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:	Weekly Client Update

2010-'11 Budget – Update – 86 Days Late & Counting

Education spending and revenue remains the major sticking points between Governor Paterson and the Assembly in finalizing the 2010-'11 budget. Governor Paterson wants about $1.3 billion in school spending cuts while the Assembly wants to restore $419 million of that total. The Governor said that any spending restoration must be financed by cuts elsewhere. Governor Paterson repeated his promise this week to present lawmakers with the remainder of his 2010-'11 budget proposal in an Emergency Extender bill next Monday, June 28th, if a spending plan, due since April 1st, is not agreed upon and completed. For the past twelve weeks the Governor has offered weekly extender bills authorizing money to keep State government operating. However, the Governor has also tucked parts of his budget plans into the weekly extenders. As a result, lawmakers have had to vote on the plans or face a potential government shut-down – something neither party wants as an election nears. Governor Paterson said he was making preparation for a shut-down if lawmakers don't pass a budget or failing that, his appropriations. Governor Paterson said lawmakers have agreed to cuts that would close much of the State's $9.2 billion deficit but are still several hundred million dollars apart. Legislative leaders have been silent so far on what options they may pursue to raise money needed to close the budget gap. Governor Paterson wants to impose a sugar tax on sweetened beverages, a measure lawmakers have resisted. Other options have also been discussed such as increasing income taxes for people who earn more than $1 million and borrowing, however Governor Paterson said he doesn't want to raise taxes or borrow. Last Friday, the Assembly passed budget bills for transportation, economic development, environmental conservation and public protection. Then on Monday of this week, the Senate followed suit. Indications are that lawmakers have approved about two-thirds of the budget but have closed only half of the deficit.

Earlier In The Week

Legislature OK's Raising Tax on Cigarettes & Collecting Taxes on Cigarettes Sold By Indians

Lawmakers on Monday passed legislation increasing the State's excise tax on a pack of cigarettes by $1.60, increasing the total from the present level of $2.75 to $4.35, the highest in the nation. The new tax will go into effect this July 1st. The Legislature also passed a controversial measure that will trigger tax collection on cigarettes sold on Indian Reservations starting on September 1st of this year. The excise tax is separate from State sales tax and any local sales taxes that might apply. As such, since NYC has its own excise tax, a pack of name-brand cigarettes there should now go above $10.00. Senators passed the measure along party lines with 32 Democrats voting yes and all 29 Republicans present voting no. In the Democratic-dominated Assembly, the bill passed 77 to 64. The tobacco lobbyists flooded the capitol before the vote trying for a last minute halt to the tax hike and while the tobacco industry supported taxing Indian tobacco sales, some noted that Governor Paterson's measure appears to give extraordinary powers to the Governor when it comes to negotiating how the Indian sales will be taxed. A number of legislators thought that the Indian tax collection should have been negotiated and that it was wrong. A spokesman for ALTRA, the parent company of Phillip Morris, said "such a power grab violates the fundamental principles of the NY Constitution". Despite the objections, a majority of lawmakers said that raising the tax on cigarettes will bring in needed revenue and might deter some New Yorkers from smoking. Taxes on other tobacco products such as cigars, chewing and pipe tobacco will rise from 46% to 75%. These increases are scheduled to take effect April 1st. The new tobacco taxes will raise an estimated $290 million to help plug the State's $9.2 billion deficit, according to Governor Paterson's budget office. Indications are that $150 million should come from the collection of taxes on cigarettes sold on Indian Reservations, setting up a likely court battle with the Indian tribes.

Possible Sales Tax Deferral On Clothing Being Considered

Just days after ramming the highest cigarette tax in the nation through the State Legislature, Governor Paterson suggested on Wednesday that he would also consider legislative proposals to defer the sales tax on clothing. The Governor revealed that tax deferral talks have been going on behind closed doors with legislative leaders as another way to close the $9.2 billion budget deficit before a possible shut-down vote on State government on Monday. The Governor offered few details but sources apparently told the New York Post that Assembly Speaker Sheldon Silver (D-Manhattan) floated the idea of raising some $300 million by lifting the sales tax exemption on clothing items under $110.00 and applying the tax to items that are currently exempt. Instead, the State would reinstate a series of tax-free shopping periods throughout the year such as before the opening of school and during the Christmas holidays. The State has dozens of exemptions on sales tax, ranging from groceries to circus shows, to American flags, to satellite television services. In fact, this State has the nation's 4th-narrowest sales base. This new revenue is being desperately sought to restore spending cuts proposed by Governor Paterson especially where it relates to the $1.4 billion reduction in education aide. However, Senate Minority Leader Dean Skelos (R-Long Island) said Senate Republicans will not vote for a 2010-'11 spending plan that included tax hikes, even if it risks a government shut-down. "There has been progress," Governor Paterson said. "However, we just have to remind some people that there will be a deadline on Monday for a three-way agreement."

State to Sue British Petroleum Over Investments

State Comptroller Says State Pension Fund Was Misled About BP's Drilling Safety

State Comptroller Tom DiNapoli said on Wednesday he was suing BP in the wake of the massive oil leak in the Gulf of Mexico, and would seek to make New York State the lead plaintiff in a class action suit against the British petroleum giant. DiNapoli contends the company made misleading statements to investors about the safety of its drilling operations on the doomed Deep Water Horizon platform and about contingency plans in case there was a mishap. "BP misled investors about its safety procedures and its ability to respond to events like the ongoing oil spill, and we're going to hold it accountable", said DiNapoli. Indications are that the State's $132.6 billion Pension fund owned about 19 million shares of BP on April 20th, the day of the explosion. It now owns about 15 million shares. The stock isn't directly held, but through numerous fund managers as part of their International "Equities" portfolio. The Wall Street Journal previously reported that the State's pension fund lost an estimated $30 million from the BP drop. Indications are that it is a small percentage of the pension fund but as the spokesman said, it is a lost. Four separate cases are currently pending against BP but they would probably be consolidated into one lawsuit. Comptroller DiNapoli indicated that they have hired the law firm of Cohen, Milstein, Sellers & Toll, PLCC to represent the fund.

Higher Taxes Surface in Budget Talks

Governor Advances Idea of New Levies, Plus Budget Cuts As A Way To Close The Gap

With four days left until the deadline of June 28th which was imposed by Governor Paterson, legislators found themselves lost in some of the thorniest weeds of budget negotiations: taxes. "I would say that we are pretty close, but we are down to the point where the real tough decisions are being made," Governor Paterson said during a radio interview on Thursday. "Taxes are regrettable", he continued. "Certainly we don't want to increase them at this particular time, but a combination of a few taxes and some rather severe cuts to services is the best solution, I think". While this was going on, representatives of the Working Families Party were at the Capitol to push increases in income taxes on bonuses paid to high earners while at the same time, the National Federation of Independent Businesses were also in the Capitol pushing legislators to hold firm on a commitment not to raise taxes. Governor Paterson declined to specify what revenue-generating proposals might end up in the final agreement. In January's Executive Budget Proposal, the Governor had proposed a tax on sugary drinks that has never gained legislative favor; a proposal to sell wine in grocery stores; and an expansion of lottery and video lottery gambling. In addition, legislative leaders confirmed Thursday they may reinstate a 4% State tax on clothing and shoes. Sources familiar with the budget process said lawmakers may eliminate the State income tax deduction for charitable donations by people making over $10 million per year. Senate Democratic Conference Leader John Sampson brushed off the issue of whether the budget should reflect the possible loss of $1 billion in Federal Medicaid funds. Senator Sampson cited New York City Mayor Michael Bloomberg's decision to book $600 million of the money as if it were still coming, and said he planned to do the same. "We're going to continue to plug away until we hear otherwise," Mayor Bloomberg said. However, Governor Paterson is convinced the State needs to plan as if the Federal funds aren't coming. Senator Sampson confirmed lawmakers are considering a trick to restore education funding, which Governor Paterson wants to reduce by $1.4 billion. Assembly Democrats have restored $600 million of the cuts, and Senate Democrats are holding out for a property tax relief program and will accept the restoration with a catch: funds earmarked for all but the State's five largest urban districts must be dedicated to reduce property taxes. Speaking Thursday, Assembly Speaker Sheldon Silver sounded a bit like a Zen master when asked for his prediction of whether the plan could come together over the weekend. "We'll have a budget deal when we have a budget deal," he said. "And we'll enact a budget when we have a budget deal".

Our main concern is that the Legislature and the Governor do not reach an agreement Sunday or Monday leaving the final decision on closing the budget with the Governor who could put issues such as a marketing ban on pharmaceuticals, a mortgage recording tax on co-ops and his Article VII bill dealing with Brownfield's Cleanup Program into the final budget extender.

Politics New York

New Hope For Bruno Appeal?

A ruling by the U.S. Supreme Court Thursday has given Joseph L. Bruno, former Senate Majority Leader, grounds to challenge his conviction on Federal mail fraud charges last year. However, prosecutors in Albany are suggesting they may argue to have that conviction upheld as a case where his actions proven at trial amounted to a "kick-back scheme". While Bruno and his lawyers had hoped to see the Supreme Court overturn the "honest services" statutes used by the Federal government to win a two-year prison sentence for Bruno, 6 of the 9 Justices on the high court declined to do so. Instead, they unanimously ruled that the law can only be applied to cases involving bribery or kick-back schemes. At the same time, in a major victory for Bruno, the Supreme Court declared that the vague "honest services" law may not be used to prosecute someone only for failing to disclose a conflict of interest, which was the bulk of the government's indictment against Bruno. Federal prosecutors in Albany, in response, vowed to continue to use the now more clearly defined "honest services" law as a tool to punish corrupt politicians. Depending on the actions of Federal prosecutors in the days and weeks ahead, the fate of Bruno, 81, could be settled quickly or it could drag on for months or years. His continuing legal defense costs could be modest or become enormous.