Statement on Governor Cuomo’s Proposed 2014-2015 Budget

January 22, 2014. In his budget message, Governor Andrew Cuomo rightly touts his strong record of leadership in Albany. However, when it comes to the state budget, the governor’s approach is out of focus and falls far short in making the essential public investments to expand opportunities for the millions of New Yorkers in poverty or still struggling to pull away from the Great Recession of 2008-09.

The question is whether the Governor’s approach to the budget is the right set of proposals for a state which has gone through six years of austerity and that has stretched the financial capacity of its municipalities, schools and agencies to the limit. Is this the right time for large, multi-year tax cuts paid for with projected surpluses and substantial, unspecified out-year budget cuts, or will those steep tax and spending cuts  seriously erode the state’s ability to invest in its people, communities and infrastructure?

Our concerns are threefold.  First, the 4-year financial plan has unspecified cuts in the 2016 through 2018 budget years totaling $7.2 billion. What is likely to be cut and what impact will those cuts have? Second, the Governor noted that there is great uncertainty surrounding the Federal Medicaid Waiver and its impact on health care system funding. Third, there is even greater uncertainty about whether localities will be able to make meaningful consolidations and savings as part of his property tax freeze proposals. This budget proposal continues to freeze state aid to municipalities, and assumes these consolidations will not only happen, but that localities will save meaningful amounts of resources to cover the lack of inflation adjusted state support.

Cuts to the Estate, Bank and Corporate taxes could have been fully paid for in revenue neutral ways by closing tax loopholes as the Solomon-McCall Tax Reform and Fairness Commission proposed. The Governor used some of these recommendations, by limiting the investment tax credit, eliminating the financial services investment tax credit, and closing the resident trust loophole, but did not go far enough to pay for his tax cuts in a financially stable manner. It also begs the question of whether the best way to grow the New York economy is through this set of tax cuts. The economic literature is clear: cutting corporate taxes has little or no impact on a state’s economic growth.[1] Likewise, research shows that raising educational attainment is the best way for states to bolster their economic performance and job creation.[2] The legislature needs a clear rationale for any tax cuts, and should require a level of fairness that is inclusive; these tax proposals lack that basis.

The Governor proposes to expand full day Pre-K programs and makes a strong case for why this is important to improving educational attainment and preparing the next generation’s workforce. Yet, the Governor provides only $100 million this year and $1.5 billion for this purpose over 5 years. This is far from adequate for the estimated 230,000 four year old children who will be eligible each year in New York State. Since total state aid to education is still not back to its 2008-09 levels, this leads us to worry about whether austerity funding will continue to shortchange our youngest citizens. TAP and higher education aid in general is also inadequate to meet the needs of the students of New York. This is concerning given all of the evidence that a strong education is the best way out of poverty.

Finally, by setting an arbitrary two percent state spending target, the governor is turning government away from its role in expanding opportunities and investing in people, communities and infrastructure. Over the next four years, the governor’s budget projects that inflation will rise by 2.3 percent a year, total personal income is forecast to grow by five percent a year, and state adjusted gross income by 5.3 percent a year. The needed resources are there for state government to give a leg up to the poor and the unemployed and their communities, but not if the governor holds spending to less than the rate of inflation and goes through with his huge tax cuts for the wealthy and Wall Street banks. The sounder budget framework would be to put our tax growth to work so we can fully fund universal pre-K, make good on a long-overdue commitment to provide a sound basic education, and help more low- and moderate-income students get the higher education they need.

PDF of Press Release

 


[1] See for example, The Center for Effective Government, The Corporate Tax Rate Debate: Lower Taxes on Corporate Profits Not Linked to Job Creation, 2013.

[2] Noah Berger and Peter Fisher, A Well-Educated Workforce is Key to State Prosperity, Economic Policy Institute, August 22, 2013.

More kerfuffle over Cuomo’s tax cuts

January 15, 2014. Crain’s New York Business quoted FPI’s James Parrott in a news article on a report by the Business Council of New York State’s Progressive Policy Institute that touted the supposed economic benefits to the state from the Governor’s business tax cut proposals announced on January 6. Parrott suggested the Business Council’s analysis was “severely, if not fatally, flawed” since it did not factor in the reduction to state spending that would result from steep tax cuts.

When FPI, assisted by the Institute on Economic and Tax Policy (ITEP), used the same economic model, REMI, utilized by the analysts preparing the Business Council report, FPI modeled both the expenditure and revenue sides of the budget to determine the net economic impact. The Business Council study did not perform a “balanced budget” analysis, choosing to look at only the possible effects of cutting taxes.

In January 2003, Governor George Pataki proposed cutting state school aid by $1.84 billion. In April 2013, FPI published the ITEP analysis that showed that if income taxes were raised in a progressive manner (i.e., by raising tax rates on the richest households) in order to avoid $1.84 billion in school aid cuts, there would be a significant net positive effect on the state’s economy. The FPI-ITEP analysis found that raising $1.84 billion in progressive income taxes to offset Governor Pataki’s proposed school aid cuts would mean 56,000 more jobs in the state’s economy over the short run and 72,000 more jobs after 20 years. The larger positive economic effect over time reflects the beneficial effect that better-funded schools have on the economic “competitiveness” of an area.

The implication of a “balanced budget” approach like that followed in the FPI-ITEP study in modeling tax changes is two-fold: (1) that public spending matters and education spending in particular is an important factor in affecting an area’s economic performance, and (2) budget changes need to factor in both sides of the ledger, both revenues and expenditures. By ignoring the real world balanced budget constraint faced by state governments, the Business Council study is necessarily skewed and a poor guide for informed public policy-making.

2014-2015 Annual Budget Briefing in Albany

On Tuesday morning, February 4, 2014, the Fiscal Policy Institute will present its twenty-fourth annual budget briefing in the Albany Room on the concourse level of the Empire State Plaza. A breakfast buffet will be available beginning at 7:45 a.m. with our presentations starting at 8:15 a.m. and finishing promptly at 10:00 a.m. We are confident that this will be a useful and informative session. To register for this free event, click here.

The topics to be covered during the briefing include:

  • The Social and Economic Context of the Governor’s 2014-15 Executive Budget: What are the major social and economic challenges and opportunities facing the state?  What is the outlook for the national economy and what are the implications for New York? How is New York doing compared to its neighboring states?
  • The State and Local Fiscal Situations: What are the implications of the budget choices of the last several years on the revenue and expenditure sides of the state budget and the budgets of New York’s local governments? What are the short and long term implications for essential services, local taxpayers and the state’s economy of the freezes and cuts in revenue sharing with cities, towns and villages and in state aid to education have helped the state to balance its own budgets in recent years?
  • The Executive Budget: What are the major policy issues that the Governor addresses in the 2014-15 Executive Budget? Are there any glaring omissions in the issues being addressed? What is the overall impact of the Governor’s proposed budget on the ability of the state to meet its major social and economic challenges and opportunities such as the exceptionally high child poverty rates in the major Upstate cities?

If you have any questions about the February 4th briefing or about any budget or economic policy issues, please contact us by telephone at 518-786-3156 or by e-mail at info@fiscalpolicy.org.

Please register by Friday, January 31, 2014.

Gov. Cuomo Begins His Campaign

January 8, 2014. In a lead editorial on Governor Andrew Cuomo’s January 8 State of the State address, the New York Times took the Governor to task over his package of tax cut proposals announced on January 6 and which he touted in his State of the State. The editorial echoed many of FPI’s criticisms of the Governor’s tax reduction proposals and cited FPI’s James Parrott in raising questions about the advisability of the Governor’s proposal to substantially reduce the state’s estate tax.

The Times concluded its editorial by putting in sharp relief the tradeoff at stake: “Again and again, Mr. Cuomo has said he wants to end New York’s reputation as a high-tax state. The question now is whether he can do that without making life worse for communities staggering through hard times.”

2014-2015 Annual State Budget Briefing in NYC

On Tuesday, February 11, 2014, from 10:00 a.m. to 12:30 p.m., the Fiscal Policy Institute will present its annual state budget briefing in New York City hosted by the Community Service Society of New York. To register for this free event, click here.

The topics to be covered during the briefing include:

  • The Social and Economic Context of the Governor’s 2014-15 Executive Budget: What are the major social and economic challenges and opportunities facing the state?  What is the outlook for the national economy and what are the implications for New York? How is New York doing compared to its neighboring states?
  • The State and Local Fiscal Situations: What are the implications of the budget choices of the last several years on the revenue and expenditure sides of the state budget and the budgets of New York’s local governments? What are the short and long term implications for essential services, local taxpayers and the state’s economy of the freezes and cuts in revenue sharing with cities, towns and villages and in state aid to education have helped the state to balance its own budgets in recent years?
  • The Executive Budget: What are the major policy issues that the Governor addresses in the 2014-15 Executive Budget? Are there any glaring omissions in the issues being addressed? What is the overall impact of the Governor’s proposed budget on the ability of the state to meet its major social and economic challenges and opportunities such as the exceptionally high child poverty rates in the major Upstate cities?

If you have any questions about the February 11th briefing or about any budget or economic policy issues, please contact us by telephone at 518-786-3156 or by e-mail at info@fiscalpolicy.org.

Please register by Friday, February 7, 2014.

Statement on Governor Cuomo’s Tax Proposals

January 6, 2014. Governor Cuomo in unveiling his tax proposals today has identified a key issue in growing the state’s economy—reducing the property tax burden on New Yorkers, and we agree.  The Fiscal Policy Institute has long proposed a circuit breaker as a solution to the burden of high property taxes on moderate and lower income families and to ensure that retirees are not forced out of their homes. What the governor could have added is that creating strong, stable, middle class neighborhoods promotes a better business climate that will create new business opportunities and jobs.

But even the circuit breaker credit for homeowners and the proposed renters’ credit should be provided in a way that does not reduce the amount of state revenue that could be used to make up for the years of cuts and freezes in aid to local governments and public schools. The report of the Governor’s Tax Reform and Fairness Commission shows that it is possible to provide thoughtful tax cuts in a revenue neutral manner.

New York State has lived though five consecutive years of austerity budgets under which those in most need have had to sacrifice. Now the Governor proposes to use the savings from those “bad times” budgets and to implement three additional years of austerity budgeting in order to provide tax breaks that are projected to reduce state revenue by $2 billion a year in 2016-17. That is why the $500-$600 million in estate tax cuts that heavily benefit the very largest estates is so hard to justify, particularly in light of the fact the state is attracting more not less millionaires according to state tax records. The Solomon-McCall Commission also made a compelling case for paying for any corporate tax “reforms” through trimming back some of the $1.7 billion in various business tax breaks that can’t be supported by clear evidcence of their effectiveness.

This austerity approach would place additional pressure on local programs which have already been hit hard—at a time when the needs are high and local reserves have been substantially depleted. Local officials are rightfully calling foul as the state pays for tax cuts at the expense of aid to localities; aid which is needed to provide the infrastructure and the services that are necessary to attract businesses to their communities.

A better way to improve the economic climate of the state would be to:

  • Fully fund CFE and ensure that all students get a good solid education.
  • Work with localities to set up a program to offer consolidated services, instead of freezing their already stretched budgets.
  • Use the Solomon-McCall Commission proposals to reform the tax code in a revenue neutral way, which does not put the burden on the poorest New Yorkers.

Briefing on the Mayor’s Preliminary 2015 NYC Budget

On Tuesday morning, March 11, 2014, the Fiscal Policy Institute will present its annual New York City budget briefing to the Economic Justice and Social Welfare Network at the Federation of Protestant Welfare Agencies. The briefing presentation will be from 9:30 a.m. to 11:00 a.m. To register for this free event, click here.

The topics to be covered during the briefing include:

  • The social and economic context in New York City at the beginning of 2014: the unevenness of the recovery; wage, income and employment trends/ and the persistence of high unemployment and poverty.
  • The impact on New York City and its budget of the Governor’s proposed 2014-15 Executive Budget and the proposed Federal budget.
  • The Mayor’s FY 2015 Preliminary Executive Budget: what are the major initiatives, how does Mayor de Blasio’s first budget compare with those of former Mayor Bloomberg, and how is the Mayor proposing to use the budget to address income inequality and the vision he articulated during the campaign?

Please register by Friday, March 7, 2014.

If you have any questions about either briefings, please contact us by telephone at 518-786-3156 or by e-mail at info@fiscalpolicy.org. Please contact me with any questions about any budget or economic policy issues at 212-721-5624.

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