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 February 1st

2010-11 Executive Budget – Hearings Continue

Hearings continued this week in the Legislative Office Building on the Governor's proposed budget. On Monday, the topics included Economic Development which was held in the morning and in the afternoon the hearing was on State Taxes. The hearing in the morning on economic development started off with a long appearance by Empire State Development Corporation Chairman and CEO, Dennis Mullen, who was grilled for over two hours. Much of the discussion concerned Governor David Paterson's proposed Excelsior Jobs Program, which many legislators say does not provide enough property tax relief and fails to help small businesses. In fact, a number of legislators defended the Empire Zones Program which will eventually be discontinued and replaced by the Excelsior Program. Mullen also engaged in a lengthy exchange with Senator Bill Perkins, D-Harlem, over whether or not the Excelsior Program has adequate legislative oversight.

Lawmakers also expressed concerns to Mullen over a lack of funding for programs to promote tourism in the State citing the economic benefits the State derives from such programs. The committee also heard testimony from Alain Kaloyeros, who is the head of the University of Albany College of Nano-Scale Science and Engineering (CNSE), who elaborated on the benefits of expanding nano-technology research programs and facilities around the State. Kaloyeros dubbed nano-technology "the next industrial revolution" and backed a $5.5 billion expansion of the CNSE, saying it could lead to thousands of new jobs, the average of which is $84,000 per year.

More than a dozen supporters of the New York State Theatre Institute which is fighting Governor Paterson's proposed elimination of its annual State funding, were in the audience and its Chairman and its Artistic Director told the hearing committee that the end of State funding would deal a fatal blow to the company's mandate to provide low-cost, educational stage offerings.

The hearing on Monday afternoon was about State taxes with Acting State Taxation Commissioner, Jamie Woodward testifying and providing information on what the State's Department of Taxation & Finance is doing to beef up its efforts to collect delinquent taxes. She indicated that despite the Governor's hiring freeze, the Tax Department has hired additional personnel including 600 auditors to assist in increasing the State's collection of taxes. Under extensive questioning by Senators DeFrancisco (R-Onondaga) and Senator Carl Kruger (D-Kings County) who were concerned about the hiring of Auditors despite the Governor's hiring freeze, the Commissioner indicated that tax collections had increased since the hiring.

The Commissioner then pointed out a few initiatives that the Tax Department has taken recently, including the daunting challenge of implementing the Metropolitan Commuter Transportation Mobility Tax. She indicated that the Department successfully implemented collecting this major tax from hundreds of thousands of employers, partners and sole proprietors within the MTA with estimated revenue of $1.5 billion for the MTA. Another role for the Department was working closely with the Departments of Environmental Conservation and Health to develop procedures to implement the bottle bill amendments enacted in last year's budget. The Department is also in the forefront of tax administration as regards tax preparers.

The Department's investigations uncovered a shocking amount of tax fraud perpetrated by tax preparers. Our latest legislative initiative program, the Paid Program, which is part of the Deficit Reduction Program, offers taxpayers with older, outstanding liabilities an opportunity pay significantly reduced penalties and interest that have accrued on tax bills if they act by the March 15th deadline.

The Commissioner also indicated that the Department has substantially improved its Tax Enforcement Program as part of a strategy to narrow an unacceptable tax collection gap that results from under-reporting of income, non-compliance, and even criminal behavior. The commissioner concluded by indicating that Governor Paterson included in his Executive Budget a proposal to raise the cigarette tax $1.00 per pack. In conjunction with that, the Commissioner indicated that the Governor directed the Tax Department to issue regulations with respect to the sales by stamping agents to Indian sellers. She indicated she was pleased to report to the hearing panel that these regulations will be proposed shortly. She indicated that the full regulatory process will take six months to complete. It was at this point that she got into a heated exchange with Senators John DeFrancisco (R-Onondaga) and Carl Kruger (D-Kings) who both claimed that this new regulation was unnecessary and that the State should be collecting taxes on the sale of cigarettes by the Indians to non-Indians. Both Senators claimed that it was a stalling tactic.

On Tuesday, the hearing was on Education and took the better part of the day. Thousands of charter school parents, advocates and students from across New York descended upon the Capitol to rally for more aid on Tuesday. A group of about 3,000 came to Albany to protest what they are calling a "double cut" in Governor David Paterson's proposed budget. Charter schools are funded through public money from school districts and private donations. Advocates at the rally argued that less state aid for public schools, which the Governor is proposing, will also see their budget's cut since their funding depends on spending levels of district schools. The second cut, they say, results from Governor Paterson's proposed freeze on charter funding which was set to rise this year. The rally, which included representatives from 86 charter schools was about three times the size of last year's, and comes at a time when the charter school debate has stalled in the Legislature. State Senator Bill Perkins (D-Harlem) was practically booed off the stage at the rally as he pleaded with the audience to hear him. Perkins said that charter schools had over-saturated neighborhoods, including some in Albany, and that they were a form of segregation and kept poor black children in separate schools while damaging the public schools.

Charter school advocates weren't the only ones doling out criticism about school policy on Tuesday. Legislators made things uncomfortable for State Education Commissioner Ed Steiner and New York City Department of Education Chancellor, Joel Klein who both came to Albany to give testimony on the proposed 2010-11 budget. The two men sparred with the panel over issues ranging from data management to teacher discipline. Senator Carl Kruger, the Democratic Chair of the Senate Finance Committee, lambasted Klein for what he described as school administrators' tacit disdain for legislative oversight. "You come to us for money, but we're sort of like the orphan children who are never really around the family table at the time of the dinner," Kruger said.

On Wednesday of this week, the hearing on Housing took place. The legislative panel heard from Brian Lawlor, Acting Commissioner of the N.Y.S. Division of Housing & Community Renewal, which runs a number of housing programs and Judd Levy, Acting President and CEO of the N.Y.S. Housing Finance Agency/State of New York Mortgage Agency which also administers housing programs. Both of these men are acting in their capacities having replaced the heads of each agency who recently resigned.

Lawlor went first by assuring the panel that despite challenging times, the Agency continues to meet the current housing crisis as evidenced by the $100 million in new capital funds in this year's budget which will help create and preserve affordable housing. This money is combined with the "Sustainable Neighborhood's Initiative" the Governor outlined in his State of the State address last month. This new initiative is geared towards cities left with vacant homes, blighted neighborhoods and a dwindling tax base. He indicated that funds from DHCR and NY Homes (HFA/SONYMA) will fund this new initiative. Under the program, State & local officials will partner to focus resources for urban revitalization and to create new, high-quality new homeownership opportunities. Vacant and blighted homes will be rehabilitated and sold to first-time homebuyers selected through a lottery process. Lawlor reiterated that discussions with the City of Buffalo had already begun to help revitalize a city that has been devastated by more than 23,000 vacant homes. This new Sustainable Neighborhoods' Initiative will be led by the Governor's housing team and will be a joint effort involving many State agencies. Lawlor continued that the future of our Upstate cities is dependent upon the State's ability to succeed and deliver coordinated government assistance.

Since the announcement by President Obama of a stimulus bill that includes housing monies, the State has moved forward on dozens of shovel-ready housing developments. There were more than $250 million available to New York State through the newly created Tax Credit Assistance Program. As a result, 46 projects that have been endangered by the meltdown of the financial market were rescued saving more than 4500 units of affordable housing and pumping more than $1 billion in private investment into the local economy. The Governor has also talked about consolidating the policymaking and administrative functions of our two housing agencies into a single leadership structure. These two agencies have worked together in the past and as such, the Governor, Chairman Levy and I recognize that a new dedication to this collaboration will help us sustain our successes. At DHCR we have already undertaken consolidation by moving the Governor's Office of Small Cities into DHCR and creating the Office of Community Renewal to administer the Community Development Block Grant Program. That program along with the NY Main Street program have worked very effectively during 2009 and created the housing construction that it generated created or retained more than 1800 jobs, enabled the purchase of over 151 homes and the rehabilitation of 885 affordable housing units. We work very closely with New York City's Department of Housing and Preservation Development and have shared data and expertise on issues of common responsibility. We also work closely with the Department of Health and the Office of Mental Retardation and Development as well as the Banking Department and the State office of Court Administration. This has helped in our effort to fight foreclosure crisis in New York and help families keep their homes. We have stepped up our efforts in helping minority and women owned businesses as evidenced by the fact that more than 23% of our rewards and contracts last year went to minority owned businesses. We also undertook a comprehensive review of the Neighborhood and Rural Preservation Program which has produced tangible results. The Office of Rent Administration has also streamlined its efforts in assisting tenants located in our rental housing. The Rent Administration Office is in the process of placing its annual rent registration process on line by allowing the owners of more than 40,000 buildings to submit registration information for 850,000 apartments electronically. We have also automated our waiting list for Mitchell Lama housing and placed it on our website. The streamlining of these processes has helped us significantly decrease our costs. We have worked closely with the Chairs of the Senate and Assembly Housing committees in protecting tenants maintaining affordability at Starrett City, the largest publicly assisted rental housing project in the Country. We look forward to working with the Legislature on the problems facing tenants of over leveraged multi-family buildings, and the court of Appeals ruling in the recent J-51 case which returned approximately 40,000 units to rent stabilization and the federalization of the State's public housing portfolio. Lawlor concluded his testimony by reiterating his commitment to working with the legislature to provide an effective, efficient and economical housing effort to New Yorkers who are in need.

Judd Levy, Acting President and CEO testified and went into the various programs that the New York State Housing Finance Agency and the State of New York Mortgage Agency administer. He reminded the panel that the Agency is self funded and does not rely on taxpayer funds for the operations of its programs, with the exception of the Affordable Housing Program. He indicated that the Agency's mission is to create and preserve affordable housing and that they have three main lines of business: HFA, which finances and preserves multi-family rental housing, SONYMA which provides low-cost mortgages to first-time home buyers and its Mortgage Insurance Fund which provides service to affordable multi-family rental projects and primary mortgage insurance for our residential mortgages. In addition, this past year the Agency lent financial expertise to help launch the Governor's Student Loan Program.

"Despite obstacles in the housing market this year, our agency has financed more affordable housing than any other housing issuer in the country". For the third straight year, our total was $2.2 billion in bonds sold for both single family and multi-family affordable housing. At HFA over the last three years, we have created or preserved a total of 10,400 affordable housing units. More than double the number financed by 2004 to 2006. In the Mortgage Insurance Fund, we have issued commitments of more than $1.1 billion over the last three years which is double the amount issued during the previous three years. In multi-family housing we financed the creation and preservation of 3,300 affordable rental housing units. Overall we financed a total of 20 projects in 13 different counties. We worked with DHCR to utilize $65 million in Federal tax credit assistance and we have been able to leverage more than $15 million in new private tax credit equity to help finance affordable housing. In the area of single family, SONYMA purchased $169 million in mortgages helping 1,136 New Yorkers buy a home. We also helped homeowners at closing by launching a new down payment assistance loan program. We also continued to award grants to municipalities and non profits. To subsidize single family purchase prices and help low income homeowners make needed renovations. We made 92 awards in 2009 totaling $49.7 million. Last year our mortgage insurance fund issued $491 million in new project commitments, a 24% increase over 2008. As some of you are aware we are looking hard at the problem of over leverage rental apartments and unsold condominiums and we believe the Mortgage Insurance Fund can be helpful in facilitating the re-financing of buildings in foreclosure or default. To bring in new ownership that can protect existing tenants and will be working with the Governor's office on legislation before both House that will enable the Mortgage insurance fund to provide insurance on refinancing over leveraged buildings even if there is not a renovation component to the borrowing. Las In indicated we will continue to work with the Legislature, the Governor's office land NYC in efforts to address this problem. One of our new initiatives in the past year has been our neighborhood stabilization program where we helped local governments and non profits buy foreclosed homes, fix them up, and sell them to homeowners. Also, recently SONYMA sold nearly $98 million in bond to fund the NY Higher Ed loan program which is Governor's Paterson's new low cost student loan program.

Other Items of Interest

Governor Paterson Vetoes Ethics Bill – Not Real Reform

Governor David Paterson on Tuesday vetoed the Legislature's ethics bill which attempted to create new ethics panel's to monitor elected officials and require greater financial disclosure by lawmakers. This veto, halted for now any overhaul of the rules meant to curb political corruption. Governor Paterson said the proposals, which would give the Legislature the power to appoint a Commission to police itself, were insufficient. The prospect that any efforts to overhaul the State's ethics laws and impose reform on Albany will succeed this year is now uncertain. The proposal appeared to lack critical Republican support in the Senate to override Mr. Paterson's veto. It will be extremely difficult since an override requires 42 votes with Democrats holding a slim 32 to 30 majority. With tensions between the Governor and the Legislature running high, a compromise any time soon seems unlikely. "It's going to the Floor," said Senator John Sampson, the Senate Democratic Conference Leader. "You can do what's political, or you can do what's right." In the Assembly, where Democrats hold an overwhelming majority and do not need Republican support, an override is expected to prevail easily. Senator Dean Skelos, the Republican Minority Leader said on Tuesday that he doubted an override could win enough support among his members. "I don't think it helps the atmosphere for negotiations to veto the bill," said Senator Eric Schneiderman, who is the leading Senate sponsor of the Ethics Reform legislation. "But we'll sit down with our colleagues in the Assembly and talk to the Governor's office to see how to proceed. Certainly, an override is possible."

State Workforce Benefits – Costs Skyrocketing

The price of providing State workers with generous pensions and gold plated health plans could reach a mind boggling $7.9 billion by 2012 or a 42% increase over the current tab, State budget documents show.

The Paterson Administration expects the costs of providing fringe benefits to the average State employee will equal 62% of their salary within three years according to estimated provided by the State Division of the Budget. That's up from 44% now and about double typical rates in the private sector. To date, the average State worker costs taxpayers about $91,724.00, including $63,750.00 for wages, plus $27,974.00 for pensions, healthcare and other goodies. The average cost of pay and benefits could balloon to $114,000.00 per year if present trends continue through 2012 according to an analysis of the data provided by the Budget Division. Perks alone could cost $43,000.00. Criticism from the Manhattan Institute's New York Public Payroll Watch Blog, indicate that this is just unsustainable and, while the unions obviously want to keep the status quo, the question is whether or not taxpayers can continue to pay these benefits. The Budget Division blames the current spike on pension contributions which soared after retirement funds shed tens of billions of dollars in the recession. A spokesman for the Civil Service Employees Union (CSEA) which represents the largest pool of State workers said the union would be willing to discuss cost savings in upcoming contract talks.

Political Update

Indications are that Governor Paterson has a paltry $620,000 in available cash to spend on a Primary, if one occurs, which is about twenty times less than his likely Democratic opponent, Attorney General Andrew Cuomo. An analysis of the $3 million in campaign cash Paterson has on hand reveals that he has far less for a Primary battle than originally thought. The $620,000 is not even enough to buy a week's worth of TV air time in the State.

Attorney General Cuomo, by contrast, can use roughly $12 million of the $60.1 million that he has on hand if there is a battle for the party's ballot line as a result of a Primary. Indications are that Governor Paterson has already spent about $8.5 million of the $11.5 million he had raised for the 2010 election campaign. Close to $3 million of the $8.5 million was paid for a Statewide TV ad campaign that helped boost the Governor's approval ratings, but still left him trailing Cuomo by double digits in public opinion polls. Then between October and December of last year, the Governor spent another $700,000 to cover routine campaign expenses. Observers were stunned to learn that when the January 15th Campaign Finance filings were released that Cuomo's political war chest was five times the size of Paterson's. Indications are that if Governor Paterson keeps spending at this rate and does not raise sufficient cash to cover his costs, his campaign committee could go broke before the end of next month.

Recently Governor Paterson raised eyebrows by promising to raise an astounding $8 million in the next few months for his looming battle with Attorney General Andrew Cuomo. The reaction from a number of circles was "I believe it when I see it."