Transcript Balancing New York State’s 2008-09 Budget

Balancing New York State’s
2008-09 Budget
Frank Mauro
Trudi Renwick
Fiscal Policy Institute
Ron Deutsch, New Yorkers for
Fiscal Fairness
March 2008
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.
Capital gains and Wall Street wages accounted for half of the growth
in New York's personal income tax base from 2003 to 2007
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
1996-2000
2003-2007
Capital Gains and Wall Street Wages
as a share of
the level
AGI change
of AGI
from prior year
NYS Adjusted Gross
Income (NYSAGI)
($ millions)
Net
Capital Gains
($ millions)
Total Wall
Street Wages
($ millions)
347,981
383,179
417,996
448,531
508,934
481,001
459,919
473,778
525,964
571,916
631,683
686,008
22,441
31,563
38,929
48,330
62,302
29,450
20,398
28,455
51,196
64,411
81,071
93,151
24,534
28,790
33,602
35,116
48,777
49,813
40,278
38,025
46,203
51,616
63,590
76,308
13%
16%
17%
19%
22%
16%
13%
14%
19%
20%
23%
25%
47%
38%
35%
36%
46%
114%
88%
42%
59%
41%
48%
46%
46%
45%
178%
227%
99%
101%
18%
22%
39%
48%
Sources: NYSAGI and Capital Gains, New York State Division of the Budget; 2005-2008 are DoB projections
(2007 from 21-day amendments, Feb. 12, 2008). Wall Street Wages from NYS DoL: 1991-1999 on SIC basis;
2000-2008 on NAICS basis. 2006-2008 Wall Street wages are FPI projections.
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
New York's income growth since 2003 has been
concentrated among the top five percent.
180
Change in New York State Adjusted Gross Income: 2003-2008
108.6%
120
160
100
140
Billions of Dollars
$172.396 Billion
120
80%
100
60%
80
60
40%
40
15.7%
$49.438 Billion
20%
20
0
0%
? $200,000 AGI
> $200,000 AGI
Absolute Change
Source: New York State Division of the Budget.
? $200,000 AGI
Percent Change
> $200,000 AGI
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?
Current services spending relative to the size of the economy returned to traditional levels
after a decline in the mid to late 1990s.
Spending from all state funds for current services, as a percent of personal income.
8.80%
Spending Adjusted for Movement of HCRA Disbursements "on budget"
With HCRA on Budget
8.40%
Minus STaR Disbursements
8.00%
7.60%
7.20%
6.80%
6.40%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
State Fiscal Year
Note: 2002-03 and 2003-04 disbursements have been adjusted to account for the payment in 2003-04 of $1.9 billion of obligations incurred in 2002-03.
2005
2006
2007
Since 1990, New York State's expenditures for
employee wages and salaries have declined in real
terms by more than half a billion dollars, almost 5
percent.
Personal Service expenditures in millions of SFY 2007 dollars
General Fund
State FY 1989-90
State FY 1994-95
State FY 2006-07
Average Annual Change
1989-90 to 1994-95
1994-95 to 2006-07
Average Annual Percent Change
1989-90 to 1994-95
1994-95 to 2006-07
Total 17 -Year Change
Amount
Percent
Special
Revenue
Funds
Total
$7,732.9
$6,205.4
$6,653.7
$4,421.1
$5,179.9
$4,904.1
$12,154.0
$11,385.3
$11,557.8
-$305.5
$151.8
-$153.7
$37.4
-$23.0
$14.4
-4.31%
3.22%
-1.30%
0.58%
-0.45%
0.13%
-$1,079.2
-13.96%
$483.0
10.92%
-$596.2
-4.91%
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.
Are New Yorkers overtaxed?
The tax cuts enacted since 1994 are reducing state revenues
by over $16 billion.
$20
Revenue impact, in billions of tax cuts enacted in 1994-95 through 2005-06.
$15.43
$16
$15.82
$14.08
$12.77
$13.23
$12.01
$12
$11.21
$8.97
$7.32
$8
$6.12
$4.22
$4
$1.44
$0.47
$0
1994-05
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
New York State has cut its top personal income tax rate by more
than 50 percent over the last 30 years -from 15.375% to 6.85%.
16%
Top marginal tax rate
Top rate on investment income
14%
12%
1987 PIT cuts
10%
Top rate on earned income
1995 PIT cuts
2003
Increase
8%
6%
1976
1980
1985
1990
1994
1997
2003
2007
New York's top state personal income tax rate is at an historical low
relative to New Jersey and Connecticut.
1976
1985
2003
2004
2006
15.375%
9.5%
7.7%
7.7%
6.85%
New Jersey
2.5%
3.5%
6.37%
8.97%
8.97%
Connecticut
0
0
5.0%
5.0%
5.0%
New York
Note: The tax rates shown above are for wages, salaries and business income. Prior to 1991, Connecticut taxed the interest, dividends and capital
gains of high income residents but it did not tax business income, wages, salaries and other income. From 1978 through 1988, New York
employed a dual rate system in which it applied a higher top rate to investment income than to wages, salaries and business income. For 1985, the
top rate applicable to investment income was 13.5%.
Corporate income tax revenues have fallen substantially relative
to the size of the economy.
1.40%
Corporate income taxes as a percent of personal income
Total Collections including Audits
Without Surcharge
Normal Collections
1.20%
1.00%
0.80%
0.60%
0.40%
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
State Fiscal Year
Note: Includes the state's main income tax on general corporations (the Corporate Franchise Tax, Article 9-A & 13), as well as the Corporation and Utilities Tax (Article 9),
the Insurance Tax (Article 33) and the Bank Tax (Article 32).
2003
2005
2007
Over the past 30 years, NYS has shifted the tax burden and greatly reduced
tax revenues by having cut personal income tax rates from the top and
bottom rather than adjusting the state's tax brackets and the personal
exemption amounts for inflation.
4,000
3,000
Families in this range and above are
paying less in taxes because of NYS
having chosen to cut tax brackets from
the top and the bottom of the bracket
structure.
Change in Amount of Tax Due
2,000
1,000
0
49,000
78,000
107,000
136,000
165,000
194,000
223,000
252,000
281,000
-1,000
-2,000
The families in this range are paying more in taxes than they would be if NYS had adjusted its tax
brackets and personal exemptions for changes in the cost of living rather than cutting brackets from the
top and the bottom, as it has done.
-3,000
-4,000
-5,000
-6,000
New York Adjusted Gross Income, from $20,000 to $313,000, of Families of 4 - weighted average of standard vs. itemized deductions - includes
Household Credit
310,000
The 2003 tax increases did not have the negative economic effects
that Governor Pataki predicted.
Total nonagricultural employment
8,800
8,600
8,400
8,200
8,000
7,800
1995
1996
1997
1998
1999
2000
2001
2002
Source: US Department of Labor. 2007 annual employment level projected based on 11-month change.
2003
2004
2005
2006
2007
Following the 2003 adoption of the 3-year temporary increase in
the top rate on the personal income tax, the number of highincome returns grew significantly.
450
Number of High-Income Returns in Thousands
400
350
300
250
200
150
100
50
0
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
Year
Source: New York State Division of the Budget, , Economic and Revenue Forecast, Executive Budget 2007-08
2000
2001
2002
2003
2004
2005
2006
2007
Policy Issues
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.
Examples of corporate tax loophole closing
proposals in 2008-09 Executive Budget:
• “Amazon Tax”
• Study tax policy toward nonresidents. 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 TaxExempt 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)
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.
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.
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
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.
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.
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.
Economic Security Agenda
INITIATIVES
COST SAVINGS
•
•
•
•
•
•
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
•
•
•
•
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
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
New York's Basic Cash Assistance Allowance has not been increased since
1990. It has lost more than a third of its purchasing power since then.
100%
Inflation adjusted Basic Allowance for a Three Person Family (Pre Add plus HEA plus SHEA) as a Percent of 1990 Basic Allowance.
96%
93%
90%
90%
88%
86%
83%
81%
80%
80%
78%
76%
74%
73%
71%
69%
70%
67%
65%
63%
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
60%
TANF Funds available for employment, training and education are not sufficient.
Even if we include the social services districts' FFFS allocations for TANF services and employment services,
only a small fraction of the "surplus" goes these initiatives.
$700,000
Health and Other non-OTDA Programs
$600,000
FFFS Initiatives
Employment and TANF Services-FFFS Initiatives
$140,002
Thousands
$500,000
$400,000
$113,620
$300,000
$112,370
$93,070
$464,677
$60,443
$200,000
$119,788
$170,374
$96,680
$92,174
$100,000
$172,072
$121,201
$128,677
SFY 20022003
SFY 20032004
$104,828
$138,367
$130,556
$112,370
$77,478
$94,278
SFY 2005-06
SFY 2006-07
$97,128
$86,628
$0
SFY 20002001
SFY 20012002
Source: NYS Division of Budget and Flexible Fund for Family Services Plans
SFY 20042005
SFY 2007-08 SFY 2008-09 Proposed
Use of TANF funds for child care peaked in 2003-04. Even when transfers from
the FFFS and legislative child care initiatives are included in the totals, fewer
TANF funds went to child care in 2007-08 than were allocated for that purpose in
2005-06.
This trend is not consistent with the new emphasis on meeting federal work requirements.
$450,000
$408,000
$400,000
$350,000
$375,000
$340,400
$338,100
$392,600
$367,100
$388,900
$365,739
$381,000
$352,289
$304,000
$329,500
Thousands
$300,000
$301,500
$376,256
$360,102
Total Child Care
$301,500
$250,000
TANF Transfers to the Child Care Block
Grant including FFFS Transfers
$200,000
$150,000
$100,000
$50,000
$0
SFY 2000-2001
SFY 2001-2002
SFY 2002-2003
SFY 2003-2004
SFY 2004-2005
SFY 2005-06
SFY 2006-07
Flexible Fund for
Family Services
Source: NYS Division of Budget and Flexible Fund for Family Services Plans
SFY 2007-08
To restore the minimum wage to its July 1970 purchasing power, New York
would have to increase its minimum wage to $9.63 by January 2011.
1.NY minimum if unchanged
2.Federal minimum
3.Federal poverty guideline (3-person family)
4.Match NY peak July, 1970
$9.63
$7.25
$9.29
$9.35
$7.25
$7.25
$7.25
$9.02
$9.07
$8.76
$6.55
$7.15
$8.50
$8.30
$8.25
$7.15
$5.85
$6.00
$5.15
$8.00
$7.15
Nominal (January) dollars
$10.00
$8.81
$12.00
$4.00
$2.00
$0.00
Jan. 2007
Jan. 2008
Jan. 2009
Jan. 2010
Jan. 2011
Year-to-year projections assume 3% annual increase in CPI. Federal poverty guideline for 2008 estimated by FPI following HHS methodology.
New York State's maximum weekly Unemployment Insurance
benefit has not kept pace with wage growth.
$650
$600
One half average weekly wage
$585
NYS Maximum UI Benefit
$550
$567
$534
$500
$450
$406
$405
$405
$405
$405
$400
$350
$300
1999
2006
2007
Source: Average weekly wages from the Bureau of Labor Statistics. 2007 and 2008 estimated based on NYS DOB forecasts of growth in wage per
employee in the contained in the Multi-year Financial Plan Projections, October 31, 2007.
2008
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
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
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
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
BCBC: Supported By:
• Over 100 major human services, faithbased, 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