Paterson: N.Y. Can't 'Tax Our Way' to Future

The New York Sun reports:

Governor Paterson, who yesterday agreed to a budget deal that increases state spending by 6%, is forewarning lawmakers that he expects significant cuts next year.


After lawmakers passed a plan with $1.5 billion in new taxes and fees, bringing total spending this fiscal year to $121.7 billion, Mr. Paterson said that given the turbulence in the economy, lawmakers must prepare for a "change in culture and a change in course of where this state's priorities are."

He said: "We're running out of time thinking we can tax our way into the future."

Lawmakers signaled they were reluctant to heed the call, saying New Yorkers expect a high level of service from state government — even during rough economic periods.

"New York State is the Empire State because we afford a quality of life," the Republican majority leader of the Senate, Joseph Bruno, said. "So, yes, you could crater. You could scorch and burn, and you could watch the people leave the state to where they have a more comfortable place."

The final budget is about 1.5% smaller than the one Governor Spitzer proposed in January, a rare instance in which lawmakers removed spending from an executive budget.

Still, Albany is increasing spending at twice the rate of inflation at a time when the state's economy appears to be contracting.

Mr. Paterson, a former state senator and lieutenant governor, and lawmakers completed a budget only three weeks after he took office in the aftermath of the Spitzer scandal.

Lawmakers and state officials cautioned that uncertain economy revenues might not be sufficient to get through the year with a balanced budget, and the Legislature could be forced to return to patch a new hole.

The Legislature approved about $1.5 billion in targeted business taxes, so-called loophole closures, and fees, but left out a proposal by Assembly Democrats to raise income taxes of people making more than $1 million.

The tighter tax regulations mean that New York City shoppers will now have to pay an additional 8.375% on goods from Amazon.com and many other online retailers based outside of New York.

Albany is also imposing stiffer tax regulations on out-of-state credit card companies and forcing major financial firms that fail to make a profit to pay millions of dollars more in taxes on their fixed assets.

The budget also limits the ability of banks to reduce their taxes by using real estate investment trusts, yielding the state an additional $50 million in projected revenue.

City smokers will now pay the highest taxes on cigarettes in the nation, as lawmakers lifted the state tax by $1.25 a pack. New Yorkers will also have to pay more for snuff and flavored cigars.

Lawmakers also approved higher taxes on health plans, raising the covered lives assessment to $920 million from $850 million. State-financed spending, including capital expenditures, grew by 6% over last year, according to fiscal analysts. The average increase during the Pataki administration was 5%.

State agencies, whose size and expenses are largely at the discretion of the governor, bore the brunt of the cost-saving measures.

Spending on education and health care — the largest components of the budget, and the areas most aggressively shielded by organized labor and other interest groups — sharply increased.

The budget also authorized $1.6 billion in capital spending for economic development projects and reauthorized $200 million in pork barrel "member items" for the governor and lawmakers to hand out to local groups.

Public education once again was one of the largest growth sectors in the budget. Public schools spending grew by nearly 9%, to $21 billion from $19.3 billion, bringing the total increase over the last years to $3.3 billion.

Spending on New York City public schools increased by 8.55%, as lawmakers delivered an additional $622 million in a type of funding called foundation aid — operating aid that is subject to union-backed restrictions — about $300 million more than what was proposed by Mr. Spitzer in January. Over the last two years, Albany now has delivered to the city about half of the money — or $1 billion — that state courts have said is required to settle the Campaign for Fiscal Equity lawsuit.

Even before the growth of the last two years, New York's per-pupil spending ranked the highest in the nation, 63% higher than the national average, while New York's standardized test scores on fourth- and eighth-grade exams are average among states.

The growth industry in New York state is government.