majority Conference Leader John Sampson indicated that the Senate Majority concurs with Governor Paterson's assessment on the state of our economy and budget. Though the Governor acknowledges our fiscal difficulties, Sampson indicated that some components of the proposal clearly need modification. Senator Sampson indicated that they were reviewing the Governor's proposed tax increases and program cuts as well as structural reforms to State operations as well as basic across-the-board cuts. Sampson indicated that they would work with the Governor, the Assembly and our partners in the Senate to produce a bi-partisan budget that puts taxpayers and constituents first, and moves New York in the right direction.

Senator Carl Kruger (D-Brooklyn) who is Chairman of the Senate Finance Committee said "there are going to be significant restorations." Assembly Democratic Majority Leader Ron Canestrari (D-Cohoes), indicated "I am particularly concerned about the healthcare cuts." He also indicated that he believed the budget proposal would be "catastrophic" for nursing homes. E.J. McMahon, Director of the Empire Center for N.Y.S. Policy said "there is a certain amount of hydraulics in this budget – you push down, they push up. There is not enough pushing down in Governor Paterson's plan" he said. Elizabeth Lynam, Deputy Research Director at the Citizens Budget Commission, which is a financial watchdog group, said "you don't see a million fees and fines" Lynam said. The Governor, she added, "put the ball squarely in the court of the Legislature."