New York’s Senate approved an $869 million revenue bill, the last piece of a $136 billion budget that was more than four months late, to close a $9.2 billion deficit.
The revenue package passed along party lines by the Democratic-controlled Senate yesterday includes $330 million from a sales tax on clothing purchases of less than $110 and $100 million from a limit on charitable deductions for 3,500 taxpayers who earn more than $10 million a year. Earlier, both chambers passed a contingency plan to cut as much as $1.08 billion of spending if federal Medicaid funds trail forecasts.
The completed budget “protects the programs that New Yorkers depend on and ends Albany’s history of overspending, overborrowing and overtaxing,” said Travis Proulx, a spokesman for Senate Democratic leader John Sampson of Brooklyn. He called the plan “fair and balanced.”
Governor David Paterson said it was the first time in state history that lawmakers anticipated federal revenue would be less than initially projected and “put spending cuts in place to fill the gap.”
Republican lawmakers voted against the bill because it contains increased taxes or fees, said Senator John DeFrancisco, a Republican from Syracuse. Democrats hold a 32-29 majority in the Senate. The Assembly passed the revenue bill in June.
Latest Since 2004
The budget was the latest since 2004, when it wasn’t approved until Aug. 11, a record 133 days into the fiscal year. Its passage leaves California as the only U.S. state without an approved spending plan.
Lawmakers in the Senate and Assembly repealed a proposed tax on hedge fund managers who commute into the state that was part of the revenue bill. The proposal, which was projected to raise $50 million, prompted an effort by Governor Jodi Rell of neighboring Connecticut to offer relocation assistance to New York-based fund executives who leave for her state.
The delay in New York didn’t result in cuts in the state’s debt ratings, or a jump in its bond yields.
New York’s taxable, personal-income tax-backed bonds due in 2039 traded today at 5.56 percent, or 1.49 percentage points more than Treasuries, compared with a 1.50 percentage point spread when the bonds sold in November 2009. In the short-term market, a seven-day rate for some state-backed bonds was reset to 0.22 percent on July 29, compared with a national average of 0.35 percent on that date, according to Bloomberg data.
Cash Squeeze Alleviated
The state’s general-obligation bonds are rated Aa2 by Moody’s and AA by Standard & Poor’s and Fitch Ratings, the third highest grades for all three. Bonds backed by personal-income taxes are rated AAA by S&P, the highest grade, and AA by Fitch.
Passing the revenue bill will alleviate a cash squeeze that forced New York, the nation’s third-most populous state, to shuffle funds between accounts and delay payments while running on emergency spending bills.
The inability or unwillingness of lawmakers to approve timely spending cuts showed that “in times of crisis you cannot govern by committee,” Paterson said in a conference call with reporters today. “When you have to make cuts, that should be the responsibility of one person,” he said.
In June, Paterson vetoed $419 million of education spending approved by lawmakers, saying it was needed to balance the budget.
Enough to Balance
“The Legislature’s revenue bill provides enough to balance the budget,” assuming lawmakers don’t override the governor’s vetoes and the Medicaid money is received in full, said Erik Kriss, a spokesman for the state Division of Budget.
Spending will increase from last year by about 2 percent under the Legislature’s plan, “making this only the fourth time in the last 30 years that spending rose less inflation,” said Austin Shafran, a spokesman for Senate Democrats.
Parts of the budget were pushed through the Legislature during June by Paterson, in the first use of emergency spending bills that included spending cuts which lawmakers had to pass or cause a government shutdown.
The state’s budget gap was closed without borrowing, as was proposed by lawmakers and opposed by Paterson. Nor did the plan include Paterson’s proposal for a 1-cent-per-ounce tax on sweetened beverages.
Property Tax Cap
Paterson said he plans to call lawmakers back to Albany in October to take up legislation to impose a cap on property-tax levies by schools and local governments. Local taxes in New York are 78 percent above the national average, according to a 2008 report by the state Commission on Property Tax Relief.
A bill limiting increases to 4 percent or 120 percent of inflation, whichever is less, passed the Senate and was never considered on the floor of the Assembly. Paterson said Assembly leaders shouldn’t block legislation that has strong public support.
“I think the public has a right to know where everybody stands,” he said.
Without borrowing to close the deficit, New York plans to sell $5.9 billion of bonds this year. The state is the second largest borrower in the municipal market, after California, with $54.8 billion of debt outstanding, at March 31, 2010, according to budget documents.
By using his veto power and emergency spending bills, Paterson “was able to get a budget that probably contains more spending reductions than the Legislature would like, so that was a good outcome,” said Elizabeth Lynam, deputy research director at the Citizens Budget Commission, a New York City group that analyzes state finances.
The deficit was closed with $5.2 billion of spending cuts before the governor’s vetoes, and $1 billion of new or increased taxes and fees, including $290 million from higher taxes on tobacco, said Shafran.
The completed budget also assumes the state’s tax collections will be $275 million more than projected, and $250 million of savings from the state workforce.
“The spending reductions are substantial and recurring and will help reduce the deficit in future years,” Lynam said. “The plan follows the general contours of what the governor proposed.”
The budget calls for the state to spend $79.2 billion of its own money this year, excluding federal aid and outlays for capital projects, a 0.3 percent increase from the year that ended March 31, Kriss said. All spending, including federal aid, would rise 2.4 percent to $134.4 billion, he said. Those figures are adjusted to exclude spending that was shifted to this year from last year, to save cash, Kriss said.