NYS Budget '99: A boon to business?

CNY Business Journal (1996+), Feb 19, 1999

During last year's election campaigns, every local and statewide candidate we heard on the stump spoke of the need to revitalize the upstate economy. We are now beginning to see what the state's leaders have in mind.

Within the past several weeks, Governor George Pataki and Senate Majority Leader Joseph Bruno have released detailed plans designed to spur economic growth throughout New York, especially upstate. While Assembly Speaker Sheldon Silver has not yet released his budget proposal, he has stated that his plan will address the "special needs" of New York's upstate communities.

Reasonable people may disagree regarding how these issues can best be addressed. The prescription offered by the Manufacturers' Association of Central New York (MACNY) was clear and unambiguous. The "tax cuts/state budget" portion of MACNY's 1999 Public Policy Agenda focused on further reductions in energy taxes and in the Alternative Minimum Tax (AMT), keeping spending below the rate of inflation, and providing adequate funding for employer-based training programs. Each of these priorities can be found in the plans released recently by the Governor and Senator Bruno.

Senator Bruno fired the first shot in this year's budget fight on the day before Christmas. In what has become an annual event, the Majority Leader announced an ambitious tax-cut plan that calls for, among other proposals, a new round of cuts to the Gross Receipts Tax (GRT) on utilities.

In addition to his tax cut plan, Senator Bruno recently announced an economic-development package that includes the New York State Employee Readiness Act of 1999. While no details are available yet, the plan, initially funded at $100 million, would be directed at retraining incumbent workers in industries throughout the state.

Governor Pataki's State of the State Message, delivered on January 6, added a few more critical elements to the mix. The Governor announced that his 1999-2000 Executive Budget would hold spending below the inflation rate and would place the state's estimated $1.79-billion budget surplus in a reserve fund to protect previously enacted tax cuts and to maintain the state's fiscal integrity.

Fiscal integrity is one of the dominant themes of the Governor's Executive Budget, released on January 27. In addition to holding the budget's growth to 1.8 percent and placing the surplus in a reserve fund, the Governor announced that his new five-year Capital plan would decrease New York's projected debt by $4.7 billion. The Governor's plan calls for using 75 percent of the state's share of the tobacco settlement to increase "pay-as-you-go" spending.

The Governor's budget proposal is also marked by an ambitious $350-million business tax-cut package. The centerpiece of the plan is a $150-million cut in utility taxes. The key element here is a proposal to move all energy utilities from the Article 9 gross-receipts tax structure to the Article 9-A tax on income, the same as most corporations.

Another major business tax cut proposed by the Governor is directed specifically at the manufacturing sector--an additional cut to the AMT. Last year, the AMT was cut in two steps over two years, from 3.5 percent to 3.0 percent. The Governor proposes a third cut that would bring the AMT down to 2.5 percent by July 1, 2000.

Other important proposals include a $600-million personal income-tax cut targeted at middle-income families, a reduction in the corporate taxes paid by banks and insurance companies, mandate relief for localities and school districts (including a reform of the Wicks Law), and expansion of the state's business-marketing program.

Assembly Speaker Silver has not yet released his 1999-2000 budget proposal. However, in his response to the Governor's State of the State Message, Silver said that his plan will focus on reducing energy costs, tax cuts targeted to high technology, addressing transportation issues by reducing air fares and developing a high-speed rail network, and small-business development.

On the spending side, both Bruno and Silver have stated that they would like more money than the Governor has proposed for schools and healthcare. However, the Speaker has been particularly critical of the Administration's plans. He termed the proposal "unacceptable" and has called for significantly more spending in these two areas. The Speaker also objected strongly to the Governor's plan to use much of the money from the tobacco settlement for debt reduction.

So the stage is set for yet another interesting budget battle in Albany. The key may well be an agreement on the size of the state's surplus. The Governor's budget is based on an estimated $1.79-billion surplus. The Assembly and the Senate are widely expected to base their plans on a surplus of up to $3 billion. The pressure to spend more money on programs will be enormous and they may need every penny of that surplus in order to take the steps necessary to improve the upstate economy.