10/23/09: UU Testifies to Members of Ways & Means Committee

2009-10 Executive Deficit Reduction Plan

October 23, 2009 - 10 a.m.

Brian Sampson, Executive Director, Unshackle Upstate

Chairman Farrell and members of the Assembly Ways & Means Committee, thank you for the opportunity to speak today. My name is Brian Sampson, Executive Director of Unshackle Upstate, a bi-partisan coalition of over 75 business and trade organizations representing a growing group of 45,000 companies and employing more than 1.5 million people

I am here today to offer Unshackle Upstate's comments and concerns about the Deficit Reduction Plan or DRP that was proposed by Governor David Paterson, as well as provide you with various spending cuts that Unshackle Upstate has proposed in order to return New York State to fiscal stability.

It is important to note that we feel strongly that these hearings conclude as soon as possible, but we believe that the process should continue to be done in public with an opportunity for all to be heard. Addressing the budget shortfall must be the main priority of our elected leaders and we implore both houses to return to Albany in short order to close the gap in a fiscally responsible way.

First, I would like to tell you about our organization and what we have been advocating for in regard to the New York State budget over the past several years.

Unshackle Upstate stands on the following four guiding objectives, which serve as the main principles of the organization:

1. Reduce State and Local Spending - State and Local government spending has continually been out pacing inflation. The State simply can not support the rapidly increased spending.

2. Reduce State Borrowing - State borrowing continues to escalate as the State has selected to bond projects in order to provide additional operational dollars.

3. Reduce Taxes, Fees and Assessments - Looking separately at Upstate, state income taxes are 22% higher than the national average, local property taxes 55% higher and local sales taxes twice as high. Upstaters would pay $5 billion to $6 billion less in taxes if they lived somewhere with more typical tax collections.[1]

4. Reduce Mandates - New York State is notorious for its labyrinth of laws and regulations that reduce the ability for people to do business in New York.

Before talking about the Executive's DRP proposal it is important to understand the State budget in context. Unshackle Upstate believes strongly that over the past decade, the State Budget has grown at an unsustainable level. Unshackle Upstate believes that New York State must take the opportunity that the budget deficit provides us, to rightsize the State budget. This year, a number of legislators voted against the State budget because this message is being heard.

We, the people who live and work in Upstate New York, do not believe that it is too late. But, if New York continues to lead the nation in unstable levels of taxing and spending, the consequences are predictable and they will be dire.

Recently, the Tax Foundation ranked New York second on per capita government spending, only to Alaska. New York State has become the Imelda Marcos of State budgeting in that we have collected a closet full of government programs. Individually, this may include a number of great programs, but in the end they might not be affordable.

Governor Paterson was correct to focus on ways to reduce the state's spending in its three biggest areas - Medicaid, personnel costs and education. Collectively they represent 67% of state controlled spending.

According to the Citizens Budget Commission, Medicaid spending is expected to grow by 36% over the next three years. This is on top of expenses of $7,746 per beneficiary - a figure that is 67% above the national average and the fourth highest among states.

Although New York's spending tops the chart, its quality of care does not; a 2009 Commonwealth Fund scorecard ranked us 21st among the states in health system performance.

Expenses for compensation of state employees are expected to grow by 24% over the next three years, states the CBC. On top of contractual increases that will take wages up by 13.6% from 2007 to 2011, this growth is driven by New York's overly generous and costly fringe benefits. Employee health care expenses are expected to increase by 29%, while required pension contributions are expected to grow a staggering 55%. What does this mean to the average property owners? In 2011, the Comptroller has stated that property taxes will rise by 10% simply to cover the under-funded aspect of the state pension.[2]

Education aid to local school districts, a $26 billion outlay, has more than doubled in the past 10 years. Additional increases of another 20% are planned over the next three years.

New York now spends 65% more than the national average per pupil. According to the Center for Applied Economic Research more than a third of all other states schools outperform New York's, while New York spends the most of any State per student. When you include Medicaid, New York has found a way to spend more than any one else and get less in return.

These poor policy issues have had another dramatic impact on Upstate. Overall, the upstate population grew by 1.1 percent in the 1990's  slower than the rate for any state except West Virginia and North Dakota.

Population growth upstate might have lagged even more but for the influx of 21,000 prison inmates, who accounted for 30 percent of new residents.[3]

This decline is not attributable to poor public policies alone. Small northern population centers have seen economic hardship as a result of global trends in manufacturing, a shift in interest to warmer climates, and larger urbanization areas. But other parts of the old American industrial and agricultural heartland have managed to adjust and rebound, Upstate New York has not.

At the same time as population has trended down in Upstate New York, personal income in Upstate lagged the country by 11 percent by 2000. Upstate workers are now working less hours and get paid lower wages for those few hours. The share of concentrated poverty neighborhoods in the United States, and the share of poor households living in such neighborhoods, dropped in the 1990s. The opposite was true for Upstate.

Taxpayers are still reeling from last year's disastrous Deficit Reduction Plan and the 2009-10 state budget, which will cost families thousands of dollars a year in taxes, fees and assessments, and are driving employers out of business or out of New York. The last DRP increased the burden on taxpayers by $1.6 billion and the state budget increased taxes, fees and assessments by $8 billion.

In September of this year, Unshackle Upstate proposed a series of savings for the State budget; we believe these steps are needed to downsize the State budget.

The savings plan includes recommendations for immediate and long-term budget reductions, as well as suggested repeals and other long-term savings measures. The immediate cuts total $3.74 billion. They include a $2.2 billion reduction in state spending - or 3 percent of the state budget; a state payroll lag ($700 million savings) and a state workforce furlough ($840 million savings).

Additional savings recommendations include consolidating certain back office state services such as payroll, purchasing and information technology ($250 million savings); holding school funding flat in 2010-11 ($2.2 billion); and implementing a variety of Medicaid reforms and fraud enforcement totaling $3.2 billion.

Unshackle Upstate also recommends Tier 5 pension reform originally recommended by Governor Paterson; passage of a Property Tax Cap; consolidation of local and county governments and government functions, and consolidation of school districts, as recommended by the Lundine Commission; and the creation of a Medicaid Commission.

Another specific area where Unshackle Upstate has provided a suggested opportunity to save the state money lies within enacting necessary reforms to the Taylor Law and the Triborough Amendment. Due to the enactment of the Triborough Amendment in 1982, employee pay and benefits increase indefinitely under the terms of an expired contract. The Taylor Law, enacted in 1967, guarantees that fringe benefits can't be changed unless both sides agree.

Last month, we issued a report highlighting the differences between pay and benefits between private and public sector employees titled "New York's Double Standard: How public employee pay and benefits have outpaced the private sector."[4] Two findings within the report include: (1) Across Upstate New York, salaries for state and local government employees are 10 percent higher than the private-sector average and (2) New York leads the nation in per-capita contributions to public-employee retirement, at $486 per taxpayer for the 2006-2007 fiscal year.

Unshackle Upstate is advocating that New York State fix the Taylor Law and Triborough Amendment to more closely mirror other states by freezing salary and benefit levels to the last in-contract year for public employees who are working without contracts.

In addition to promoting changes to Taylor and Triborough, Unshackle Upstate has aggressively pushed for the creation of a new Tier V retirement system for newly hired state employees. However, our request would shift from the current defined-benefit pension system to a defined-contribution approach, similar to a 401(k) plan. New York already administers one of the nations largest DC plans, that of the SUNY/CUNY system. Governor Paterson and the Division of the Budget have pegged this number at a savings of nearly $50 billion over the next 30 years. Imagine what the savings would be if this were a defined contribution planned not backed by the full faith and credit of the taxpayers?

In many instances, the most critical factor that makes living and working in New York State burdensome, are the property taxes. New York's local taxes are the highest in the nation, at 79% above the national average, with school taxes accounting for the largest portion of it. (Outside of New York City, 62% of property taxes are school property taxes.) Property taxes are rising at more than twice the rate of inflation and salary growth, which continues to force many families, industries and small businesses out of our region.

It has been almost a year since The Commission on Property Tax Relief made its final recommendations that would limit the growth of school property taxes to 4 percent or 120 percent of the Consumer Price Index, whichever is less. The commission also has recommendations to reduce the burden of mandates on schools which should also be enacted. New York is overdue on living up to its promise to alleviate the crippling situation of ever-rising property taxes in this state. The Governor and Legislature need to make this a priority for 2010.

Now, with regard to Governor Paterson's proposed DRP, Unshackle Upstate has viewed it as a positive step to rein in out-of-control state spending; however, additional structural measures are needed in order to amend New York State's recurring budgetary afflictions.

Unshackle Upstate is concerned that the DRP is heavily dependent on one shot budget gimmicks and backdoor borrowing, such as the $300 million sweep from Battery Park City, which Unshackle Upstate does not support.

Additionally, Unshackle Upstate does not support the transfer of $43M additional dollars from 18-a assessments to the general fund. The additional 18-a revenue should be transferred back to the public utility customers.

Unshackle Upstate is disturbed that RGGI proceed dollars are being swept to the general fund, amounting to a new carbon tax, all the while ensuring that enough funds will be left in the account to fund the "green jobs legislation". New York does not need another half hearted jobs program.

In conclusion, we are pleased that unlike the last DRP, this proposal has avoided implementing any additional taxes and fees on our residents, who have already been saddled with added costs due to recent state budgetary action. It is critical that the legislature also adopt this methodology and make a firm commitment for - NO TAXES, NO FEES, NO ASSESSMENTS in this DRP.

Thank you for your time. I am happy to answer any questions.