Testimony at the Joint Legislative Public Hearing on the 2015-2016 Executive Budget – Human Services

February 4, 2015. Submitted by Elizabeth McNichol, FPI Senior Fellow. Testimony includes: recommendations for the 2015-2016 state fiscal year; a summary and analysis of actual and proposed reductions in Human Services spending; use of federal Temporary Assistance for Needy Families (TANF) funding in the 2015-2016 Executive Budget; and, the impact of decline in the purchasing power of the monthly cash assistance grant.

2015-2016 Annual Budget Briefing in Albany

On Tuesday morning, February 10, 2015, the Fiscal Policy Institute will present its twenty-fifth annual budget briefing in the Clark Auditorium of the New York State Museum on the concourse level of the Empire State Plaza. Please note the venue change for this year’s briefing. A complimentary continental breakfast will be available from 8:15 a.m. until our presentation begins at 9:00 a.m. We will finish promptly at 10:00 a.m. We hope that you and/or members of your staff will be able to join us for what we are confident will be a useful and informative session. You can RSVP online here.

The briefing will examine various aspects of the governor’s Executive Budget including such topics as:

  • Income Inequality in New York State: How does our current tax system exacerbate the problem? We will provide the most recent research and analysis on the issue.
  • Austerity Budgeting/Financial Plan: What are the impacts of continued austerity spending resulting from the governor’s self-imposed 2 percent state spending cap?  Is it necessary to continue this austerity spending which will result in billions in unspecified cuts in out years when incomes and tax receipts are growing 4-6 percent per year?
  • 2015-16 Executive Budget: What are the major policy issues that the governor addresses in the 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? We provide our analysis of the governor’s proposals on taxes, education, human services, economic development, bank settlement funds, local government, minimum wage and more.
  • Shared Opportunity Agenda for New York: FPI will outline progressive public policies that can be adopted to ensure that we create more “shared opportunities” to help lift New Yorkers out of poverty and provide avenues for upward mobility.

If you have any questions about the February 10th 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. For more information on FPI and its work, and for copies of all of FPI’s publications, please visit our website at www.fiscalpolicy.org.

Please register by Friday, February 6, 2015.

New York’s Top 1% See All Income Gains Since Recession

January 26, 2015. The incomes of the top 1 percent in New York State were nearly 50 times more than the bottom 99 percent in 2012, according to new analysis published by the Economic Policy Institute for the Economic Analysis and Research Network (EARN). The Fiscal Policy Institute is a founding member of the EARN network. In The Increasingly Unequal States of America: Income Inequality by State, 1917 to 2012, economists Estelle Sommelier and Mark Price update their analysis of IRS tax data—using the same methodology employed by Thomas Piketty and Emmanuel Saez to generate their widely cited findings—and show inequality is rising throughout the United States.

While incomes at all levels declined as a result of the Great Recession, income growth has been lopsided since the recovery began. From 2009 to 2012 the incomes of the top 1 percent grew faster than the incomes of the bottom 99 percent in every state except West Virginia. In New York State, the incomes of the top 1 percent rose by 32 percent in the first three years of recovery from 2009 to 2012, while the average incomes of the 99 percent declined by 1.1 percent.

“Despite hollow assertions that the economy has rebounded since the Great Recession, the average New York family is still waiting to see the financial fruits of the recovery from the financial crash. This new report confirms that all of the income gains in the recovery’s early years accrued to New York’s wealthiest while everyone else has been treading water at best and many are actually worse off,” said Ron Deutsch, Executive Director of the Fiscal Policy Institute. “The Governor just unveiled his ‘Opportunity Agenda’ for New York last week and this report puts a bright spotlight on the immediate need for our Albany leaders to get serious about developing a real ‘Shared Opportunity’ agenda, not a fig leaf-version of opportunity.”

FPI’s Deputy Director and Chief Economist, James Parrott, noted: “The recovery has been uneven across New York State, not just regionally, but it has been really lopsided in concentrating all the benefits among the wealthiest. Broadly shared prosperity with wages and middle incomes rising would translate into more sustainable economic and job growth.”

According to data in the new report, average incomes of the top 1 percent are 48 times the average income of the bottom 99 percent in New York and Connecticut, more lopsided than in any other state. For the United States overall, the top-to-bottom income ratio is nearly 30. Average incomes for New York’s wealthiest 1 percent were $2.13 million in 2012, compared to $44,050 for the bottom 99 percent.

New York’s top 1 percent had nearly a third (32.8 percent) of all income in the state in 2012, slightly greater than the 32.6 percent share at the 2007 high point right before the financial crash. The all-time peak level in New York was 33.8 percent in 1929 on the eve of the stock market crash that ushered in the Great Depression.

As with every state in the United States, New York’s income inequality has been on the rise since 1979 and represents a sharp reversal of the patterns of income growth that prevailed for more than three decades following World War II. During the 1949-to-1979 period, incomes rose across the board, with the middle class both expanding dramatically and experiencing fairly steady income gains. As this table shows, for the past three decades, most income gains have flowed to the very top.

According to the report, the threshold income level for New York’s top 1 percent was $506,051 in 2012. While the average income for the households in the top 1 percent was $2.13 million, incomes are highly concentrated at the very top of the income spectrum: the wealthiest 1/100th of the top 1 percent have average incomes of $69.6 million, twice the level for that group nationwide.

One of the reasons why incomes were so high for the wealthiest in 2012 was the acceleration of capital gains income that year in anticipation of higher federal income tax rates in 2013. Capital gains are highly concentrated among the very wealthy. Still, data released last week by the New York State Division of the Budget show that the top 1 percent’s share of New York personal income tax liability is expected to be nearly as high in 2015 (42.5 percent) as it was in 2012 (43.2 percent).[1] As FPI noted recently, a new report from the Institute on Taxation and Economic Policy shows that when all New York state and local taxes are factored in, the wealthiest 1 percent pay a smaller share of their income in state and local taxes than lower-income families.

PDF of Press Release

[1] NYS Division of the Budget, FY 2016 Economic & Revenue Outlook, p. 171.

Preliminary Analysis: Budget Takes One Step Forward and Two Steps Back

January 21, 2015.

Ron Deutsch, Executive Director

“The Governor’s proposal takes some positive steps forward to deliver targeted property tax relief and address poverty in the state. However, for every step forward we take two steps back if we don’t dramatically increase aid to our fiscally stressed schools and local governments and commit substantial resources to ending child poverty in our state.”

James Parrott, Deputy Director and Chief Economist

“To really help the poor and the middle class, we need to scrap the 2% spending cap to restore education investments and expand opportunities for those struggling to lift themselves out of poverty.”

Executive Budget Financial plan

The Governor should put his austerity budgeting behind him by scrapping his self-imposed 2% state spending cap. Otherwise, his proposed new measures to address poverty will necessarily be paid for by cutting important human services spending elsewhere in the budget. These important new initiatives must go hand-in-hand with meaningful funding restorations in human services and higher education along with targeted school aid to high-needs districts (not dependent on reforms) and new resources for fiscally-stressed local governments.

State tax revenues, total wages and personal income are projected to grow by 4-5% annually over the next four years. There is no reason to hold annual spending growth below 2% if it means that we are under-investing in education and poverty reduction. The sheer magnitude of continued spending cuts forced by the 2% spending cap—$ 1.7 billion in FY2017, $3.3 in FY2018 and $4.8 in FY2019—will starve our schools and public universities and prevent our state from making the investments needed to expand opportunities for those struggling to lift themselves out of poverty.

Minimum Wage

Seven states and the District of Columbia have a higher minimum wage than New York State, so it is understandable that the Governor is proposing to increase New York’s minimum wage to $10.50 by the end of 2016, and to increase the minimum in New York City to $11.50 an hour given the city’s high cost of living.

Education Investment Tax Credit (EdITC)

The governor’s proposal will divert $100 million to privately determined educational uses. It raises serious questions about whether it is smart tax policy for the state to delegate its spending authority to private individuals.

The bill passed in the Senate today would divert $675 million over the next three years to privately-determined educational uses. Such a tax credit represents a misuse of public resources for private purposes and could be in violation of section 7 of Article 7 of the Constitution that requires all appropriations to be “distinctly specified.” Because it provides an unprecedented proportion of tax reduction relative to a contribution (90%), it also has the potential to lessen charitable contributions for a wide range of worthy causes.

Property Tax Relief Credit: Circuit Breaker

The governor proposed a property tax relief plan that links homeowners and renters income to their property tax burden. The $1.66 multi-year proposal would deliver means-tested relief to over one million homeowners whose property taxes exceed 6% of their income. A family making $50,000 per year and paying $6,000 annually in property taxes would see a $1,500 annual credit—or a 25% reduction in its property tax burden. Regrettably, only homeowners who live in tax cap-compliant areas will receive relief and the funding mechanism is based on cutting future budgets.

$5.4 Billion Bank Settlement Surplus:

The governor has proposed using the bank settlement surplus as follows:

  • Upstate Regional Economic Development Councils: $1.5 billion (7 Councils to compete for 3 pots of $500 million)
  • Statewide broadband: $500 million
  • Thruway system $1.285 billion (keep tolls down and fund Tappan Zee Bridge)
  • Support debt restructuring and other capital projects for hospitals in rural communities: $400 million
  • Build new Metro-North stations in the Bronx and extend access to Penn Station: $250 million
  • Construct parking structures near transit hubs: $150 million
  • Local government efficiency grants: $150 million
  • Emergency response/security: $150 million
  • Upstate ports/state fair: $115 million
  • Medicaid OPWDD liabilities (money needed to repay federal government): $850 million

With regard to the upstate Regional Economic Development Councils proposal, the Fiscal Policy Institute does not support asking regions to compete for funds in this manner and believes it is a poor use of resources. The governor should instead use the majority of settlement funds for infrastructure investments throughout the entire state (through a fair formula) and for replenishing the State’s Rainy Day fund.


K-12 School Aid

The governor is proposing an increase of $1.1 billion in school aid funding but this increase is contingent on the legislature’s approval of far-reaching changes in teacher evaluation and retention policies. Aid to financially strapped schools should not be contingent on the governor’s reform agenda. Since 2011, state aid has been at historically low levels as a share of total school spending.

Universal Pre-K

The Universal Pre-Kindergarten program for four year olds enacted last year continues in fiscal year 2016 with $365 million funding in fiscal year 2016 (funding is projected to total $1.5 billion over 5 years). In addition, the executive budget includes $25 million in new funds for Pre-K in “targeted” high needs districts.

Higher Education

The “Get On Your Feet Loan Forgiveness” program advanced by the governor would provide a two-year buffer on loans, with certain conditions, but is not an effective use of state dollars. A better use of these resources would be to provide more funding for the Tuition Assistance Payment program that provides targeted aid to students that need it the most.

The proposed budget doesn’t make up for the steep inflation-adjusted decline in state aid to SUNY in recent years.

New York State DREAM Act

The New York State DREAM Act is a long-overdue measure that would cost little ($27 million in the governor’s budget) and would have a very strong return on investment, as reports from FPI and the state comptroller have shown. The governor has long said he supported the measure. To finally put this in a budget is welcome, but to link it to the unrelated and deeply misguided Education Investment Tax Credit, reflects typical Albany wedge politics. The DREAM Act should be a legislative priority on its own merits.

Human Services

The governor is taking steps in the right direction with a sensible but modest anti-poverty agenda. Unfortunately, these initiatives will not be effective if we continue to adhere to the state 2 percent spending cap that has resulted in significant cuts in human services spending over the past four year. The executive budget projects a decrease in funding to critical human service programs. This is on top of over $1 billion in cuts to human services since 2009. Child poverty rates in NYS have reached epic levels in many of our upstate cities. Currently more than 1 in 5 children throughout the state live in poverty.

Local Government (Consolidation/Efficiency/AIM)

Efficiency proposals

The Executive Budget includes $150 million in incentives to encourage efficiencies, shared services, mergers and consolidations across local governments. Potential savings from efficiencies/consolidation are generally exaggerated. For example, a review of the literature on experience with consolidations in the U.S. and internationally found mixed results on whether consolidation resulted in costs savings. Adequate state assistance to localities for the services they provide is a more effective way to reduce property taxes.

AIM (Aid and Incentives to Municipalities)

The executive budget holds funding flat for Aid and Incentives to Municipalities (AIM) at $715 million. Reduced state aid has put pressure on local property taxes. This unrestricted state support to cities, towns, and villages has dropped by 75% in inflation-adjusted dollars since the 1980s. The rate of decline has slowed in recent years but funding for this program has continued to erode, after accounting for inflation.

PDF of Press Release

New Analysis Confirms Low- and Middle-Income New York Taxpayers Pay Higher Tax Rate than the Richest New Yorkers

January 16, 2015. A new study just released by the Institute on Taxation and Economic Policy (ITEP) and the Fiscal Policy Institute (FPI) finds that the wealthiest New Yorkers are paying a smaller share of their income in state and local taxes than lower-income families that are struggling everyday to make ends meet. New York households with incomes under $100,000 pay higher effective state and local tax rates, ranging from 10.4% to 12%, than the richest 1% of households with incomes over $600,000, who pay 8.1%.

The study, Who Pays?, analyzes tax systems in all 50 states and factors in all major state and local taxes, including personal and corporate income taxes, property taxes, sales and other excise taxes, and New York City taxes.

“Our leaders in Albany must focus on how to make our tax system fairer to help the millions of struggling New York families that are hanging on by a thread. Helping them would do a lot more to strengthen our economy than another batch of corporate tax credit giveaways in the name of “economic development,” said Ron Deutsch, FPI’s Interim Executive Director.

New York’s state and local tax system is unfair, or regressive, because the lower one’s income, the higher one’s tax rate. This is in part because most low- and middle-income New York families pay more in sales and property taxes than they do in income taxes. The Governor just announced an income based, property tax Circuit Breaker that should provide some relief to low and middle-income families most overburdened by property taxes. Regrettably, the Governor decided to link his property tax relief mechanism to local compliance with the tax cap. This could result in communities having to choose between tax relief and underfunded local services.

“Our state income tax is mildly progressive, but not enough to offset the effects of highly regressive sales and local property taxes,” said James Parrott, FPI’s Deputy Director and Chief Economist. “Compounding the problem,” Parrott added, “is the fact that since the state funds the third smallest share of combined state and local spending compared to other states, the state income tax doesn’t do as much as it could to make our taxes fair overall.”

In a comprehensive report on New York City taxes released earlier this week, FPI performed a similar tax burden analysis for New York City as the ITEP report did for each of the 50 states. FPI found a similar result with low- and middle-income New York City residents paying a much higher effective local tax rate than the richest 1%. In New York City, the 40% of the population with the lowest incomes paid more than twice the tax rate of the wealthiest 1% (10.5% and 11% for the two poorest fifths of the City population compared to 5.1% for the richest 1%). Other city families with incomes below $175,000 also paid a higher overall effective local tax rate than did the top 1%.

FPI’s Deutsch stated, “Considering the worst in the nation income inequality that exists in New York City and State, we need our leaders to think about how they can reform our tax system to make sure we adequately fund public services and essential education and infrastructure investments and to make the overall state and local tax system fairer to the average New York family. Fairness, it turns out, just happens to be smart economic policy.”

There’s also a more practical reason for New York and all states to be concerned about regressive tax structures, according to ITEP. If the nation fails to address its growing income inequality problem, states will have difficulty raising the revenue they need over time. The more income that goes to the wealthy (and the lower a state’s tax rate on the wealthy), the slower a state’s revenue grows over time.

“In recent years, multiple studies have revealed the growing chasm between the wealthy and everyone else,” said Matt Gardner, executive director of ITEP. “Upside down state tax systems didn’t cause the growing income divide, but they certainly exacerbate the problem. State policymakers shouldn’t wring their hands or ignore the problem. They should thoroughly explore and enact tax reform policies that will make their tax systems fairer.”

PDF of Press release

Most Main Street Growth Due To Immigrant-Owned Businesses

January 14, 2015. A report on our Immigrant Main Street business owners report from NBC Latino:

There’s a very good chance that the new deli, dry cleaner or nail salon that opened in your neighborhood shopping district is owned by an immigrant.

Between 2000 and 2013, immigrants accounted for all net Main Street business growth nationally and in 31 of the 50 largest metropolitan areas in the country, according to a new study released Wednesday by the Americas Society/Council of the Americas (AS/COA) and the Fiscal Policy Institute.

FPI Commends Governor Cuomo for Advancing Middle Class Circuit Breaker—Targeted Tax Relief Tied to Income Is the Most Effective Mechanism

January 14, 2015. Governor Cuomo just announced a $1.66 billion property tax credit program (commonly referred to as a “Circuit Breaker”) to help ease the burden on working class families who are paying too much of their income in property taxes.

The Fiscal Policy Institute (FPI), working with our partners in the Omnibus Property Tax Consortium, has been calling for a targeted circuit breaker for years.  “We are pleased that the Governor announced a circuit breaker proposal that targets relief to working and middle class New Yorkers. This is a step in the right direction. We urge the Governor to make sure we pay for this tax relief by eliminating wasteful corporate tax credits that only line the pockets of the wealthiest at the expense of everyone else,” said Ron Deutsch, Executive Director of the Fiscal Policy Institute.

Deutsch added, “This targeted circuit breaker approach to providing property tax relief is far superior to the rigid property tax cap. We strongly urge that the “property tax cap-compliant” provision be dropped.”

“It is essential that the new round of property tax relief not come at the expense of restoring school aid, increasing revenue sharing to hard-pressed local governments, or restoring critical human services funding,” said James Parrott, FPI’s Deputy Director and Chief Economist.

State school aid falls $4-5 billion short of where it should be based on the 2007 school aid commitment to fund a “sound, basic education.” Revenue sharing has dropped by 75% since 1980, and the state spends far less on human services for the poor and disadvantaged in many areas than it did four years ago despite the fact that family hardships have mushroomed in the wake of the Great Recession.

To avoid crowding out critical funding needs in the state budget, FPI is urging that last year’s ill-conceived property tax freeze credit be scrapped and those resources used to help pay for a sensible circuit breaker.

For the longer term, New York State needs to restructure the state-local funding relationship. Currently, the state funds the third smallest share of combined state and local spending compared to other states, partly because New York requires localities to pay a significant portion of Medicaid costs and partly because State school aid falls short of what is needed. The State should scrap the austerity-inducing two percent spending cap, and for the State to more adequately invest in New York’s human capital and infrastructure needs, it will be important for the State to revise and make permanent the so-called “millionaire’s tax” that is now set to expire at the end of 2017.

Here’s why low- and middle-income New Yorkers need real property tax relief:

In 2011, an estimated one-third of all households in New York State with incomes of $100,000 or less paid 10% or more of their income in property taxes. About half of households with incomes of $50,000 or less had a property tax burden of 10% or more of their income.


How “circuit breaker” credits work and why they make sense

A property tax Circuit Breaker is a targeted form of property tax relief.  The name “Circuit Breaker” is used to describe this type of tax credit since it is designed to prevent households from being overburdened by property taxes just as electrical circuit breakers interrupt the flow of electrical current when a circuit becomes overloaded.

A property tax Circuit Breaker has several key elements:

  1. Sets an “affordability threshold” as a percentage (such as 6%) of household income.
  2. Provides for the calculation of a household’s property tax “overload” as the portion of the property taxes on the household’s primary residence in excess of that “threshold” percentage of the household’s income.
  3. Sets a “benefit” percentage (such as 50%).  A household’s Circuit Breaker credit is calculated by multiplying the household’s “overload” by the benefit percentage.

Residential property taxes are often high relative to income for low- and middle-income households. A study by the Institute on Taxation and Economic Policy finds that for this year, low-income families paid an average of 5.6% of their income in property taxes and middle-income families paid 3.6%, while the richest taxpayers paid only 0.7%.

PDF of Press Release

3 Cities Where Immigrants Helped Save Main Street

January 14, 2015. A great story by Ted Hesson for Fusion, with nice added detail in all three metro areas.

South Philadelphia’s Italian Market has long been the go-to spot for pasta and cannoli. But in the past two decades, a new set of business owners have moved into the neighborhood, bringing Mexican, Vietnamese and Korean food with them.

The transformation follows a national trend: new immigrants are increasingly becoming the face of community businesses across the country and, in some cases, a lifeline for dying neighborhoods.

Nationally, immigrants make up 13 percent of the population, but represent an outsized 28 percent of Main Street business owners, according to a report released on Wednesday by the Americas Society/Council of the Americas and the Fiscal Policy Institute.

Report: Immigrant Biz Powered NYC’s Comeback

January 14, 2015. Crains New York Business picked up on the population trend shown in FPI’s new report on immigrant Main Street businesses. In New York City, immigrants make up, arithmetically, all of the population growth since the city’s decennial lowpoint in 1980.* Check out our interactive graphic here. (Thanks to Colin Gordon for putting it on the web.)

From the story:

New York City’s revitalization since the 1970s has been spurred by an oft-overlooked force: Main Street immigrant business owners, whose ranks have risen rapidly during the past four decades, according to a new report.

The study found that although New York City’s nonimmigrant population has remained largely static since 1980 (after the 1970s’ “white flight” dropped the city’s population by 1 million), the immigrant population has surged to 3.1 million from 1.7 million. That has been the main driver in the rebound to a record 8.4 million city residents. New York City’s population is now 37% foreign-born.

*The interactive chart looks just at foreign-born and U.S.-born population trend. Population change is that, plus also births and deaths, and also net domestic migration.

Many Ways to Help Immigrant Businesses, Report Says

January 14, 2015. The Philadelphia Inquirer picked up on FPI’s report about immigrant Main Street business owners, which includes national data as well as case studies in Philadelphia, Minneapolis-St. Paul, and Nashville.

Immigrants who want to open a corner store, pay for a wedding, or buy a house often turn to a “lending circle.”

Called tandas in Latin America, susu in West Africa, and hui in China, they offer pooled-risk loans from informal groups with family honor as collateral.

Repayments don’t necessarily build creditworthiness, however, because transactions are not reported to credit bureaus.

Enter Finanta, a Kensington nonprofit with a hybrid twist on old-world tradition. As a community development financial institution, Finanta manages the lending circles of some immigrant groups by reporting transactions to the credit agencies, but retaining the risks of non-repayment within the small spheres of trust.

That’s just one innovation cited in “Bringing Vitality to Main Street: How Immigrant Small Businesses Help Local Economies Grow,” a study to be released Wednesday by the New York-based Fiscal Policy Institute.

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