2/3/09: Unshackle Upstate provides Testimony on Economic Development

Unshackle Upstate

Legislative Budget Economic Development Hearing

February 3, 2009

Brian Sampson, Executive Director, Unshackle Upstate

Unshackle Upstate is a bi-partisan coalition of over 73 business and trade organizations representing a growing group of 45,000 companies and employing more than 1 million people. We hail from across Upstate New York with one goal: To achieve reforms in Albany that make Upstate a stronger place to do business.

Overall, Unshackle Upstate has mixed feelings on this year's budget proposal.   While we applaud the overall reduction in State spending, we do not believe the budget proposal goes far enough in fundamentally restructuring and reforming State spending and government programs.   In addition, there are several negative aspects of the budget proposal that we firmly oppose, as well as certain key elements that are noticeably missing but which we believe are essential to help get the economy back on track.

Key Positive Initiatives in the Executive Budget

Unshackle Upstate firmly supports the Governor's proposal to keep state spending "flat" in fiscal year 2009-10.   In our view, it is absolutely critical that overall State spending be kept flat as budget negotiations unfold.   While there will be considerable pressure from special interest groups to eliminate cuts and restore State spending, it is imperative that the State hold the line on overall State spending this year.

In addition, we firmly believe that the availability of short-term, temporary Federal stimulus funding should not become an excuse to continue overspending in government programs, particularly in Medicaid and school aid.   The State has been overspending in Medicaid and school aid for years, and our State taxpayers will simply be unable to afford these programs in 2011 and beyond (after the Federal stimulus funding has ended).

In addition, Unshackle also supports the following key positive initiatives in the Governor's budget proposal:

• Restructuring public employee benefits and creating a new Tier V pension plan for State employees.   The new Tier V plan would moderately scale back some of the additional retirement enhancements added to Tier V in recent years, and is a good first step in getting public employee benefits more closely aligned with comparable private sector benefits.

• Consolidating State agencies and closing underutilized State facilities.   In addition, Unshackle likewise supports enactment of many of the reforms highlighted in the final report of the Commission on Local Government Efficiency and Competitiveness (headed by former Lt. Governor Lundine).

• Exempting all school district projects from the onerous Wicks Law.   At the same time, however, Unshackle firmly believes that the Wicks Law exemption for Upstate must be increased from $500,000 to a level comparable to the New York City exemption.

• Eliminating the unsustainable STAR rebate program.   At the same time, however, we believe it is essential that the Governor and Legislature enact a meaningful property tax cap, as well as the other cost-savings initiatives outlined in the final report of the Commission on Property Tax Relief.

Key Negative Aspects of the Executive Budget

As previously indicated, there are several negative aspects of the Executive Budget that Unshackle Upstate firmly opposes.   Most notably, Unshackle opposes:   (1) the billions of dollars proposed new and increased taxes and assessments (particularly on health care and energy costs); (2) the new Empire Zone "20:1" requirement that would retroactively change program rules on participating businesses; and (3) the proposed increase in the Wicks Law exemption for New York City from $3 million to $10 million, without any increase in the Upstate exemption of $500,000.

First, while the Governor did not propose any broad-based income tax proposals, he did propose billions of dollars in dozens of far-ranging new and increased taxes and assessments.   Higher taxes and assessments will only add further damage to our weakened economy, while driving up costs for businesses and taxpayers at a time when most are struggling to make ends meet.   To truly restore our economy, we must keep both government

spending and taxes flat (if not reduce both).   Similarly, for the Federal stimulus funding to truly stimulate our State economy, the new Federal funding must be used to eliminate these higher taxes and assessments (and not merely to funnel more funding back into government programs).

Making matters worse, the highest taxes and assessments in the budget proposal would be imposed on health care and energy costs - two areas where businesses and taxpayers are desperately in need of cost relief from Albany.   In health care alone, the budget proposal would inexplicably add a litany of new and increased taxes and assessments totaling $876 million.   We strongly urge the Legislature to reject these proposed taxes and assessments.

Second, Unshackle objects to the new Empire Zone requirement that existing program participants would have to demonstrate a 20:1 ratio of in-zone wages, benefits and investments compared to zone credits claimed.   In our view, it is fundamentally unfair to retroactively change the rules on participating businesses that have already made investments in anticipation of the tax credits.   In addition, this new proposal could have a chilling effect on future investment in New York, as future businesses will certainly be less likely to invest here if the State has shown a willingness to retroactively change program rules and take back what it had promised.   We ask the Legislature to reject any retroactive requirement that would change the rules on participating businesses.

Third, Unshackle strongly objects that the Governor's budget proposal would increase New York City's Wicks Law exemption from $3 million to $10 million, without making any increase in the Upstate exemption of $500,000.   In 2007, Unshackle strenuously objected to the original Wicks Law "reform," because it created a six-fold disparity between the Wicks Law exemptions in New York City and Upstate.   In our view, increasing the New York City exemption to $10 million -- while leaving the Upstate exemption at $500,000 - adds serious insult to injury.   We strongly urge the Legislature to fight for a comparable increase in the Upstate exemption.

Missing Elements of the Executive Budget

Finally, there are certain key elements that are noticeably missing from the Executive Budget that Unshackle Upstate believes are essential to help get the economy back on track.

• Fundamental structural reform of government programs.   While the budget proposal keeps overall spending flat, it does not do enough to restructure and reform State government programs.   In certain areas, such as public employee benefits, there are true reform proposals that will fundamentally restructure benefits and lead to State savings year after year.   However, in the vast majority of government programs - most notably, Medicaid and school aid - there are few real structural reforms that will have a lasting impact on future budgets and our State economy.

• Energy relief.    Unshackle believes the State must take pro-active measures to help reduce ever-rising energy costs for businesses and taxpayers.   Unfortunately, there are no such measures in the budget proposal.   In fact, the budget proposal would add approximately $650 million in new utility assessments, which will only serve to further drive up energy costs.

• Business cost-reduction reforms.   The Executive Budget contains no meaningful reform initiatives to help lower the cost of doing business in the State.   In order to create sustained long-term growth in the State economy, the State must enact long-overdue reforms that will deliver significant cost reductions to New York businesses (e.g., Scaffold Law or Taylor Law reform).

In closing, Unshackle Upstate looks forward to working with the Legislature as a partner throughout the budget process to achieve our collective goals of resolving the fiscal issues facing the State and revitalizing our economy.