New York State budget delayed

March 31, 2009 9:31:29 PM PDT
New York's Legislature missed its deadline to pass the state budget.

Lengthy debate in the Senate by Republicans questioning the new Democratic majority's understanding of the spending plan means most of the massive budget bills will be considered Wednesday. The deadline for an on-time budget is midnight Tuesday.

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A major stumbling block was how to help the MTA to avert the Doomsday fare hikes and service cuts. One proposal being batted around is a 50 cent cab tax.

The spending plan is poised to be New York's 23rd late budget in the past 25 years. It includes a near-record 8.7 percent increase in spending and $7 billion in new or higher taxes and fees.

The Enacted Budget agreement closes a two-year $17.7 billion 2009-10 budget gap and reduces the state's multi-year deficit by an estimated 80 percent from approximately $60 billion to approximately $11 billion. These estimates are preliminary. The Division of the Budget will release an Enacted Budget Financial Plan within 30 days of budget enactment.

Along with the recurring impact of the Deficit Reduction Plan, the Enacted Budget agreement reflects $6.5 billion of the spending reductions in the Executive Budget - the largest amount in State history. Additionally, it includes $5.2 billion in revenue actions, the largest of which is a temporary $4 billion personal income tax surcharge on higher-income New Yorkers.

Based on preliminary estimates, General Fund spending is expected to increase no more than 1 percent and total approximately $54 billion. All Funds spending is expected total approximately $131.8 billion, an increase of $10.5 billion or 8.7 percent. The vast majority of that increase ($7.2 billion) represents American Reinvestment and Recovery Act (ARRA) aid that must, according to federal guidelines, be spent in the current fiscal year. The remainder reflects negotiated State funds spending restorations ($2.0 billion) and previously committed capital and debt service spending ($1.3 billion).

Over the past year, the State has experienced a precipitous decline in revenues. In the last two months alone, since the passage of the 2008-09 Deficit Reduction Plan, the State's budget deficit has increased by $4.7 billion from $13 billion to $17.7 billion, primarily due to lower than anticipated projected tax collections, as well as increased pressures on entitlement spending. This decline is roughly similar to the amount that will be collected from the temporary Personal Income Tax surcharge on high-income New York taxpayers.

The Enacted Budget also utilizes $6.2 billion of federal economic recovery funding that Congress allocated to help states stabilize their finances and stimulate the economy. This funding is required to be spent during the coming fiscal year and may not be used to fund rainy day reserves or retire debt. Federal economic recovery aid will be targeted to address the State's deficit, restore proposed spending reductions in health care, education, human services, local aid to New York City, and mental hygiene, as well as to eliminate selected revenue proposals.

Selected Enacted Budget Highlights:

Education - In 2009-10, General Support for Public Schools is projected to total approximately $21.9 billion, an increase of $405 million - reflecting the elimination of a proposed $1.1 billion Deficit Reduction Assessment through the use of American Reinvestment and Recovery Act aid. When enhanced funding for the Title I ($454 million) and IDEA ($398 million) programs is included which are provided to school districts pursuant to a federal formula, which was provided through federal economic recovery legislation, School Aid is expected to increase by $1.2 billion compared to 2008-09.

Foundation Aid will be maintained at $14.9 billion, the same amount as 2008-09 levels in both the 2009-10 and 2010-11 school years. Additionally, although the full phase-in of Foundation Aid will be delayed, the commitment to Foundation Aid has been maintained with phase in now taking place over seven years and full implementation occurring in 2013-14.

The Enacted Budget also eliminates an Executive Budget proposal to make school districts responsible for a 15 percent share of preschool special education costs. Rescinding this proposal will provide a fiscal benefit of $185 million to school districts in 2009-10.

Health Care - The Enacted Budget includes a record Health Care savings package totaling $2.3 billion in 2009-10. The 2009-10 Executive Budget recommended $3.5 billion of health care savings, which included a $404 million tax on non-diet soft drinks that Governor Paterson and Legislative Leaders previously agreed to eliminate. The Budget also permanently reforms New York's Medicaid hospital reimbursement system to lower costs while improving patient outcomes. These savings will be invested in primary and preventive care to create a higher quality and more sustainable system.

Local Government Aid - The scheduled Aid and Incentives for Municipalities (AIM) payment for New York City will be fully restored by redirecting total $328 million of the State's allocation of federal economic recovery funding.

Funding for AIM program outside of New York City is preserved at 2008-09 payment levels for 2009-10 and 2010-11. The State will still provide municipalities with $755 million in AIM support.

The Enacted Budget eliminates an Executive Budget proposal to reduce State payments in lieu of taxes and maintain other taxes on State-owned lands at 2008-09 levels.

The Governor and Legislative Leaders agreed to continue to review a package of mandate relief proposals for local governments.

Higher Education - The Enacted Budget restores $35 million in modifications to the Tuition Assistance Program, $49 million in reductions to community colleges and $31 million in reductions to university-wide programs for SUNY and CUNY. The Enacted Budget also establishes the New York Higher Education Loan Program (NYHELPs) proposed by Governor Paterson in the Executive Budget. This initiative would provide, on an annual basis, a minimum of $350 million in loans to 45,000 resident students enrolled in a degree-granting program at a college or university in New York State.

Human Services/Mental Hygiene - The 2009-10 Enacted Budget restores $254 million of human services programs and $36 million of mental hygiene programs. These include: homeless prevention programs, refugee resettlement programs, Community Optional Preventive programs, reductions in the New York City adult shelter reimbursement and the personal needs allowance for Safety Net recipients, and many others. In addition, the Enacted Budget includes the first increase to the welfare grant since 1990 to help assist those in poverty during a time of unprecedented economic turmoil. Implementation of the public assistance grant increase will be will be accelerated, with recipients expected to receive a 10 percent increase in July, 2009, with the total 30 percent increase to be implemented by July, 2011. The cost of the grant increase will be paid by the State for three years using TANF funding.

Transportation - The Enacted Budget restores $20 million of transit aid. It also restores a $96.5 million reduction in capital aid to local governments for highway and bridge projects under the CHIPS program for municipalities outside New York City and another $15.3 million for New York City.

Government Reforms - The Enacted Budget implements several significant reforms that will reduce the cost of State government moving forward. These include Empire Zone Reform, to rein in long-documented abuses in the Empire Zone program by raising standards to ensure taxpayers' investments create jobs; Rockefeller Drug Laws to provide judges the discretion to divert non-violent drug-addicted individuals to treatment alternatives that are shown to be far more successful than prison; and closing three underutilized prisons and nine juvenile justice facilities to save taxpayers money.

Environment - The Enacted Budget will expand the five-cent nickel deposit on carbonated beverages to now include bottled water. The state will retain 80 percent of unclaimed deposits on all beverages, a change from the 100 percent of which are currently kept by bottlers. The Enacted Budget also will increase Environmental Protection Fund appropriations by $17 million from $205 million to $222 million, and restores a proposed $45 million transfer from the Environmental Protection Fund. The enacted budget restores the Real Estate Transfer Tax as the primary funding source for the Environmental Protection Fund providing almost $200 million in support in 2009-10.

STAR Rebate - The Enacted Budget eliminates the STAR rebate program as well as the corresponding enhanced NYC STAR tax credit, producing savings of $1.5 billion in 2009-10. Even after this action, the STAR exemption program and NYC STAR credit will continue to provide $3.3 billion in property tax relief. Additionally, the Executive Budget proposal to decrease the "floor" reduction - the maximum reduction in STAR benefits that can occur as a result of changes in assessed value or market value -from 18 percent to 11 percent is not included in the Enacted Budget.

Taxes - The Enacted Budget includes taxes and fee actions that will produce $5.3 billion in revenues in 2009-10. The largest increase is a temporary Personal Income Tax Surcharge for higher-income taxpayers. This will temporarily increase the marginal State personal income tax rate for higher-income filers for a three-year period from tax year 2009 to tax year 2011. For married couples filing jointly, the marginal rate will increase from 6.85 percent to 7.85 percent for filers with incomes above $300,000 and 8.97 percent for filers with incomes above $500,000. This surcharge is expected to produce $4.0 billion in revenue in the 2009-10 fiscal year, which is an amount that is approximately equivalent to the $4.7 billion increase in the deficit that has occurred since the passage of the 2008-09 Deficit Reduction Plan on February 3.


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