FISCAL INTEGRITY AND REFORM
State finances are strong and healthy, bolstered by the continued strength of the State’s economic expansion. The Division of Budget (DOB) now projects a General Fund operating surplus of $2 billion in 2005-06 -- the third consecutive year that a surplus will have been recorded on both a budgetary cash and GAAP-basis of accounting since absorbing the combined impact of September 11th and the national recession.
The balanced Executive Budget for 2006-07 builds on the fiscal recovery by:
Restraining spending in Medicaid and other high-cost programs, which constitutes the vast majority of budget-balancing proposals;
Keeping spending in both the General Fund and All Funds below the rate of inflation (after excluding last year’s Medicaid cap/takeover of local costs and newly proposed STAR enhancements);
Bolstering the State’s fiscal reserves to a total of $4 billion -- or 8 percent of spending; and
Reducing the projected 2007-08 out-year gap to $1.9 billion or less than 4 percent of the General Fund. This compares to the 1995-96 out-year gap Governor Pataki inherited, which was $5 billion or 15 percent of the General Fund.
Surplus at $2 Billion – 3rd Surplus in a Row
The General Fund surplus is expected to total $2 billion, $1 billion higher than projected in the Mid-Year Update. Strong growth in tax collections, particularly in personal income taxes and business taxes, has led DOB to raise its General Fund receipts forecast for the current year by $1.4 billion. At the same time, projected General Fund spending has been revised upward by more than $300 million, mainly for Medicaid and transit aid payments now planned for 2005-06 rather than 2006-07. Otherwise, spending trends for the State’s major programs remain generally consistent with the Mid-Year forecast.
Reserve Levels Approaching Pre 9-11 Highs
The Budget includes reserves of roughly $4 billion, equal to 8 percent of spending and the second highest level in history.
The entire 2005-06 surplus is not used to balance the 2006-07 budget, but held in reserve to lower out-year gaps;
$250 million in resources – including the entire amount of one-time resources in the budget -- is deposited to the Debt Reduction Reserve Fund to reduce high cost debt;
For the past 11 out of 12 years, the Budget makes the maximum deposit to the Rainy Day Reserve, bringing the total to $945 million, the highest level ever and a five-fold increase over the amount this fund contained in 1995; and
Other reserves include: $275 million for potential labor settlements with unions that have not yet been reached, $236 million in the Community Projects Fund, $21 million in the contingency reserve for litigation, and $375 million set aside for increased Sound Basic Education aid.
2006-07 Gap-Closing Plan Promotes Long-Term Balance
The Executive Budget presents a fully balanced plan for 2006-07 and reduces the budget gap projected for 2007-08 to less than $1.9 billion. The Budget proposals address the structural imbalance by:
Restraining spending in the fastest-growing programs in the State Budget, particularly Medicaid;
Setting aside the entire $2 billion from the expected 2005-06 surplus to help reduce the potential out-year gaps in 2007-08 and 2008-09; and
Providing $250 million in new reserves that will be used to lower state debt.
Overall, spending restraint constitutes 95 percent of the 2006-07 gap-closing plan of $2.1 billion before recommended spending additions, tax policy changes, and new reserves for debt reduction.
Budget Reform
Included with the Governor’s Budget is a comprehensive budget and debt reform plan to promote on-time, balanced budgets with full legislative and public participation. Specifics of the proposal includes:
Amending the constitution to require the Legislature to enact a balanced budget;
Giving the Legislature until May 1 to enact the budget, and moving the start of the fiscal year to July 1, in line with 46 other states;
Requiring legislative conference committees to reconcile budget differences in public each year;
Requiring “sunshine” reporting for both the public and individual legislators on the short- and long-term fiscal impact of budget changes at least three days prior to a vote to enact the budget;
Increasing the permanent rainy day reserve to a minimum of 5 percent of General Fund spending;
Authorizing the Comptroller to set a binding revenue forecast if the Legislature and Governor fail to reach consensus and also ensure the Legislature has enacted a balanced budget; and,
Increasing Executive reporting, including multi-year fiscal projections, state employee workforce levels, and detailed cash flow projections.
Debt Reform
Banning “back-door” borrowing;
Limiting State debt levels to no greater than 4 percent of personal income;
Limiting debt service costs to 5 percent of the total budget;
Limiting debt to capital purposes only, and close existing loopholes that allowed the refinancing of billions of dollars of New York City debt from the 1970s; and,
Requiring at least half of all new debt to be approved by the voters.
TAX CUTS
The 2006-07 Executive Budget builds on the Governor Pataki’s 11 year record of tax reduction — an essential ingredient in continuing to revitalize the economy. The Budget continues the $15 billion in annual tax cuts instituted since 1995 and adds a new chapter to that program.
It also includes a new tax-cutting program that cuts taxes across the board with an emphasis on middle class tax relief, property tax rebates, and a new tax cuts businesses to invest in New York, nurture emerging industries, protect the environment, and encouraging capital investments. Altogether, the tax cuts included in this Budget will save taxpayers $3.5 billion when fully-implemented. These cuts include:
Providing rebates of $400 for homeowners in school districts that control increases in school budgets (see Education section for details);
Providing a COLA for those seniors who receive STAR;
Eliminating the marriage penalty by increasing the standard deduction for married taxpayers and doubling the threshold where the rate table recapture applies;
Cut the top tax income tax rate from 6.85 percent to 6.75 percent;
Increasing the income threshold where the top income tax rate applies from $40,000 to $60,000 for married taxpayers and from $20,000 to $30,000 for single taxpayers;
Providing an educational income tax credit of up to $500 for qualified family expenses for students in school districts with underperforming schools;
Reforming the corporate and bank tax by eliminating the alternative minimum and capital bases;
Reducing the top corporate tax rate to 6.75 percent;
Eliminating New York’s estate tax by increasing the exemption threshold and then eliminating the tax.
Enhancing and making permanent the low income housing tax credit;
Tax credits for the purchase of alternative fuel vehicles and for the production of alternative fuels;
A new $500 home-heating credit for lower-income seniors;
A new tax credit for upgrading or renovating residential home heating systems;
Enhancing the Earned income credit for certain lower-income, non-custodial parents who pay child support;
Credit for rehabilitation expenditures on historic homes;
Credit for farmers for property tax on land related to conservation easements;
Exempting the purchase of Energy Star appliances from sales tax for two tax-free weeks;
Exempting the sale of alternative fuels from motor fuel and sales taxes;
Increasing the sales tax vendor credit to help small business owners across the State; and
Exempting certain admission charges to amusement parks from the sales and use tax.
The Budget also includes provisions that would close certain tax loopholes and transform existing tax incentives to make them more affordable and effective. These measures include eliminating certain corporate tax loopholes and shelters and converting the permanent sales tax exemption on clothing to two sales-tax-free weeks for clothes and shoes priced under $250.
ECONOMIC DEVELOPMENT
The Executive Budget continues the successful economic development themes that have characterized Governor Pataki's 11 years in office: tax incentives to attract and maintain businesses, capital projects that transform the State and regional economies, and assistance for small businesses.
Tax Incentives
In 2005-06, Governor Pataki successfully secured a long term extension and major reforms of the Empire Zones program. In 2006-07, the Governor's budget will build upon this strong foundation in a number of innovative ways, including:
Creation of five new “Tech Zones”. Each Zone will have a total area of one square mile, to be located anywhere in the State, for companies with business relationships with a Center of Excellence.
The entire State will be designated as a Statewide Clean Energy Research and Development Zone. Any business primarily engaged in research, development or manufacturing of renewable energy technologies or products will be eligible for Empire Zone benefits. Also, clean energy businesses will be encouraged to establish formal relationships with Centers of Excellence to build even more public/private partnerships.
Twelve new Zones-- authorized for designation over the next four years in the 2005-06 Budget would instead be designated in 2006 to immediately provide every county in the State with an Empire Zone.
New Capital Investments Across the State
The Budget will also continue the Governor's successful policy of investing in strategic capital projects that have the potential to transform the State and regional economies. A new $475 million capital program included in the Budget will provide:
Funding for cultural projects that would ensure the long-run viability of New York's world-class cultural icons such as the American Museum of Natural History in New York City, and the Adirondack Natural History Museum in the North Country;
University development projects - such as the University at Albany's Institute for Nanoelectronics Discovery and Exploration (INDEX) - that would continue New York's leadership in support of high tech industries and state-of-the-art research and development facilities;
Energy programs and initiatives that would lead the way in achieving energy independence and pollution reduction, and ensure that New York would be a capital for new renewable energy industries; and,
Economic development projects such as the Rivers and Estuaries Center in Beacon and the Albany Convention Center that would draw visitors - including researchers, conventioneers, and tourists.
Small Business Assistance
The Budget will also provide support for the State's small business community by expanding the successful Linked Deposit Program. Through this important program, $350 million of State and public authority funds have already been invested in job creating small businesses. To continue this record of success, the Governor’s Budget would increase the program by $60 million to a total of $410 million.
The Budget would also provide:
$75.4 million to support traditional economic development programs, such as the Empire State Economic Development Fund (EDF) and JOBS NOW, which provide financial assistance to businesses, municipalities, and not-for-profit organizations for projects that create and/or retain jobs;
$11 million for the "I ? NY" tourism marketing program, and $4.8 million for tourism matching grants; and
$1.2 million to support international trade offices, including the establishment of a trade office in China;
$22.5 million in capital and $7.5 million in operating aid for Governors Island.
PUBLIC SAFETY & SECURITY
New York continues to be recognized as a national leader in adopting tough, smart criminal justice policies. Crime continues to decrease, and our children and neighborhoods are safer than ever. New York now ranks as the safest large State in the nation and the sixth safest State overall. The Budget supports the Governor's goal of making New York the safest state in the nation, and provides more than $3.5 billion in State funds to support public safety and security programs by:
Providing $130 million for the creation of a dedicated facility to house and treat sexually-violent predators who are civilly confined after release from prison;
Intensifying the supervision of sex offenders in the community, providing $3.2 million in additional funding for the Division of Parole and local probation offices;
Ensuring that the statewide Sex Offender Registry provides the public with fast and accurate information;
Adding 100 new State Police investigators to combat illegal gun trafficking in partnership with other levels of government, raising the overall State Police force to an all-time high of 4,884 troopers;
$13 million to expanded the use of DNA to solve and prevent crimes by increasing the capability of the DNA Databank to test more samples and accelerate processing time;
Expanding funding for Operation IMPACT by $5 million for communities with high rates of crime;
Adding $4.8 million to the Division of Alcoholic Beverage Control (ABC) to double the number of investigators, improve coordination with Operation IMPACT and local law enforcement, increase fines on businesses which repeatedly violate the ABC law, and enhance the use of technology;
Providing $6 million in new funding to improve services that help offenders returning to the community from prison to become productive, law-abiding citizens; and,
Encouraging highway safety by authorizing new fines for motorists who are caught on camera speeding through work zones or dangerous stretches of highway.
The Executive Budget continues strong support for anti-terrorism efforts throughout the State with a recommendation of $86 million in State funding, including resources for the operation of the new State Preparedness Training Center in Oneida County, and the operation of the Upstate NY Intelligence Center.
In addition, the Executive Budget supports the construction of the Statewide Wireless Network, which will provide state-of-the-art emergency communications capability to State and local public safety personnel throughout New York. The future costs of this initiative will be entirely supported by cellular surcharge revenues, which will be consolidated in a single dedicated fund beginning in 2007-08.