Message from the Chairman
Assemblyman Adriano Espaillat
SFY 2006-2007

As chair of the forty-three member New York State Black, Puerto Rican, Hispanic and Asian Legislative Caucus, it is my pleasure to provide you with facts regarding where we stand, as a Caucus, on important legislative and budgetary issues that impact the people we represent. The Empire State's fiscal budget is larger than most small countries around the world. Our State's gross annual product (GAP) far outpaces many world nations; therefore, we have influence that most could only dream of. Nevertheless, with that great power and influence comes great responsibility.

This year's 2006- 2007 fiscal budget is projected to yield a surplus. We expect this budget surplus to be about $2.4 billion. On the surface this seems to be a huge sum. However, we must remind all the policymakers in Albany that we have unfinished business, that is, the Legislative response to the State Supreme Court's ruing on the Campaign for Fiscal Equity (CFE) lawsuit. The ruling as a result of this lawsuit, in November 2004, a court-appointed panel of Special Masters recommended that the State add $5.6 Billion, over the next four to seven years, to New York City Schools. In addition to the $5.6 Billion, an additional $9.17 Billion would be appropriated for capital improvements starting in 2005.

The State's top executive is proposing a repeal of the estate tax. Here is what a New York Daily News editorial said on this tradeoff between repealing the estate tax and funding a sound basic education for all children:

"While denying New York City its fair share of school aid in disregard of a court order, Pataki wants to eliminate over 10 years the tax that New York imposes on the estates of the wealthy after they have died. A bad idea in general, getting rid of this tax is monstrous when you consider how much money is at stake and how few people would benefit. Pataki's plan would siphon $900 million a year out of the treasury and give $600 million of the money to the beneficiaries of roughly 200 estates. That's $600 million for a very rich and very lucky 200 instead of $600 million to improve the education of 1.1 million children. Pataki says this makes sense because he wants to keep rich taxpayers in New York, and we're not making that up."

An important component to our children's success is the ability to access education, health care and housing. Historically, the Caucus has championed polices and issues that deal with fairness, justice and empowerment for all disenfranchised people. As we expand our vision for the future to include challenges of a global economy, world academic competition and shrinking natural resources, we must capitalize on all our opportunities to benefit our constituencies. We have an obligation to the constituents who have elected us and who have entrusted us to make decisions that serve their best interests. This year's Budget Equity represents the budget and policy priorities that best serve our constituents and give them the greatest chance for success within our society. We will continue to fight for what we know best benefits our communities statewide.

Message from Budget Workshop Co-Chairman
Assemblyman Carl E. Heastie
SFY 2006-2007

In his Executive Budget for the 2006-2007 fiscal year, Governor Pataki has yet again taken strides towards improvement in comparison to prior budgets. However, areas such as the court ordered Campaign for Fiscal Equity mandated increase in education aid, the aging and elderly, and our working families should not be the targets of cuts. As a state, we should work to give our children the sound basic education they deserve, our elders the quality of life they worked so hard to enjoy, and working families the ability to live healthy productive lives.

The court of appeals decision that was handed down two years ago has "handcuffed" the Legislature by reducing their powers to negotiate a balanced, bipartisan budget with or without the governor's cooperation. The court has in essence said that the Legislature must accept or deny the governor's recommendations. This has a profound impact on the current budget cycle, as it requires the governor's cooperation for the budget to get passed, as opposed to the times when the Legislature was forced to override the governor's veto's.

We must ensure people have the knowledge and ability to provide for themselves and their families, through educational and career enhancement programs. By cutting essential services and necessary health programs some families will not able to provide the foundation for their children to reach the success and prosperity they can achieve.

The Governor proposes providing a $500 refundable income tax credit to families with incomes below $90,000 in school districts with underperforming schools to support eligible education expenses such as tutoring. The program is estimated to cost $400 million in 2006.

The CFE case found that New York City schools were required to receive increased funding of $1.4 billion in the first year, rising to $5.6 billion in the final year of a 4-year implementation period. The $1.4 billion figure represents the increased funding New York City schools were directed to receive by a combination of state and local sources; the DeGrasse order, consistent with the 2003 Court of Appeals decision, did not speak to the division of aid between the state and New York City. Under the Schools for New York's Future Act, the state's share of increased funding in the first year to meet the requirements of the court order is $2.2 billion statewide, and $1.1 billion for New York City. Judged by the standard of compliance with CFE, the Governor should be proposing an increase in school aid in 2006-07 of well over $2 billion rather than the $634 million increase (3.9%) he has proposed.

Education is a vital issue in the state, as it is the building block for the future workforce. However, the Governor's plan increases total funding for New York City Schools by only $281 million dollars. In light of the Campaign for Fiscal Equity decision, the New York City Schools should see an increase in funding by $1.4 Billion dollars this year. $375 million of the $634 million figure has been designated by the Governor as "Sound, Basic Education" (SBE) Aid, to be allocated later by the Division of the Budget under a formula to be determined by the State Budget Director, rather than through the legislative process.

This budget does not seem to take into account the recommendation of the CFE court appointed master, but seemingly disregards it. As a community, we can not gamble with our children's future; we must have a sound system that adequately provides funding to educate future generations. These children should not be denied the right to an education that prepares them for the challenges of the future.

Higher education has not fared well under the Pataki administration. The governor has proposed another tuition increase for the youth of New York State and their families as they pursue a higher education at a State University of New York Campus. The governor's proposal calls for a $500 SUNY tuition hike and $300 CUNY tuition hike. In the executive budget the governor raises the minimum course requirements to receive full TAP in order to cut funding for some needy students. The Governor's proposal does not take into account the need to increase funding for opportunity programs. Opportunity programs have proven to be effective in giving underrepresented communities access to our Colleges and Universities. An affordable college education is something that should be available to all New Yorkers, and some of the Governor's proposals put higher learning out of reach for more and more people.

The budget proposal for healthcare is also lacking in funding and seeks to establish revenue from our most vulnerable citizens. The Governor proposes a $1.3 billion cut to our healthcare system when federal and state funds are considered. The budget also proposes extending the 6% sick tax to nursing homes. The 06-07 budget proposal cuts Medicaid by imposing increased co-payments, cutting eligibility, and reducing benefits for the low income population.

This year's budget will be a challenge to ensure that it is fiscally responsible and socially adequate while addressing the need of the court order Campaign for Fiscal Equity settlement. As we move forward in the budget negotiation process, it is paramount that the Governor and the Legislature meet this challenge with a sense of compassion for the needy and a sense of obligation to educate our young.

Explanation of Terms

New York State's Annual Budget contains the financial resources that allow many programs throughout the State to operate in an efficient and effective manner. The appropriations contained in the state budget are presented in specific fund types and categories or purposes. The presentation is simply distinguishing where the money comes from and where it goes or for what purpose is it spent. The following definitions are meant to be a non-technical description of funding structure of the state budget.

Fund Types: How does NYS derive its money for the programs?

General Fund (GF): Represents funds derived from the income taxes of New York State residents. These "TAX DOLLARS" can generally be spent for any purpose within the budget as designated by the Legislature and Governor.

Special Revenue Fund: Represents funds derived from a "SPECIAL SOURCE" and generally fall in two categories, State and Federal. These funds may be restricted in their usage and could prohibit appropriation for general purposes in the Budget.

The Special Revenue Fund (SRO) -State: dollars come from special agency sources like user fees, fines, penalties, student tuition, etc. charged to New York State residents.

The Special Revenue-Federal (SRF): dollars come from the federal government usually in the form of a Grant and are for program-specific purposes in most cases. An example of these funds would be Federal Pell Grant funding for students at the State University of New York.

Capital Projects Revenue: Represents funds derived Tax Revenue or the sale of New York State Revenue Bonds. These funds are specifically targeted for major infrastructure and capital improvements like roads, bridges, buildings, and computer upgrades.

Debt Service Funds (DSF): Represents tax dollars and special revenue sources set aside to pay for the various revenue bonds issued by the State of New York.

Categories and Purposes

State Operations: funds in this category are used to support the primary operations of an agency such as administration and core programmatic activities.

Aid to Localities: Funds in this category are used to support the operations of local municipalities, community organizations, or direct grants to New York State residents (e.g. Tuition Assistance Grants for eligible college students).

General State Charges: Funds in this category are used to pay for the employee benefits of the state work force (e.g. medical insurance, retirement etc.).

Capital Projects Revenue: These funds are specifically target for major infrastructure or capital improvements like roads, bridges, buildings, and computer upgrades.

Debt Service Funds (DSF): set aside to pay for the various revenue bonds issued by the State of New York.

Balancing Revenues, Expenditures and Human Needs

Governor George Pataki may be retiring from office at the end of 2006 but he is asking the Legislature to enact this year, in conjunction with the 2006-07 budget, policies that would put much of the revenue and expenditure sides of future years' budgets on auto-pilot. And to do so in a way that would make the goal of meeting important human needs and important state investment priorities much more difficult than would otherwise be the case.

The centerpiece of the 2006-07 Executive Budget is a return to the pre-2001 practice of enacting large multi-year, backloaded tax cuts that put a substantial lien on future year resources and greatly limit the ability of the state to balance competing priorities in the annual budget process.

This year, at the first glimmer of budget balance since 2000, the Governor is proposing to create a series of projected budget gaps for future years by urging the Legislature to enact a package of tax cuts that will grow in value from almost $1 billion this year to $5 billion when fully implemented in 2011-2012.

In order to mask the full size of the budget gaps that his multi-year tax cuts would create, the Governor is proposing large service reductions, growing in value from close to $2 billion this coming year to over $3 billion the following year. In addition, the Governor is proposing the use of over $1 billion of its most flexible rainy day funds in each of the two succeeding fiscal years. Even with these big service cuts and even with the use of all of the state's flexible reserves for "non-rainy-day" purposes, the Governor's budget would still leave the Legislature and the next Governor with budget gaps of $2 billion in 2007-08 and $4 billion in 2008-09.

The service reductions being proposed by the Governor include $1.3 billion in Medicaid cuts this coming year and $2.3 billion in the following year. When federal matching funds are taken into consideration, this amounts to the removal of $2.6 billion from the health care system in 2006-07 and $4.6 billion in 2008-09. In a similarly misdirected move, the Governor's second biggest target after health care is higher education, where he is proposing to cut $247 million next year and $331 million the year after.

In education, the increase in state aid to public schools that the Governor is proposing is far from sufficient to maintain the current level of educational quality without shifting a greater share of the costs to local property taxes. And, even though the Governor has said that he wants a statewide solution to the Court of Appeals' decision in the Campaign for Fiscal Equity, his budget does not propose such a solution - - not even the inadequate plan that he has presented to the courts as the state's position.

Instead, the Governor has proposed continuing the first $325 million installment in Sound Basic Education aid that was adopted last year and putting an additional $375 million into a reserve fund for this purpose. The Governor is proposing that the $325 million be distributed in the same manner as it is being distributed this year (which is far less targeted to needy districts than the plan that the Governor presented to the courts) and that the additional $375 million be distributed pursuant to an allocation plan to be adopted by his Budget Director with no statutory standards or safeguards. Even if these resources were allocated in accordance with the standards adopted by the court, increasing spending at this rate would mean that the state government would not meet its reasonable share of the costs of a Sound Basic Education for all of the state's children until sometime around 2022.

New York State needs a budget that is balanced fiscally, economically and socially. The 2006-06 Executive Budget fails on all three of these fronts.

How New York State got from an $11.5 billion budget gap in January 2003 to the current budget surplus of at least $2 billion

While the $11.5 billion budget gap and the current $2+ billion surplus are not exactly comparable, the turnaround in the state's finances in significant. This turnaround is particularly noteworthy given Governor Pataki's claims in May 2003 that the Legislature's balanced approach to dealing with the $11.5 billion budget gap was going to do great damage to the economy and produce large recurring budget gaps. In 2003, over the Governor's vetoes, the Legislature closed the state's budget gap in a much more balanced manner than New York State had pursued in the early 1990s, and the state is now enjoying the benefits of those choices.

At the beginning of the current decade, after seven years of boom times and overly ambitious tax cuts, New York State was hit with a series of significant economic and fiscal challenges. The bursting of the Wall Street and dot.com bubbles in 2000, was followed in rapid succession by the national recession of 2001, the September 11, 2001, attacks on the World Trade Center, and the "job loss" recovery of November 2001 through May 2003.

Seven Years of Overly Ambitious Tax Cuts

In retrospect, it is clear that the large multi-year tax cuts enacted in Governor Cuomo's last year in office and Governor Pataki's first six years, when taken together, were overly ambitious. The Division of the Budget estimates that these tax cuts are reducing state tax revenues by about $15.4 billion this year and an estimated $15.8 billion next year.

Governor Pataki has described this effort as the largest multi-year tax reduction ever undertaken by any state. In terms of balancing this objective with prudent fiscal planning, however, a tax reduction plan half this size would have still been the largest state tax reduction in history but New York would have been much better positioned to weather the fiscal storms of the last several years and to meet the state's priority investment needs.

Analysts and commentators who concluded that these tax reduction plans could not be sustained in the event of a downturn in the economy or a downturn on Wall Street, without significant backtracking on either the revenue and/or the expenditure sides of the budget, were dismissed as "naysayers." Unfortunately, during the first several years of this decade, New York had to deal with both of those development simultaneously and with the aftermath of September 11th as well.

Avoiding the Problem in 2001 and 2002 and Facing the Music in 2003

In 2001 and 2002, New York avoided significant tax increases and service cuts through the use of one-shots and the various reserves that the state had accumulated during the earlier boom times, and, as it turned out, an overestimation of the its 2002-2003 revenues. In January 2003, however, the Governor acknowledged that the state government faced an unprecedented 15-month, $11.5 billion deficit. This consisted of a $2.2 billion gap for the 2002-03 fiscal year that was then coming to a close and a projected $9.3 billion gap between revenues and expenditures for 2003-04.

On January 29, 2003, Governor Pataki proposed a multi-year plan for bringing the state's finances back into some semblance of structural balance. The Governor's multi-year strategy was not an illogical or inappropriate given that the projected $9.3 billion budget gap represented almost 25 % of the state's General Fund budget at that time. Implementing $11.5 billion in service cuts and/or revenue increases during a 15-month period could very well have caused substantial harm to the state's economy. The Legislature ultimately went along with the Governor's proposal to reduce this gap to manageable proportions primarily through the use of a $4 billion one shot - the securitization (or bonding out) of the revenues that the state would be receiving over time pursuant to the settlement of the multi-state lawsuit against the major tobacco companies.

But when it came to the more difficult challenge of closing the remaining gap, the Governor leaned heavily toward spending cuts and increases in fees and regressive taxes and heavily against increases in progressive taxes. He proposed closing the remaining $700 million gap for 2002-03 entirely on the spending side of the ledge and covering the remaining 2003-04 gap with $5.2 billion in spending cuts and $1.3 billion in revenue increases, or about $4 of cuts (in state services and aid to localities) for every $1 of revenue increases. Moreover, the revenue increases that the Governor did propose were overwhelmingly increases in consumption and other regressive taxes and fees. The largest single revenue increase proposed by the Governor, for example, involved eliminating the State's relatively new $110 clothing sales tax exemption and the replacing it with four one-week exempt periods. Moreover, as the Governor's budget was reviewed by the Legislature and outside observers it became clear that many of the proposed cuts in aid to localities would have to be made up, at least in part, by property tax increases.

At the time, the Governor attempted to justify these policy choices by asserting a relationship among taxes, government spending and the economy that is inconsistent with basic economic principles, and by presenting an incorrect rendition of New York State's economic history.

The Legislature's Better Budget Choices

Fortunately, for the state's economy and for the economic well being of New York residents, the Legislature did not go along with the Governor's recommendations. Instead, the Legislature adopted a much more balanced approach to balancing the state budget, relying more heavily on revenue increases than the Governor had originally recommended and reducing many of the spending cuts that had been recommended by the Governor. The Legislature appropriately enacted a series of temporary tax increases - some for two years and some for three years - that would allow the state to weather the downturn in the economy in a way that would not prolong or exacerbate that downturn, the way that the budget choices of the early 1990s had done.

Most significantly - and most at odds with the Governor's rhetoric - the Legislature understood that during a recession, neither tax increases nor service cuts are desirable. But that in such a difficult situation, the least damaging approach to budget balancing involves increasing taxes on the portion of income that is least likely to be spent in the local economy; in other words, increases in the portion of household incomes over some relatively high level. Putting this economic reasoning into practice, the Legislature enacted the first increase in the state's top income tax rate since 1972. Between the late 1970s and 2003, the state had reduced the state's top income tax rate from 15% to 6.85%, with that top rate of 6.85% applying to taxable incomes over $40,000 for married couples and over $20,000 for single individuals. In 2003, the Legislature moved in the opposite direction - establishing two temporary higher brackets for the 2003, 2004 and 2005 tax years. The Legislature set a temporary top rate of 7.7% for taxpayers with taxable incomes over $500,000 for all three years, and a temporary second rate of 7.5% (declining to 7.375% in 2004 and 7.25% in 2005) on the portions of taxable income over $150,000 for married couples and $100,000 for single individuals.

Ten days after the original legislative passage of its budget package, the Governor vetoed the Legislature's bill to raise state taxes, authorize transitional borrowing and allocate school aid and line-item vetoed 118 spending additions. Within 20 hours, the Legislature overrode every one of the Governor's vetoes on a bipartisan basis.

Rhetoric vs. Reality

At the time, the Governor argued that the Legislature's approach to balancing the state budget would have terrible economic consequences. On May 6, 2003, for example, the Governor issued a press release with the following lead paragraph: "Governor George E. Pataki today announced that the fiscally irresponsible budget passed by the State Legislature will harm New Yorkers by imposing the largest tax increase in the history of the State -- a tax increase that will lead to massive job losses and a projected $13 billion budget shortfall in the upcoming two years."

As we now know, the Legislature's approach to closing the unprecedented $11.5 billion budget gap has proven to be much more economically sensible than either the approach taken by the state during the early 1990s or the approach (which would have been, in large part, a re-run of the choices of the early 1990s) recommended by the Governor in the early 1990s.

In January 2004 and January 2005, the state faced projected budget gaps, but these gaps were the result of the multi-year approach that the Governor had recommended (and that the Legislature had agreed to) for addressing the $11.5 billion budget gap that it faced in early 2003. In each of these years, the state faced the loss of the various one-time actions that had been used to balance the prior year's budget. By January 2005, it was clear that underlying revenue growth and underlying expenditure growth were coming back into balance. And, during the course of the 2005-06 fiscal year, economic and revenue growth accelerated to the point that the state is now projected to end the fiscal year with a surplus of at least $2 billion.

In discussing the current budget surplus, the Governor has said that "This is a dramatic turnaround from last year when we were looking at a $4 billion deficit. It just shows that good government policies like reforming and controlling the cost of Medicaid and putting in place economic policies where our economy is expanding and growing have led to higher revenues and lower costs." In listing the policies that contributed to the surplus, the Governor leaves out the most tangible factor - the temporary tax increases that were enacted in 2003, over his veto. These tax increases not only contributed to the state's fiscal stabilization but they prevented counterproductive service cuts and they clearly did not have the negative economic consequences that the Governor predicted in 2003. Over the course of the 2003-04, 2004-05 and 2006-07 fiscal years, the temporary tax increases raised a total of almost $7 billion dollars, with $2.2 billion of that total coming into the state treasury in 2005-06 alone. If it were not for this $2.2 billion in tax revenue, the state would not be ending the current fiscal year with a $2 billion surplus.

The 2006-07 Executive Budget proposes to put New York State back on the multi-year tax cut treadmill.

The 2006-07 Executive Budget includes tax cut proposals that take effect over the course of the next six years and which would put a significant lien on future resources. The Governor's plan calls for the enactment this year of a series of tax cuts that he estimates would reduce state revenue by $927 million in 2006-07 and by $4.5 billion in 2010-11, the fourth year of the next Governor's term. But the full impact of some of these tax cuts would not be felt until even later. For example, the fully-implemented $1 billion annual cost of the proposed repeal of the state estate tax would not be realized until a year or two after 2010-11.

The Governor's justification for these tax reductions is that past tax reductions explain the state's current economic recovery and its current budget surplus. This, however, is a false and misleading rendition of the state's recent economic history. The large tax reductions of the late 1990s did not inoculate New York from the economic downturn at the beginning of this decade, and the recent economic rebound and the current surplus have both come to pass in the face of tax increases that the Governor, in 2003, claimed would destroy the state's economy. Moreover, the large multi-year tax reductions of the late 1990s made it much more difficult for New York to deal with the challenges it faced in 2001, 2002 and 2003 than would have been the case if New York had been more realistic in its enactment of multi-year tax cut promises.

Taken together, the tax cuts enacted in Governor Cuomo's last year in office and in Governor Pataki's first six years are reducing state revenues by about $15.4 billion during the current fiscal year alone. Cumulatively, to date, these tax cuts have reduced state revenues by $108 billion, and they are estimated by the Governor to reduce state revenues by a cumulative $196 billion by the end of the 2010-11 fiscal year. While the Governor takes great pride in these tax cuts, he never mentions the services that were cut, the human needs that weren't met, and the investments that weren't made in order to accommodate the billions in revenues that have been foregone over the last 12 years. The Governor likes to say that this was the largest multi-year tax reduction program ever undertaken by any state in the history of our country. That is true; but if the state had cut taxes by half the amount that it actually did, it would have still been the biggest tax cut in the history of this or any other state and it would have meant less deferred maintenance of the state's physical and human infrastructure.

What the Governor also says, which unfortunately is not correct, is that "on a cumulative basis, when all enacted tax cuts are fully phased in, New Yorkers will have realized a savings of more than $167 billion." While state revenues will have been reduced by $167 billion, a much smaller amount will have gone into the pockets of New Yorkers or even into the state's economy. Approximately one third of this $167 billion will have gone to the federal treasury (since personal income taxes, property taxes and all business taxes are deductible on taxpayers= federal tax returns), while large portions will have gone to nonresident individuals and out-of-state and foreign corporations. Thus, the Governor's tax cuts are actually taking more money out of the state's economy than they are pumping back in. This helps to explain the stagnancy of those parts of the state that did not benefit during the 1990s from forces like the boom on Wall Street or the growth of entertainment and "new media" businesses.

Almost all of the state's job growth, before the declines that began in 2001, occurred in the New York City metropolitan area and this growth was overwhelmingly related to the phenomenal good times enjoyed, during the mid and late 1990s, by the financial services sector, professional business services, and entertainment and media. The huge tax cuts did virtually nothing to stimulate growth in the parts of the state that did not benefit from the growth of these industries.

For example, the Governor's Asupply-side@ cuts in the top rates on the personal income tax, which are s now reducing state revenues by over $7 billion per year, did not come close to generating the number of additional jobs that the Governor and his advisors promised. If those tax cuts had delivered the promised job growth, New York State would now have 200,000 more jobs than it actually has. Moreover, if employment had grown as fast in the first six and a half years of the Pataki administration as it had grown in the first six and a half years of the Cuomo administration, New York in August of 2001, right before the September 11th disaster, would have had 185,000 more jobs that it actually had.

Despite this record of non-accomplishment, the Governor expects New Yorkers to believe that the additional tax cuts that he is proposing are just what is necessary to stimulate the Upstate economy. If $108 billion in tax cuts have not had the magical effect that the Governor promised, why does he want New Yorkers believe that additional tax cuts will now do the trick?

While the boom on Wall Street allowed New York State to implement these massive tax cuts without even deeper service cuts than we have experienced and without even less investment in the state's human and physical infrastructure, New York State tax policy, quite simply, had nothing to do with what happened or is happening in national and international financial markets. If New York State tax policy had anything to do with what goes on in the financial markets, the financial press would pay a lot more attention to what goes on in Albany and a lot less to the thoughts of former Federal Reserve Bank chairman Alan Greenspan and his recently-appointed successor, Ben Bernanke.

Wall Street is located in New York State and, as a result, the New York State treasury benefits greatly from the incredible bonuses and capital gains that it generates. But those revenues are going to cover the revenue losses from the overly ambitious multi-year tax cuts enacted in 1994 through 2000 rather than to investments in the state's human and physical infrastructure. Because of these large multi-year tax reductions, New York has missed the opportunity to address the huge disparities in socioeconomic well-being that plague our state and to help build a stronger and larger middle class. The new round of multi-year tax cuts being proposed by the Governor will only make this situation worse.

Education

It has longed been realized that education is the foundation for success. It is the primary component in creating accomplished citizens. New Yorkers are counting on the state leaders to commit to creating a strong foundation for our children.

In 2004, the Campaign for Fiscal Equity court appointed masters recommendation stated that $5.63 billion in operating aid over four years is required in order to provide a sound, basic education for New York's children. Additionally the court appointed masters' recommendation included $9.2 billion for capital improvements. A sound basic education has been ruled as a constitutional obligation of the State of New York and thus must be provided.

Because the case was brought by New York City parents and only addresses the needs of New York City schools, the Court could not direct the State to consider similar problems in other parts of the state however, the Court suggested that the State can use this as an opportunity to correct the system statewide.

Providing the proper resources will allow our children to meet the higher standards the State has set for them. Our children must be equipped with the knowledge and skills essential to compete in today's global economy.

Judged by the standard of compliance with CFE, the Governor should be proposing an increase in school aid in 2006-07 of well over $2 billion rather than the $634 million increase (3.9%) he has proposed. Further, $375 million of the $634 million figure has been designated by the Governor as "Sound, Basic Education" (SBE) Aid, to be allocated later by the Division of the Budget under a formula to be determined by the State Budget Director, rather than through the legislative process. The actual proposed increase in basic operating aid is only $259 million, a mere 1.59% increase.

The Governor projects a budget surplus for this year of $2 billion, and the Senate puts the surplus at $3.3 billion. Even the lower $2 billion estimate would permit us to increase school aid enough to comply with CFE in 2006-07. The Governor has proposed to utilize the surplus to partially fund $4.5 billion in permanent tax cuts geared primarily towards wealthy New Yorkers. The Governor's proposal clear ignores the court mandated Campaign for Fiscal Equity decision.

The Governor "STAR Plus Rebate" cannot be taken seriously as a way to provide property tax relief. It perversely pits property taxpayers against schoolchildren while failing to fundamentally address the cause of the property tax crisis. This is because the rebate -- projected by the Governor to cost $530 million -- is only available to school districts that adopt a spending cap limiting increases to the lesser of 4% or 120% of the increase in the Consumer Price Index. As I previously mentioned, school districts must spend an average of 5.6% more this year just to maintain current programs. Proposing to cap what we invest in our children's education is akin to capping achievement at levels that are already failing to prepare kids for college and today's job market.

Reject the Governor's Education Tax Credit Proposal.

This program is essentially a private school voucher plan that would provide a $500 refundable income tax credit for education expenses for public or private school parents who live in school districts with one or more under-performing schools, as determined by the No Child Left Behind Act. This proposal would deplete the state treasury of at least $400 million -- money that could better be used for a down payment on a settlement of CFE. In addition, the credit would provide a significant proportion of its benefits to families with moderately high incomes, just because they happen to live in a district -- such as a large city -- with at least one school that is designated as underperforming.

Overview

The 2006-2007 Executive Budget provides for an increase of approximately $275.32 million in formula aid Statewide. This is coupled with a reduction of $16.52 million in categorical and other aids for a net school year increase of $259 million. The adopted plan directs approximately 50 percent of the overall formula aid increase to the Big 5 and once again includes $324.87 million in support for Sound Basic Education Aid with $221.62 million, 68 percent, targeted to the Big 5. The Governor also provides for an additional $375 million in Sound Basic Education Aid to be placed in a reserve and distributed pursuant to a plan not yet established.

The following is an outline of the major provisions of the 2006-2007 Executive Budget as it relates to elementary and secondary education. Please do not hesitate to contact the Big 5 office should you have any questions.

Formula Based Aids

Sound Basic Education Aid: Increased by $375 million to $700 million. $324.87 million will be allocated in the same manner as it was in 2005-2006. The additional funds will be placed in a reserve to be distributed pursuant to a plan not yet put forth.

Flex Aid: Maintained at $8.5 billion with prospective increases for districts demonstrating improved performance on Statewide tests. In addition, districts capping their school spending in 2006-2007 will receive a 2% bonus in the 2007-2008 school year.

Tax Limitation Aid: Increased by $47.66 million to $182.72 million. Current year funding is continued and additional funds are distributed based on two additional tiers.

Public Excess Cost Aid: Increased by $131.29 million to $2.53 billion. The ceiling range for aid is increased from $2000-$8500 to $2000-$9250.

Private Excess Cost Aid: Reduced by $97.96 million to $120.07 million. The Governor proposes cutting the average State Aid ratio from 85 to 49 percent, the same as that used for public schools.

Special Services Aid (Big 5 funds for Career Education and Computer Services: Funded at present law level of $142.63 million.

Transportation Aid: Funded at present law level of $1.3 billion.

Growth Aid: Funded at present law level of $7.73 million.

Textbook Aid: Funded at 2000-2001 per pupil amount of $57.30.

Computer Software Aid: Funded at 2000-2001 per pupil amount of $14.98.

Hardware and Technology: Funded at present law level of $29.03 million.

Library Materials Aid: Funded at 2000-2001 per pupil amount of $6.00.

LADDER: Funded as follows:

• The Universal Pre-K program is maintained at $202 million.

• Early Grade Class Size Reduction Aid is maintained at $139.39 million.

• Full-Day K Conversion Aid is funded at present law level of $2.19 million.

Building Aid

The Executive Budget provides a total of $1.59 billion in present law funding for Building Aid. The Governor also proposes providing districts with a Wicks Law exemption and simplification of the formula relative to cost allowances and space needs, authorizing districts to use the Dormitory Authority for advisory services and streamlining New York City's procurement processes. Payment reforms enacted in 2005-2006 are continued and the calculation of payments for BOCES projects and New York City are aligned with those elsewhere.

The Executive Budget also provides for expanding partnerships between school districts and State agencies such as the New York State Energy Research and Development Authority and the Office of General Services in order to promote energy efficiency and reduced telecommunications costs.

Big 5 Grants

School Health Services - NEW: $5.77 million to support school health services in the Big 4 to be distributed at follows:

Teacher Support Aid: Funded at last year's level of $67.48 million with distribution as follows:

Categorical Reading: Maintained at $63.95 million with distribution as follows:

Improving Pupil Performance: Maintained at $66.35 million with distribution as follows:

Magnet Schools: Maintained at 2005-2006 level as follows:

Fiscal Stabilization Grants: Increased by $40.20 million to $44.14 million with the increase targeted to New York City.

Other Grant Programs and Aid Categories

Engineers of the Future - NEW: Funded at $5 million to enable 500 middle and high schools to offer pre-engineering programs.

Summer Institutes for Math and Science - NEW: Funded at $5 million including $2.5 million for summer math and science programs at community colleges for middle school students and $2.5 million to support university-based programs to assist math and science teachers with competency in state-of-the-art technology, equipment and pedagogy.

Academic Achievement Awards - NEW: Funded at $500,000 for awards to schools demonstrating educational performance and operational efficiency.

Employment Preparation Education (EPE) Aid: Decreased by $6 million to $90 million.

Targeted Pre-K Program: Maintained at $50.2 million.

Homeless Children: Maintained at $6.48 million.

Incarcerated Youth: Maintained at $16.5 million.

Bilingual Education Grants: Maintained at $11.2 million.

Education of OMH/OMR Pupils: Maintained at $34 million.

Learning Technology Grants: Maintained at $3.29 million.

Bus Driver Safety: Maintained at $400,000.

Other Aid Programs

Civility, Citizenship and Character Education Curriculum: Maintained at $475,000.

Health Education Program: Maintained at $750,000.

Teachers of Tomorrow: Increased by $5 million to $25 million with the increase targeted to recruitment incentives and tuition reimbursement for math and science teachers entering the teaching profession by means of alternative certification. Up to 60% of the total funds, $15 million, are earmarked for New York City.

Charter Schools Stimulus Fund: Maintained at $6 million.

Basic Education for Public Assistance Recipients: Maintained at $2 million.

Extended Day and School Violence Prevention Programs: Maintained at $30.2 million.

New York State Center for School Safety: Maintained at $475,000.

Teacher Resource and Computer Training Centers: Reduced by $20.67 million to $10.33 million.

Mentor Teacher Internship Program: Reduced by $4 million to $2 million.

Preschool Special Education: Funded at present law level of $635 million. In addition, reimbursement for evaluations would only be provided when they are performed by school districts and not by private providers.

Primary Mental Health Project: Maintained at $970,000.

Transferring Success: Maintained at $629,800.

Workplace Literacy: Maintained at $1.38 million.

Adult Literacy Education: Maintained at $3.32 million.

Urban-Suburban Transfer Program: Maintained at $1.13 million.

Children of Migrant Workers: Maintained at $90,000.

Apprenticeship Training: Maintained at $1.83 million.

Consortium for Worker Education: Maintained at $11.5 million.

Advantage Schools: Increased by $7.3 million to $27.5 million.

SURR Schools: Maintained at $1.9 million.

Regional Center for Autism at SUNY Albany: $500,000 for services and expenses is shifted to be provided within the federal IDEA appropriation.

Other Programs

STAR: The Governor provides an increase of $49 million for a total funding level of $3.4 billion for the existing STAR program. The Governor also proposes a new STAR Plus program totaling $530 million that would provide $400 rebate checks to homeowners in school districts that restrain spending growth within amounts specified. In addition, a cost of living adjustment would be put in place for the STAR exemption for eligible senior citizens.

Charter Schools: The Governor proposes raising the cap on the number of charter schools from 100 to 250 and clarifying that conversions authorized by the Chancellor of New York City do not count against the statutory limit. He also proposes expanding the entities authorized to grant charters to include not-for-profit organizations approved by the Board of Trustees of the State University of New York. In addition, charter schools would be eligible for building aid in the same manner special act districts are with State reimbursement for 49 percent of allowable costs for school construction and leases and charter schools would be able to access the Dormitory Authority for financing and construction management services.

Education Tax Credit: The Governor proposes providing a $500 refundable income tax credit to families with incomes below $90,000 in school districts with underperforming schools to support eligible education expenses such as tutoring. The program is estimated to cost $400 million in 2006.

School Business Officials: The Governor would require, prospectively, that school business officials obtain a master's degree including 24 credit hours in finance or accounting, complete a school finance-related internship and participate in ongoing professional development activities.

Ethics for School Employees: The Executive Budget would require school districts to adopt an employee code of ethics prohibiting the use of school district resources for personal gain. School boards would be required to regularly approve and submit these documents to the Office of the State Comptroller and the State Education Department and all employees would be require to read the document and sign a statement affirming they have read and understand the document. School audits would include reviews of compliance with code of ethics requirements.

Tenured Teacher Hearings: The Executive Budget would reassign the costs associated with tenured teacher hearings to local school districts.

Syracuse Joint School Construction Board: The Governor's budget puts forth language providing for an alternative mechanism for the reconstruction of school buildings in the Syracuse City School District through creation of a Joint Schools Construction Board.

One Year Extensions: The Executive Budget provides for a one-year extension for the Big 5 special education class size flexibility language. In addition, provisions pertaining to Chapter 1 advances and public pension accruals, as enacted last year, are continued for 2006-2007.

* Districts are provided with the same SBE aid for 2006-2007. An additional $375 million in SBE aid is included in the Governor's proposal to be distributed pursuant to a plan that has not been established.

Higher Education

As time changes, it comes as no surprise that societal demands will follow in a parallel pattern. In today's society, the demand for a higher education has never been more severe. There is a substantial connection between higher education and a successful and flourishing lifestyle. This clearly explains the current urgency that many individuals are experiencing and the reason that they are longing for a college education. Unfortunately, it is nearly impossible for many of those individuals to realize their aspirations of obtaining such an education. That obstacle for many of those in pursuit of knowledge in the State of New York is due to various reasons; one of which is the cost of a college education. Due to this reason, many families are forced to rely on other forms of payment such as grants, scholarships, but most realistically loans.

A strong education system would certainly benefit New York State's economy. Firstly, it would provide economic growth and also establish highly trained professionals in our workforce. New York's economic state is often unstable, and during these periods of economic instability, more students attend college as a way to meet the requirements of an increasingly competitive job market. Consequently, for the past 50 years, New York's Public Universities (SUNY and CUNY) have taken on the load of educating the less fortunate and low-income students.

The City University of New York (CUNY) was established as a municipal college system in 1926. In 1961, the legislature designated the municipal system as the CUNY. There are nineteen Campuses, including nine senior campuses, seven community colleges, one technical college, a graduate school and an affiliated medical school.

The State University of New York (SUNY) was created in 1948. It consists of sixty-four campuses including four university centers, thirteen university colleges, two independent health centers, and four specialized colleges of technology, five statutory colleges, six colleges of technology and thirty community colleges. The University of the State of New York was created because Governor Theodore Roosevelt considered it as "well nigh unanimous opinion [that education should be] unified for the sake of greater efficiency, economy and entire harmony." This certainly does not apply to governor Pataki's approach.

New York's great strategic advantage today is in the educational and cultural institutions such as the University of the State of New York (SUNY). Through these institutions, New Yorkers of all ages gain the knowledge and skills that are indispensable as they face a global environment that is challenging in every way.

For more than a whole decade now, costs of acquiring a post secondary education have taken an upward shift. During his time in office, the Governor managed to increase tuition by 65 percent; allowing state support for community college funding to decline to the lowest it has ever been in thirty years For example, in the 1993-1994 school year, the nationwide average cost to attend a two-year public school, including tuition fees and any other academic-related expenses was $1,509. In 2005-2006 that cost has escalated to $2,850, and for four-year public schools, the pattern is similar. For example, during the 1995-1996 school year, the tuition averaged $3,400, which was an increase of 28% from the previous academic year. Today, the average cost of tuition in a 4-year public school in New York State is around $4,500.

The Governor's budget proposal for higher education for the year 2006-07 may be the best of the worst since he came into office in the 90's. However, that modest increase in community college does not draw near the amount obligated for New York State under the law. This upcoming school year tuition is expected to increase at least $500 at the SUNY level and $300 at the CUNY level. The tuition for a student to attend SUNY would likely increase more than $1,000 over the next four years, and a CUNY student would see their tuition go up more than $750. The state should be providing community colleges with a minimum of $50 million more in aid; however the governor only proposed $18.7 million- a shortfall of more than $31 million.

Moreover, he proposes an extremely drastic cut to TAP, one of the most helpful assistance programs to some of New York's most helpless students. The Higher Education Services Corporation administers the Tuition Assistance Program (TAP), which is similar to other state and federal aid programs. The New York State TAP helps qualified New York residents afford tuition at approved schools in New York State. Depending on the scholastic year in which the student begins study, a TAP award can be up to $5,000 and because TAP is a grant, it does not have to be paid back.

However, there are some requirements to receiving this assistance. For example, students without a high school diploma are not eligible for this grant. In addition, under Pataki's new proposal, in order to be eligible for TAP, students are required to be registered for at least 15 credits, which is his new proposal for full-time status. Conversely, students who are registered for 12 credits, which is the nationally recognized credit amount for full time status, will only receive 80% of their full award. Moreover, students who are in default on any Stafford loans will not be qualified either.

During his terms as Governor, Pataki has consistently proposed deductions from the education budget. In his 1996-97 proposal, he offered a $125 million cut, and correspondingly, in his budget for the fiscal year of 2006-2007, Pataki recommends reducing funding for TAP by $189.9 million. Thus, a student attending a SUNY school, with a family with a Gross Annual Income of $35,000, would receive about $3,332 in the academic year of 2004-05. However, in the year 05-06, that same student would receive $1,911 in TAP assistance, which is about a 43% decrease. Consequently, his proposals continuously present complications for students from low-income families.

EOP Education Opportunity Program

The Educational Opportunities Program (EOP) seeks to provide admission opportunities for economically and educationally disadvantaged students of all races who are residents of New York State. While students and families are expected to assist themselves financially as much as possible, the university realizes that most students admitted to the EOP require almost full support through available grants, scholarships, jobs and loans. The program provides supportive services designed to help students who need assistance in academic, financial, social and personal matters. One objective of the EOP is to see that each student admitted is provided with all the services and assistance necessary for success in whatever degree program he or she is to complete. The ultimate goal of the program is to make higher education possible for students who lack the normal credentials for college admissions, but who have the potential and motivation for academic success. EOP students perform at the same or at a higher rate than other students who are not in EOP.

The Executive recommends $17 million in funding for the education opportunity program in the 2006-20007 budget. The Governor did not cut the EOP program this year but it has not been funded adequately in years past to accommodate the constantly growing enrollment. The Education Opportunity Program requires an addition $1.7 million do continue current services.

HEOP-Higher Education Opportunities Program

HEOP education funding appropriated to be used by independent colleges to expand opportunities for the educationally and economically disadvantaged. This upcoming year the governor proposes to maintain the Higher Education Opportunity Program (HEOP) at $22 million. HEOP requires $2.2 million in additional funding in order adequately meet the needs of the students participating in the program.

SEEK

CUNY's Search for Excellence, Education and Knowledge (SEEK) program was proposed to be $14.6 million during 2006-2007. A 10% increase in the governor's proposal is necessary for SEEK to continue to provide the services required by the economically and educationally disadvantaged students that are enrolled in this successful program.

STEP and C-STEP

The Science and Technology Entry Program (STEP) and the Collegiate Science and Technology Entry Program (C-STEP) are intended to help increase the graduation rates amongst students who wish to pursue careers in technical or licensed vocations. For STEP, student eligibility entails being a NY State resident, for at least two school year terms while enrolled in the 7th grade until the 12th grade. They must also be under-represented in the fields in which they are interested, such as technical, scientific and licensed professions, in addition to being economically inconvenienced. This program has received a recommended funding amount of $19 million in the Governor's proposal. The Governor has proposed an increase in recommended funding for STEP/CSTEP. This increase is long over due and should be supported.

CSTEP is a program that increases career awareness by having career development conferences, increasing graduate school and professional recruitment opportunities. It is targeted for minority students who are NY residents, economically disadvantaged and who are enrolled in licensure qualifying programs. CSTEP enriches mathematics and science instruction, and provides students with standardized graduate school test preparation. As a result, more than 70% of students matriculate in science, technology and health related fields. Also, student as part of this program perform better than their peers, and graduate at a higher rate than the latter.

Health, Elders, and Families

Health Care

The Governor's SFY 2006-2007 budget cuts health care funding by $1.3 billion. This decrease in funding is detrimental to the quality of health care for our most vulnerable populations, including the elderly, low-income families, the disabled and children.

The Governor proposed Medicaid cuts that will result in crowded clinic and emergency rooms in poorer communities, along with higher bills for private insurers and patients.

The cuts to Medicaid along with the reduction in Medicare payments to New York hospitals will total $711 million annually, forcing many hospitals to close and many others to cut back services and increase layoffs; forcing approximately 29,700 people of their jobs.

These cuts will cost nursing homes $450 million annually and nursing homes would pay a permanent 6% sick tax, causing the costs for nursing homes to rise.

The Governor also makes proposals to force low-income seniors out of EPIC's low-cost prescription drug coverage plan and charge higher emergency room co-pays for Family Health Plus recipients.

At a time when the Health care Industry is one of the largest employers and is already experiencing critical staffing shortages, the Governor should not be changing the industry only to diminish the quality of health care and further burden the elderly, the disabled and working families.

Medicaid/Family Health Plus

Family Health Plus provides services to many adults, whom without these services would most likely be unable to afford health insurance. This program is expanding and is projected to reach 658,000 individuals by the end of March 2007.

The Governor's 2006-2007 budget proposal provides $1.1 billion to continue the initiative to cap local government's share of Medicaid costs and to implement a full takeover of Family Health Plus. The budges includes $530 million to takeover the full local cost of this program.

The Governor's proposal eliminates guaranteed eligibility for managed care and Family Health Plus. This proposal includes eliminating the six-month health insurance coverage guarantee for enrollees who are no longer eligible for Medicaid managed care or Family Health Plus because of changes in employment status, enhanced earning or other factors. These changes will deprive recipients of access to vital services including; dental, vision, hospice, inpatient and outpatient mental health care and alcohol and substance abuse services. These detrimental changes are coupled with the increased co-payment for emergency room visits, which most recipients are unable to afford.

The Governor further disregards working families who may otherwise be eligible for the programs services by proposing to prohibit enrollment to anyone who works for a large employer (over 100 employees), even if the employer does not offer health insurance coverage for all employees. This will drastically increase the number of working adults who are uninsured and who cannot afford any of the more expensive alternatives.

These proposals will limit and possibly completely eradicate access to affordable health care for the working family population and prospective program recipients.

The Governor should be working to improve this important program that taxpayers have been paying to fund. The services currently provided by this program are extremely helpful for the working families of our state. As stated previously, without these services, many more would be uninsured.

Families in New York should be secure in knowing that there is affordable health care available to them and their families. With these changes to this program, many working families will be forced to pay more for health care service and challenged to choose between necessities; one being healthcare.

Long-term care/Home and community based care

The hospital cuts contain State share Medicaid cutbacks and provider assessments totaling approximately $431 million for hospitals and approximately $200 million for nursing homes. These cuts will greatly affect the long term care of these needy populations and will result in the closing of many of these facilities.

An important component of the Governor's proposal is shifting away from costly institutional care to community alternatives. The Governor's budget includes an increase in funding of $15 million to $50 million to invest in the Expanded In-Home Services for the Elderly program. He also proposes an increase of $5 million to continue the "Access to Home" program and provides $10 million combined with Feral matching funds to expand community-based services. However, the plan still includes short-term Medicaid cost containment measures, and changes in eligibility requirements which unnecessarily cut the availability of community services. The unintended consequences of these policies would reinforce the institutional bias and promote costly institutionalization.

The eligibility rule changes, as proposed by the Governor, would result in many elderly and disabled unable to receive the long-term care needed for successful or desired living situations. In some cases, the reform would cause many seniors to be deemed ineligible for Medicaid, putting needed health care at risk.

Spousal refusal is the option to refuse to contribute to your spouse's health care if that spouse is in a nursing home. This spousal impoverishment budgeting rule helps protect some of the spouse's income and assets from Medicaid, allowing the spouse who remains in the community to maintain a modest amount of savings and income to support their housing.

The Governor is proposing to eliminate this alternative, which could result in many elderly and disabled receiving low quality care, no care at all or possibly involuntary institutionalization and the impoverishment of their families. This may also result in many couples' divorces to ensure affordable quality care of their spouse.

Patient access to cost-effective, quality home care services should be a cornerstone of New York State health policy. Sufficient resources need to be committed to these services to ensure that home and community-based care infrastructure is maintained.

Pharmaceutical Coverage/Prescription Drugs

The Governor proposes to save the State's Medicaid program $130 million and EPIC $42 million in 2006-2007 by coordinating the EPIC benefit with the Medicare Part D prescription drug benefit. Although the savings that come from this conjure are great for the state, the dual-eligible population, the elderly and the disabled eligible for both Medicare and Medicaid, will be most adversely affected by the implementation of the Medicare Part D benefit.

Since the inception of this program, January 1, 2006, approximately 91,000 vulnerable seniors have had to give up their benefits under EPIC and enroll in the federal drug benefit plan. This dually eligible population lost Medicaid prescription drug benefits under the new law because Medicare Part D does not allow Medicaid dollars to be used to supplement the drug benefit.

The Governor has also repealed a law to post prescription drug prices on the Web, to help New Yorkers find the best prices on their medicines. This causes yet another obstacle for the elderly, disabled and low-income families.

The Governor has proposed to strengthen the Preferred Drug Program, which is intended to curb the costs of the prescription drugs for Medicaid recipients. One major problem with the PDL is the authorization method. Under the proposed measures to strengthen the program, the Health Commissioner, rather than the physician, will be granted the final decision in authorizing drugs not included on the preferred drug list. This will restrict individuals' access to needed medications.

Under this new proposal, pharmacy reimbursement rates will be reduced from 12.75 to 15 percent below the Average Wholesale Price for brand name drugs and from 16.5 to 30 percent below the Average Wholesale Price for generic drugs in both the Medicaid and EPIC programs.

This is the wrong direction for our health care system to be moving in. Access to appropriate medications is critical to stabilizing an individual's health. Limited access to needed drugs could mean the difference between life and death, especially to needy and ill Medicaid recipients.

Public Health/Family Planning

The executive budget makes seemingly positive appropriations for public health services in New York State. The Governor's budget recommends funding to help the State effectively respond to public health emergencies, including $29 million form the Health Care reform Act and $20 million through the General Health Work Program. These funds will allow the State and counties to stockpile necessary medications and supplies and any other equipment necessary in times of State or county public health emergencies.

The executive budget makes an appropriation level of $2.7 billion to preserve and enhance critical public health services. This appropriation includes $232 million for the General Public Health Work program and funds to increase State base grant funding levels by $100,000.

Public healthcare facilities provide many low-income and minority women and families essential services, which they may not otherwise be able to afford or obtain. The executive budget allocates $97.7 million to address women's health care and the nutritional needs of women, infants and children.

Child Welfare

The headlines declare, loudly, that the State's child welfare system is in need of repair. Although significant investments to child welfare have been made by State government, the focus has been on foster care. Little reform has taken place in that component of the system that requires it to protect children from family violence.

The 2006-2007 Executive Budget for the Office of Children and Family Services recommends $378.5 million to support sixty-five percent reimbursement to local social services districts for expenditures incurred from the delivery of child welfare services. This represents a $29.9 million increase for these services. This funding stream, however, must reimburse districts for all child welfare services which include statutory preventive services, independent living services, after-care services, adoption administration and services other than subsidies, and child protective services. These funds also provide the State share of costs associated with home and community-based mental health services, and education and training vouchers. The headlines to which we previously referred, tell us that this funding level might be insufficient.

Multidisciplinary investigation teams, whose responsibility is to investigate and manage reports of child abuse or maltreatment, and child advocacy centers, a non-intimidating place where children can receive coordinated intervention, have been funded at the same level since the 1990's. Previously held constant at $1.5 million, the 2006-07 budget continues additional funding provided by the Legislature in 2005-06, and adds an additional $500,000 to bring funding for these services to $2.3 million.

Child protection is not a system that should be competing for importance. It must be a valued system and deserves to receive the level of funding that will ensure the safety and needs of New York's children.

Recommendations

Many advocates for healthcare have recommended thoughtful restructuring of the State's hospital system and maintaining existing resources to the system. The Governor has opposed these recommendations, as the opposition is reflected in the budget.

Spousal Refusal should be extended to all patients in need of long-term care, whether they be institutionalized or have community home base care. This change will allow seniors and disabled to live at home with their families, as opposed to involuntarily being placed in institutions to avoid the impoverishment of their families.

Advocates for home based and community-based care recommend additional funding for home care programs. The funding should be allocated in an equitable manner across home and community-based care provider programs throughout all regions of the State. The funding should be structured to ensure that all types of agencies are able to access the funding in an efficient manner and agencies should be given enough flexibility to utilize the assistance in a manner that most benefits their patients, workers and agencies.

Advocates for the aging and disabled communities have strongly urged that any State savings in the EPIC program from the implementation of Medicare Part D be reinvested in an expansion of the EPIC program to include the dual-eligible population and make prescription drugs more accessible.

Having a child protective system is good. Having an effective and efficient child protective system is better. Manageable caseloads and proficient administration of the child welfare system are necessary for proper social work, and in the protection of our children. Additional funding is recommended that will achieve those goals.

If New York State establishes a Preferred Drug Program, to help with the costs of prescriptions, many things need to be safeguarded and assured to the consumer; the plan must include strong consumer protections. The program should allow the doctor whom prescribes the drug to the consumer, to ultimately decide what mediation a person uses; and more drug options need to be made available. Instead of restricting access to important medications, New York State should explore alternatives that would result in savings to the New York State Medicaid program without unnecessarily harming the elderly and individuals with disabilities.

Energy

The legislature has help a series of hearings gathering information relating to the sudden increase in the commodity price of electricity, heating fuels and transportation fuels of all types. New York State's economy will be severely impacted by the energy crisis - consumers of electricity, natural gas and fuels of all types will see their bills go up in aggregate by $10 billion this year alone. So far this heating season, the price of heating oil is up 35% and natural gas is up 40% year-over-year. Electricity prices are up by double-digit amounts in many utility service territories. In January, Consolidated Edison consumers paid a startling 30 cents a kilowatt hour. This is on top of the double digit impact consumers experienced last heating season. The lack of a comprehensive energy policy both here in Albany and in Washington has put energy consumers - especially low-income consumers - at risk.

As we learned at the hearings, a two-prong approach is necessary to address the effects of the price crisis: in the short-term, assist our most vulnerable citizens and our vital institutions to weather the crisis this heating season; and, in the long-term, provide incentives for more long-lasting programs to help consumers reduce usage and better control energy costs.

One of the most striking conclusions from the data compiled from those hearings is that the energy burden - the percentage of income dedicated to paying energy of all types - is heaviest for the poor and working families. On average, those in the lowest quartile of income strata in New York State dedicate over 20 percent of their income to paying energy bills of all types. (As a comparison, those in the next quartile of income strata dedicate on average only 7% of their incomes.) Certainly, this disproportionately impacts people of color who continue to struggle in a society that has yet to fulfill the promise of equal opportunity for all.

After giving the oil industry billions of dollars in subsidies this past summer, the Congress in Washington provided billions of dollars in tax cuts for the wealthiest Americans - $14 billion over 5 years for those with annual incomes in excess of $1 million . In the midst of this crisis, that same Congress cut home energy assistance grants, school lunches and Medicaid. We need to demand that the federal government adequately fund the low-income Home Energy Assistance Program (HEAP) and provide greater incentives for energy efficiency, new technologies and alternative fuels. Unfortunately, Washington cut New York's HEAP allocation by $15 million this year.

As the first order of business this legislative session, the Assembly proposed and passed an appropriation of $200 million to supplement the federal low-income Home Energy Assistance Program. This would have brought total funding for the program in line with the allocation in 1999. Since then, HEAP has been flat-funded during the Bush years. Unfortunately, the Senate Majority and Governor rejected this amount - they negotiated a final appropriation of $100 million that was enacted late in January. The Assembly Committees on Energy, Social Services and Aging held a hearing to ensure that the Office of Temporary and Disability Assistance will quickly disburse these funds to local social service agencies and spend the entire appropriation.

To truly reduce the new energy burden that consumers face this year, we could spend in excess of a $1 billion. Unfortunately, despite our improving fiscal health, we are constrained by the finite resources of the State treasury. However, there are some proposals that we can put forward to address this crisis in the short- and long-term.

We also need to re-engineer poorly run State energy conservation programs. The three-year waiting lists for the federally funded Weatherization Assistance Program and ten-month waiting lists for New York's Energy Smart Program - administered by the New York State Energy and Research Development Authority - are clearly unacceptable. Moreover, NYSERDA has -targeted its programs toward upper-income, suburban constituencies. We need to re-engineer New York State's energy conservation programs, which have been poorly managed and ineffective for low-income and working class New Yorkers.

It is very important to utilize Community-based Organizations (CBOs) and not-for-profits to implement effective weatherization and conservation programs. An Energy Conservation Corps, created through pilot programs at community colleges and universities, which would train students and dislocated workers to conduct audits for residential and small business consumers, could, in part, respond to the three-year waiting list for low-income weatherization program and a ten-month wait for the Energy Smart Program due to the shortage of skilled workers.

Justice & Legal Services

Criminal Justice Services

New York State prisons remain overcrowded with a disproportionate number of minorities serving sentences as the result of the Rockefeller Drug Laws. The causes for this minority jail population are largely due to difficulty securing adequate representation as counsel and drug prevalence in urban communities. Two years ago the Legislature was able to accomplish some reforms to the Rockefeller Drug Laws but these reforms do not go far enough. The Rockefeller Drug Laws require comprehensive reform.

Incarceration remains a costly and ineffective manner to address chemical dependencies. Many prisons still lack programs that assist inmates in dealing with the addiction that has lead to their incarceration. This situation leads to high rates of recidivism as the inmates are not prepared to deal with their addiction when they are released from prison.

With the recent implementation of alternatives to incarceration programs and drug treatment facilities, non-violent offenders are returning to the community rehabilitated, saving the State $90 million.

In recent years, Drug Courts have begun to help divert low-level drug offenders away from prisons into rehab programs. These programs ensure that these offenders receive the treatment they desperately need while ensuring they receive appropriate supervision. While Drug Courts and the changes in the Rockefeller Drug Laws from 2004 are a step in the right direction, they are no substitute for comprehensive reform of the Rockefeller Drug Laws. Governor Pataki promised to dramatically reform the State's Rockefeller drug laws. His proposals do not represent adequate reform.

It is important to consider the establishment of a state public defense commission. It would go a long way toward 1) providing client-centered representation, 2) decreasing racial disparity, and 3) ensuring equal justice to those unable to afford counsel.

The Death Penalty

Opponents of the death penalty believe it should not be reinstated on moral grounds, because human life is sacred, because it is racist and because of the risk of killing the innocent. Current law has a maximum sentence of life imprisonment without parole (LWOP) and if nothing is done legislatively, the decision in People v. LaValle will make LWOP our highest punishment for first degree murder.

The death penalty is also inordinately expensive. In the decade that we have allowed capital punishment to divert money and resources from local and State treasuries, conservative estimates are that we have spent more than $170 million to obtain seven death sentences. Assuming that figure to be correct, each death sentence has cost $24 million to achieve. There are many more important uses for the money than to try to kill human beings with it.

The Conversion of the Capital Defender Office to Help Counties Provide Defense Services

In the process of redirecting death penalty savings to non-capital expenditures, it has been recommended that the Capital Defender Office be converted into an Indigent Defense Services program. This proposal has much merit and should receive consideration. Instead of simply closing the Capital Defenders Office using its highly talented staff to address the crisis in indigent defense services that is plaguing our counties, it would be a far more efficient use of the existing structure and experienced personnel. Rather than close the office and throw the talents and state money already spent down the drain, if the death penalty is not reinstated, the Capital Defender Office should be used to help provide indigent defense services in this understaffed, overworked system.

The CDO, converted into a resource to provide county fiscal relief and constitutionally required services, could handle non-capital first-degree murder cases. It could be available - as some have requested - to handle now decertified capital cases (See, "Changes urged for Capital Defenders," Press Republican, 10/12/04 [suggesting that the CDO stay with cases until the end, whether the death penalty is sought or not]. It could contract with counties that need its help, handle SORA or Rockefeller re-sentencing currently required by law but is not funded. Alternatively, the office could be used by the Appellate Divisions to handle the terrible backlogs that frequently emerge in indigent appeals.

If the death penalty is not reinstated, the conversion of this important defense resource should be a number one priority as the state moves forward.

The State could assist counties, jumpstart the journey toward an adequate defense system, and fulfill its long-neglected constitutional obligation by immediately converting the Capital Defender Office into the beginning of an infrastructure for providing state-funded defense assistance.

The Capital Defender Office - with function and name changes - could immediately be placed at the disposal of counties to provide mandate relief for what for them has become a fiscal and constitutional crisis - the required delivery of public defense services.

Programs That Have Requested Restorations

Civil Legal Services:

In 2005, the Assembly was able to add almost $2 million in much needed funding for civil legal service programs. The funds were made possible by the new Legal Services Assistance Fund, which was established in 2004 as part of the law increasing assigned counsel rates. The new fund is generated by the increase in the fee collected by the Office of Court Administration for criminal history searches. This critical new aid will fund programs providing civil legal services to children, domestic violence victims and the elderly. As in past years, the Assembly in 2005 restored approximately $4.6 million in additional funding in the State budget to support civil legal service programs throughout the state. This worthy program should be continued to serve our states residents.

This program's service could be expanded with an increased appropriation from the "legal services assistance fund" (state finance law section 98-c). $4.6 million will be needed to maintain the viability of civil legal services.

New Family Court Judges

The creation of new family court judgeships should be a priority. Family issues - foster care, domestic violence, child abuse and neglect, juvenile delinquency - continue to account for about a fifth of the case load - roughly 800,000 new filings in the year 2005. However, in 2005 the Legislature passed comprehensive legislation to provide for permanency planning to protect vulnerable children (Chapter 3 of the Laws of 2005). This substantially changes Family Court processes for children in out-of-home care, both in foster care and direct placements. The legislation provides courts with continuing jurisdiction over children in foster care, reforms the laws that govern permanency planning, and establishes court scheduling, rather than agency petitioning, as the mechanism for ensuring that all children have on-time permanency hearings. This legislation will significantly improve outcomes for children in foster care.

However, it also imposes significant additional burdens on the already greatly-burdened Family Courts across the State, particularly in New York City where 35% of child protective filings are processed. In the last few years as part of a court reform package, the Assembly Majority has proposed to add 25 new family court judges across the State, including 10 new judges in New York City. It is important that the Legislature act on adding additional Family Court Judges. In her 2005 State of the Judiciary address, Chief Judge Kaye called for an increase in Family Court Judges and stated she intended to submit a plan to the Legislature. This did not occur in 2005. While new judgeships were added in 2005, they were mostly for the Court of Claims and only included one new Family Court Judge. There remains a need to create new Family Court Judgeships in the most critical areas of the State based upon OCA's 2005 study of judicial needs.

Advocate's Recommendations:

* Restore the State Appropriation for civil legal services to 100% of the 2000 level, or $7.4 million. For the past three years, funding has remained at $4.6 million, just 65% of the 2000 appropriation.

Work with the State Bar and Chief Judge Kaye to identify a permanent, stable funding stream for the support and provision of civil legal services.

Immigration

Immigration recommendations brought forward by Advocate groups include:

1. Help Immigrants Integrate Into U.S. Society

• Establish a "Welcome to New York" initiative for new immigrants. Provide funding to offer beginner English/civics classes, assistance with immigration requirements, job referrals and other services needed to assist newcomers to integrate successfully.

• Increase funding for citizenship services to increase the availability of community-based services as changes in the citizenship process fuel demand for assistance.

• Expand capacity of not-for-profit agencies to meet growing demand for immigration-related legal services after enactment of legislation prohibiting immigrant consultants from providing legal advice by providing grants for sliding fee scale services.

2. Protect the Rights of Immigrants

• Enact legislation to permit all New York residents, regardless of immigration status, to receive drivers' licenses and non-drivers' identification cards. Permit immigrants without Social Security Numbers to substitute other forms of identification, including matricula and passports to prove identity, and eliminate immigration status requirements.

• Seek legislation or change in state administrative policy to limit local and state police enforcement of civil immigration laws, including restricting localities from "deputizing" local police to perform immigration functions.

• Pass legislation requiring courts to notify non-citizen defendants that acceptance of a guilty plea for misdemeanors and violations could constitute grounds for deportation, and to permit judicial review of a guilty plea if the non-citizen is not so advised of the possibility of deportation.

3. Support Justice for Immigrant Workers

• Enact legislation to improve compliance and enforcement of wage and hour laws.

• Fund a public education campaign on the new minimum wage law and on wage and hour enforcement and compliance laws.

• Enact the Farm Worker Fair Labor Practices Act to close the gap between labor law protections provided to farm workers and other workers in New York State.

• Support legislation to provide protections for domestic workers.

4. Remove Language Barriers in Government Agencies

• Encourage state and local health, labor, housing and human services agencies to provide interpreters and translated materials to ensure access to government services by limited-English-proficient New Yorkers.

5. Increase Funding for English Classes

• Increase TANF funding for ESOL services to an annual appropriation of $5 million and maintain a 200% poverty eligibility level.

• Funding for ESOL and adult literacy in the State Education Department budget should be increased to $10 million.

6. Ensure Access to Health Care

• Enact legislation to ensure meaningful language access to hospitals for limited-English-proficient New Yorkers.

• Provide funds through the Health Care Reform Act to expand translation and interpreting capacity at hospitals and other health care providers.

• Establish scholarships and educational incentives to increase opportunities for bilingual, bicultural individuals to enter the health professions.

• Set standards for hospital billing practices, collections practices and charity care; hold providers accountable for notifying communities about affordable options for care, and for working with patients to increase insurance coverage and reduce financial hardship.

• Reject proposed benefit reductions and eligibility restrictions in Governor's proposed budget for Medicaid and Family Health Plus.

7. Restore Access to the Safety Net

• Expand the state Food Assistance Program to cover all legal immigrants who would be eligible for federal food stamps, if not for their immigration status or date of arrival. Eliminate the county option and make the program uniform statewide.

• Expand access to basic education by enacting legislation to allow up to 16 hours per week of participation in education activities, such as (ESOL) and literacy classes, to count towards the welfare work requirements.

• Reject Governor's proposal to reduce Earned Income Disregard and to provide full family sanctions.

8. Improve Education Services for Newcomers

• Reject Governor Pataki's school aid proposal and ensure that a new school funding formula be adopted in response to the Campaign for Fiscal Equity lawsuit and provide adequate funding for English Language Learners. Funding should be increased by $100 million in first year for English Language Learners.

• Support Board of Regents proposal that funding for English Language Learners be provided to school districts through a separate Limited English Proficient Aid category and support increased funding for monitoring and holding school districts accountable.

• Amend the Teachers for Tomorrow program to include bilingual and ESL teachers as eligible for scholarships and loan forgiveness programs, and provide additional compensation and longevity bonuses to enable school districts to recruit and retain certified bilingual and ESL teachers.

• Enact legislation to require an alternative assessment to the English Language Arts Regents exam for recently arrived English Language Learners.

• Increase funding in the bilingual categorical grants program to enable school districts to hire interpreters for key parent-teacher activities and to pay for the translation of relevant school materials for parents.

9. Ensure Preservation and Development of Affordable Housing

• Increase funding for the New York State Division of Housing and Community Renewal's Neighborhood Preservation Program to 2003 funding levels and target new funds to address immigrant housing issues.

• Support increased funding for development and rehabilitation of low-and moderate-income housing.

The Right Choice for New York:
A Fair, Adequate and Economically Sensible Tax System

New York State's budget situation is improving but substantial challenges remain. State revenues are growing fast enough to cover the growth in state expenditures but they are not growing fast enough to make up for the loss of the nonrecurring resources that were used to balance the state's 2005-06 budget and to cover the cost of the new multi-year tax cuts being proposed by the Governor in conjunction with his 2006-07 Executive Budget.

In the current context, it makes no sense for the Governor to be proposing actions that make the state's projected budget gaps larger; and then proposing to address those gaps through large and counterproductive service cuts and through the use of all of the state's most flexible rainy-day reserves for what is clearly a "non-rainy-day" purpose. And all while failing to honor his promise to the courts and to the children of this state to implement a legitimate statewide solution to the Court of Appeals decision in the Campaign for Fiscal Equity case.

Instead, at the first glimmer of budget balance since 2000, the Governor is proposing to create a series of projected budget gaps for future years by urging the Legislature to enact a package of tax cuts that will grow in value from almost $1 billion this year to $5 billion when fully implemented in 2011-2012.

In addition to the limitations that the Governor's proposal would place on the Legislature in balancing future budgets in a manner that is fiscally, economically and socially sensible, his proposals would make changes in the tax system which, despite his rhetoric, would make New York's state-local tax system much less fair than it already is.

For example, the Governor is proposing to eliminate the New York State Estate Tax, something that his supposed idol Theodore Roosevelt fought for as a means of limiting the creation of great concentrations of wealth. The Governor claims that he is just conforming to the changes at the federal level which are increasing the value of estates that are exempt from taxation and then repealing the tax completely in 2009. But those changes were enacted in 2001, and the Governor said absolutely nothing about conforming to them in 2002 or 2003 or 2004, when doing so would have affected the budgets that he was responsible for budgeting. Now , in his last year in office, the Governor is proposing to address this "problem" in a way that will first affect the state treasury in 2007-08 and then grow rapidly to a fully-implemented annual revenue loss of $1 billion per year beginning in 2011-12.

The Governor is also attempting to mislead the public when he says that he is just proposing to conform to the federal law. While the federal estate tax (along with the full credit for state estate taxes paid) is scheduled to come back into operation in 2010, the Governor is proposing that the New York State Legislature fully and permanently repeal the state Estate Tax in 2010. A future Legislature and a future Governor could indeed change course on this, but taking back a tax break of this magnitude once granted would not be easy. The Governor is clearly moving to prejudge the debate that is going on at the national level as to the future of the Estate Tax. This might just be grandstanding by the Governor but, if adopted, it would represent a substantial increase in the regressivity of the New York State tax system.

Here is what the New York Daily News had to say about this proposal in a January 29, 2006, editorial entitled Pataki does a job on the working class:

While denying New York City its fair share of school aid in disregard of a court order, Pataki wants to eliminate over 10 years the tax that New York imposes on the estates of the wealthy after they have died. A bad idea in general, getting rid of this tax is monstrous when you consider how much money is at stake and how few people would benefit.

Pataki's plan would siphon $900 million a year out of the treasury and give $600 million of the money to the beneficiaries of roughly 200 estates. That's $600 million for a very rich and very lucky 200 instead of $600 million to improve the education of 1.1 million children. Pataki says this makes sense because he wants to keep rich taxpayers in New York, and we're not making that up.

The Governor's proposal to repeal the state Estate Tax might explain why he and his staff have embarked on an effort to convince New Yorkers that the wealthiest one percent of New York families carry an inordinate share of the tax burden. They have attempted to do this by pointing out that the wealthiest one percent of New York families pay about 35% of the state Personal Income Tax. But the Governor's disinformation campaign ignores both the distributional impact of other state and local taxes and the wealthiest one percent's share of the income of all families.

As the following table (from a study that applied 2002 tax law to 2000 incomes) indicates, because of the regressivity of sales and property taxes, the wealthiest one percent pay about 20% of all taxes, a share that is reduced to 17% when the deductibility of state and local taxes on federal income taxes is taken into consideration. And while they represent only one percent of all families, they have 25% of the income of all families, a share that increases to 37% of the income not necessary for meeting the basic necessities of life.

Instead of trying to trying to put much of future years' budgets on auto-pilot through the enactment of tax cuts that will take effect gradually over the course of the next five years, and instead of trying to make it more difficult for the state to meet important human needs and important state investment priorities, and instead of engaging in a misinformation campaign intended to convince the taxpayers of this state that the wealthiest one percent of taxpayers carry an inordinate share of the tax burden, the Governor should be trying to leave the state on a sound financial footing. New York State is currently in a position to do just that, but it can not do so if it makes multi-billion dollar, multi-year tax cut promises that require large service cuts and the use of all of the state's most flexible rainy day funds and leaves that state with projected budget gaps of $2 billion for 2007-08 and $4 billion for 2008-08. A much better choice for the future would involve the establishment of a fair, adequate and economically sensible tax system.

New York State's governmental, business, labor and civic leaders should push for federal government policies that make it easier rather than harder for the states to balance their budgets.

New York's government, labor, business and civic leaders should work with their counterparts in other states and at the national level to secure the enactment of federal policies that will make it easier rather than harder for the states to balance their budgets.

1. New York leaders should work to ensure that deductibility of state and local taxes on federal income tax returns is maintained. To eliminate this deduction would mean that taxpayers would be paying a tax on a tax. Federal deductibility of state and local taxes paid is essential to the workings of a federal system such as that which exists in the United States.

2. New York leaders should urge Congress to eliminate the current treatment, under the federal Alternative Minimum Tax, of the deduction for the state and local taxes paid. As Senator Kay Bailey Hutchinson has pointed out, "For those in states with income taxes, their tax deduction benefit has been diminished by the alternative minimum tax, AMT. People can deduct their state and local income taxes when calculating their regular taxes, but not when determining the AMT. The difference often is the reason people must pay the higher alternative tax. In fact, state and local taxes account for 54 percent of the difference between the AMT and the regular tax calculation. This particularly hurts the 60 percent of AMT payers who are from states with higher income tax rates. Eliminating this discrepancy would go a long way toward reducing the number of people affected by the AMT." Congressional Record, February 27, 2003, Page S2924.

3. New York leaders should work to secure Congressional approval of the Streamlined Sales Tax Project to provide the states' with the authority to tax internet and other remote sales. Until this issue is clarified, Main Street retailers who are required to collect sales taxes will continue to face unfair competition from the internet and other remote sellers who under current court decisions cannot be required by the states to do so. Clarifying this issue will also protect state and local treasuries from the loss of increasing amounts of sales tax revenue.

4. New York leaders should work for the repeal of the federal law (P.L. 86-272) that prohibits the states from taxing the income of corporations that have sales but no property or employees in a state. As more states, including New York, move to apportioning income solely on the basis of the portion of a firm's sales in the state (i.e., the Single Sales Factor proposal adopted by New York in 2005 to be phased in over the course of the next three years), P.L. 86-272 (an outdated 1959 law which was supposed to be temporary) has the affect of making an increasing portion of the U.S. income of multi-state and multi-national firms not subject to taxation by any state. At the present time, many of the same corporations that have lobbied for the Single Sales Factor at the state level are working to expand P.L. 86-272 to make even less corporate income subject to taxation by the states.

5. New York State leaders should build regional and national coalitions in support of legislation that would (a) repeal the limit that the Congress enacted in 2000 on the size of the loans that the federal government can make to state and local governments for tax revenue losses directly attributable to presidentially-declared major disasters, and (b) waive the requirement for the repayment of such loans when the losses involved are the result of terrorist attacks. This could provide both New York State and New York City with at least $1.6 in aid to make up for September 11-related tax revenue losses during the 2001-02 fiscal year. No reimbursements have yet been received for these losses even though a review by the U.S. Government Accountability Office (GAO) validated the reasonableness of the Pataki Administration's estimates of the amounts involved.

6. New York leaders should work for a change in the Federal Medicaid Assistance Percentage (FMAP). That percentage which determines the federal share of a state's Medicaid costs is currently based on only one factor - per capita income. On this one factor, New York is a relatively wealthy state and receives the minimum federal share of 50%. But New York's unusual demographics underscore the problems with this formula. While New York, Connecticut and New Jersey, for example, are all among the 10 wealthiest states in the nation in terms of per capita income, when it comes to poverty rates, there is a wide divergence among the three states' situations. According to the Census Bureau's American Community Survey, New York had the 14th highest poverty rate among the 50 states (14.2%), while Connecticut had the lowest poverty rate (7.6%) while New Jersey was ranked 46th among the 50 states with an 8.5% poverty rate.

Reestablishing a Fair, Adequate and Economically Sensible State-Local Tax System for the Empire State

In both the long run and the short run, reestablishing a fair, adequate and economically sensible tax system is a far preferable approach to balancing the New York State budget than continuing to neglect the state's human and physical infrastructure by not investing in the state's future. When polled about state budget priorities, most state voters would gladly forego tax cuts in order to avoid cuts in social programs or the layoff of state workers. While there is a very vocal minority of talk-show callers who take an adamant anti-government position, most New Yorkers understand that the services provided by government make an important contribution to the functioning of the state's economy and the maintenance of essential quality of life services. Most New Yorkers are also supportive of programs that provide a social safety net and assist the needy in effective and efficient ways.

New York State has a great deal of room within which to implement a fair, adequate and economically sensible tax system. The personal income tax is still progressive but it is less progressive than in the past and, thus, less able to balance out the regressivity of the state's property and sales taxes. The state's corporate income taxes have become more and more like swiss cheese. General business corporations for example, have gone from carrying over 10% of New York state's tax load in the late 1970s to less than 4% today. An, this percentage would be reduced much further under the multi-year tax cut proposals being advanced by the Governor in conjunction with this year's Executive Budget.

Rather than moving in the direction recommended by the Governor in the 2006-07 Executive Budget, the Legislature should move to close loopholes in the state's corporate taxes and provide the revenue necessary for implementing a legitimate statewide solution to the Campaign for Fiscal Equity decision without making counterproductive cuts in other parts of the state budget.

Eliminate Tax Breaks that Don't Create Jobs. New York State's annual Tax Expenditure Report shows that business corporations receive over $2.5 billion in tax breaks each year. The Pataki Administration has attempted to solve this "problem" by dropping many of the state's corporate loopholes from this annual accounting. In addition, untold millions more are lost via transfer pricing and other techniques used by large, multi-national corporations to avoid paying their fair share of taxes. New York could reduce leakage from these tax preferences if it were to adopt Acombined reporting@ and eliminate the loopholes that were added to its Corporate Alternative Minimum Tax in 1994.

Combined reporting, as currently required by California, Colorado, Illinois, New Hampshire and the 13 other states, requires a business to file a single combined return for all of its business activities. This prevents profitable multi state and multi national corporations from avoiding state corporate income taxes through accounting trick that shift income and expenses among their numerous subsidiary corporations in order to reduce their overall tax liability by having inordinately large portions of their income show up in subsidiaries that are only taxable in so called offshore tax havens where tax rates are inordinately low, or in states that do not have corporate income taxes, or in states that have corporate income taxes but which do not tax certain kinds of income.

Enact a Corporate Disclosure Law. A growing number of corporations use transfer pricing and a variety of other subterfuges to minimize the percentage of their net income that is subject to tax by any state. New York State should require every publicly-traded corporation that does business in the state to report its gross and net income, deductions and credits, and the amount of New York state taxes paid, much as corporations already do at the federal level. This would allow taxpayers and policy makers to identify companies in the state that may be making profits but, through the use of clever business structures and tax expenditures, are paying little or no New York taxes. Only with that information can the state truly know how well its tax policies are working. The Securities and Exchange Commission, as part of its response to the Enron scandal, should require every publicly-traded corporation to file, as a supplement to its annual report to stockholders, a 50-state spreadsheet that shows its allocation of property, payroll and sales among the states and its tax payments to each of the 5 0 states.

Crack down on schemes that create "Nowhere Income." Multi-state corporations pay no taxes on profits attributable to sales made in states in which they do not have a physical presence. To address this situation, 28 of the 45 states with corporate income taxes, including California, Texas and Utah have enacted "throw-back" or "throw-out" rules to limit this drain on state revenues. New York State should also adopt such a safeguard.

Reform New York's Corporate Alternate Minimum Tax (AMT). Several significant loopholes that favor multi-state corporations were added to New York's Corporate AMT beginning in 1994 and the AMT rate was cut from 3.5% to 2.5% in 1999. These changes should be repealed or the AMT should be replaced with a variation of the Alternative Minimum Assessment (AMA) adopted by New Jersey in 2002. To ensure that such an assessment would not hurt small business, it should only be applied to businesses with annual gross profits of $5 million or more. In this year's budget, the Governor is proposing that the state go in a totally opposite direction and repeal the corporate AMT. If this is done, it means that many large multi-state corporations will be able to use old carried-forward Investment Tax Credits to reduce their tax liability in New York State to zero even if they move jobs out of the state.

Make polluters pay for Governor Pataki's plan to cap greenhouse gas emissions. The Legislature should ensure that the tradable emission permits under Governor Pataki's proposed regional carbon cap are auctioned rather than given away. The proceeds from such an auction (estimated at about $500 million per year beginning when the program is implemented) could be used to mitigate the negative distributional effects on low and moderate income households and to serve other economically and socially important purposes.

Create a fair and equitable personal income tax structure. A legitimate statewide solution to the Court of Appeals' decision in the Campaign for Fiscal Equity case will require substantial additional revenues. The most economically sensible way to raise such revenues would involve reforming the NYS personal income tax structure in a way that ensures that the wealthiest New Yorkers pay their fair share in state and local taxes. The specific approach to be utilized will depend on a number of factors including the overall cost of the remedial plan and the portion of that plan to be financed through a reform of the personal income tax structure. Among the many options available for moving in this direction are the following: (a) continuing New York's 2005 temporary surcharges on the portions of a family's taxable income above $150,000 (7.25%) and above $500,000 (7.7%), (b) adopting the top brackets from New Jersey (8.97% on income above $500,000) or North Carolina (8.25% on income above $200,000); and (c) replacing New York's current bracket structure with its 1972 brackets (2% through 15%) adjusted to reflect the changes in the cost of living over the past 30 years. Under this latter option, 95% of New Yorkers would pay less than under current law while the state would collect $7.7 billion more in revenue. This indicates how far and in what direction New York's tax system has changed over the past 30 years.

Reform the STAR Property Tax Relief Plan. In 1997, Governor Pataki got the message that by cutting the top rate on the state's progressive personal income tax, he was cutting the wrong tax, in the wrong way, at the wrong time. In his 1998 State of the State Address, he put a positive spin on this recognition of the fact that the income tax is a fair tax and that the overwhelming majority of New Yorkers do not feel oppressed by it. "Last year we knew it was time to build on the tax cuts of the first two years. From this podium, I told you that it was time to cut taxes again. Different taxes. Oppressive taxes. Property taxes." It is, however, unfortunate that this focus on oppressive taxes did not take center stage until after the state had cut the income tax by over $4.5 billion a year (now $7 billion a year) with only half of this amount, at most, staying in the New York economy.

While the Governor's STAR plan was aimed at an important problem, it works in an inefficient and ham-handed manner. By allocating property tax relief in a way that is unrelated to the amount of a household's property tax bill relative to its income, it delivers much less relief to those who are truly overburdened by property taxes than would a substantial expansion of the state's circuit breaker tax credit C at one-half the current $3.2 billion annual price tag of the STAR program C and much more to homeowners for whom property taxes represent a very small percentage of their income.

Under STAR, the amount of tax relief to which a homeowner is entitled can vary with the median home value in his or her county of residence, but not with the magnitude of that homeowner's property tax burden relative to his or her income. The plan's one income test (whether a senior homeowner's income is above or below $60,000 a year, with that amount now adjusted annually to reflect changes in the cost of living) creates an illogical notch effect, while begging the question of a rational sliding scale based on income. While the Governor argued for STAR on the basis that some people were literally being taxed out of their homes, STAR does not target its relief to such households. In addition, two taxpayers with the same income and the same size property tax bill could get widely varying levels of relief depending on where they happen to live.

The STAR plan is also flawed in that it provides relief only to homeowners. This ignores the fact that tenants also pay property taxes. While homeowners pay property taxes directly, tenants, through their rental payments, carry a substantial portion (usually estimated as being more than one-half) of the property taxes paid by the owners of their buildings. But under STAR, neither tenants nor landlords receive any relief. Only the owners of owner-occupied dwellings are helped by STAR. The result is extreme racial disparities. Over 62% of white households live in owner-occupied dwellings, while the comparable figure for black households is 29%. Replacing STAR with an expanded circuit breaker credit would also eliminate such unequal treatment since it provides relief to renters as well as homeowners.

To ensure fairness, property tax relief should not discriminate on the basis of geography or on the basis of whether someone is a renter or a homeowner. STAR fails on both of these counts. Enriching the state's real property tax circuit breaker credit would provide a more targeted, cost-effective means of providing property tax relief to those who are truly overburdened by the current system.