ny state senate minority finance committee 2011 mid year budget report

8/3/2019 NY State Senate Minority Finance Committee 2011 Mid Year Budget Report

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New York State SenateMinority Finance Committee

2011 Mid Year ReportOn Receipts and Disbursements

Senator John L. SampsonSenate Minority Leader

Senator Liz KruegerRanking Member, Senate Finance

Committee

Joseph F. PennisiSecretary, Senate Finance Committee

Minority

November 2011
http://upload.wikimedia.org/wikipedia/commons/4/42/NYSCapitolPanorama.jpg


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New York State Senate

2011 Mid Year ReportOn Receipts and Disbursements

Senate Finance Committee/Minority

Senator Liz Krueger, Ranking Member

Joseph F. Pennisi, Secretary to the Finance Committee/Minority

Prepared by Senate Finance Committee/Minority, Office of Fiscal Studies

Michael J. Laccetti, Director of Fiscal Studies

Paul Alexander, Principal Fiscal Analyst

Matthew Peter, Fiscal Analyst

Felix Muniz, Director of Budget Studies

Cheryl Halter, Budget Analyst

Dwayne Robertson, Budget Analyst


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Table of Contents

ContentsEXECUTIVE SUMMARY .................................................................................................................................. 5

ECONOMIC OUTLOOK ................................................................................................................................... 7

National Economy ..........................................................................................................................7

New York Economy ......................................................................................................................15

National GDP compared to New York State GSP ................................................................................ 15

Financial Sector ................................................................................................................................... 15

Housing Market ................................................................................................................................... 16

New York State Unemployment ......................................................................................................... 17

New York Employment by Sector ....................................................................................................... 18

Wage and Personal Income Growth ................................................................................................... 18

New York State Adjusted Gross Income ............................................................................................. 20Empire State Manufacturing Survey ................................................................................................... 21

ECONOMIC INDICATORS ............................................................................................................................. 22

REVENUE OUTLOOK .................................................................................................................................... 23

All Funds ......................................................................................................................................23

General Fund ...............................................................................................................................23

Personal Income Tax ....................................................................................................................26

Components of PIT Collections .......................................................................................................... 27

Withholding ........................................................................................................................................ 27

Estimated Taxes .................................................................................................................................. 27

Final Returns ....................................................................................................................................... 28

Other Payments .................................................................................................................................. 28

Refunds ............................................................................................................................................... 28

User Taxes ...................................................................................................................................28

Sales Tax ......................................................................................................................................29

Cigarette & Tobacco Tax ............................................................................................................... 30

Motor Fuel Tax .............................................................................................................................31

Alcoholic Beverage Tax ................................................................................................................. 32

Auto Rental Tax ............................................................................................................................33

Highway Use Tax ..........................................................................................................................33

Business Taxes .............................................................................................................................34

Corporation Franchise Tax .................................................................................................................. 34

Corporation and Utilities Tax .............................................................................................................. 34

Insurance Tax ...................................................................................................................................... 35Bank Tax .............................................................................................................................................. 35

Petroleum Business Tax ...................................................................................................................... 36

Other Taxes..................................................................................................................................36

Estate Tax ............................................................................................................................................ 36

Real Estate Transfer Tax ...................................................................................................................... 37

Metropolitan Commuter Transportation Mobility Tax ....................................................................... 37

General Fund Miscellaneous Receipts ................................................................................................ 37


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Alcoholic Beverage License Fees: ........................................................................................................ 38

Lottery/VLTs ...............................................................................................................................38

Traditional Lottery .............................................................................................................................. 38

Video Gaming ...................................................................................................................................... 39

DISBURSEMENT PROJECTIONS.................................................................................................................... 40

Education .....................................................................................................................................40

Tax Levy and General Fund Support for Public Schools (GSPS) Caps .................................................. 40

Foundation Aid .................................................................................................................................... 41

Universal Pre-K .................................................................................................................................... 42

Expense-Based Aids ............................................................................................................................ 43

Medicaid ......................................................................................................................................45

Methodology ....................................................................................................................................... 45

Midyear Projections ............................................................................................................................ 46

SFY 2012-13 Forecast for Medicaid Spending................................................................................... 47

Risks to the Financial Plan.................................................................................................................. 47

Public Assistance ..........................................................................................................................47

Family Assistance ................................................................................................................................ 47

Safety Net Families ............................................................................................................................. 48


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5

EXECUTIVE SUMMARY

Section 7 of Chapter 1 of the Laws of 2007 requires representatives of the Governor, Senate,Assembly and Comptroller to meet on or before November 15th to review State financial and

economic information and projections for the current and upcoming State Fiscal Year.Commonly known as Quick Start, its goal is to facilitate timely adoption of the State budget forthe next fiscal year. As part of this process, each house is required to prepare and make availablea forecast of receipts and disbursements for the current and ensuing fiscal year no later thanNovember 5th. A joint report is published and made available on the respective web sites afterthe meeting.

Blue Chip economic indicators generally forecast moderate economic growth and low inflationfor 2012 at the national level. Similar trends are expected for New York State as well. Nationally, corporate profits are expected to continue trending downward. Also, hiring isexpected to remain weak for the next year thus leaving the unemployment rate around the eight

percent mark in New York and around the nine percent level in the US. Nationally, wage growthis projected to be around two percent. In New York State, wages are expected to increase around4.5% in 2012. But personal consumption is expected to remain sluggish nationally in 2012.

Based on these economic projections, NYS All Funds tax collections are now projected to reachnearly $64.7 billion in SFY 2011-12, an increase of $3.8 billion or 6.2 percent from SFY 2010-11. Further slight growth is projected for SFY 2012-13 as All Funds tax collections increase to$65.6 billion, an increase of $914 million or 1.4 percent.

All Funds Personal Income Tax collections are expected to total $38.94 billion in the currentyear and $38.98 billion SFY 2012-13.

All Funds Business Taxes collections are projected to rise in SFY 2011-12 by $455 million or5.7 percent totaling $7.89 billion this year and $8.34 billion in SFY 2012-13.

User Taxes and Fees are projected to rise in SFY 2012-13 by $215 million or 1.0 percent overcurrent year levels. $14.76 billion is expected to be collected in the current year and $14.9billion next year.

The All Funds Other Taxes category is projected to be $3.3 billion SFY 2012-13 whichrepresents an increase of $200 million from the current year. Much of the increase is derivedfrom an increase in expected MTA Mobility Tax revenues.

NYS General Fund tax collections are now projected to reach nearly $41.9 billion in SFY 2011-12, an increase of $2.74 billion or 6.9 percent from SFY 2010-11. Further growth is projected forSFY 2012-13 as General Fund tax collections to $42.4 billion, an increase of $400 million or .9percent.

General Fund Personal Income Tax collections are expected to total $25.9 billion in the currentyear and in SFY 2012-13.


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General Fund Business Taxes collections are projected to rise in SFY 2011-12 by $557 millionor 10.5 percent totaling $5.8 billion this year and $6.2 billion in SFY 2012-13.

User Taxes and Fees are projected to rise in SFY 2012-13 by $376 million or 4.3 percent overcurrent year levels. $9.2 billion is expected to be collected in the current year and next year.

The General Fund Other Taxes category is projected to be $1.085 billion in SFY 2012-13 whichrepresents an increase of $55 million from the current year.

General Fund Miscellaneous Receipts are also projected to remain at approximately $3.0 billionagain in SFY 2012-13, a small decrease from the current year.

In the SFY 2011-12 Enacted Budget, the Legislature enacted two year appropriations for SchoolAid and Medicaid. On this disbursement aspect of the Financial Plan, $19.64 billion in SchoolAid is estimated to be disbursed in SFY 2011-12. This is projected to rise to $20.44 billion inSFY 2012-13, an increase of $805 million or 4.1 percent. Foundation Aid, which comprises

$14.89 billion, 70 percent of the total, is projected to remain in SFY 2102-13 at SFY 2011-12levels. Expense-based aids, which include Building Aid, Transportation Aid, Special EducationAids and BOCES aid, are projected to grow by $362 million or more than 6.2% percent.

State Medicaid spending is capped at $15.28 billion for SFY 2011-12 and at $15.88 billion forSFY 2012-13. Projected State spending for SFY 2011-12 will fall below the enacted cap for thisSFY by .05 percent or $70 million. For SFY 2012-13 projected baseline State spending wouldincrease above the enacted cap by 3 percent or $544 million. However it is anticipated that thecontinued work of the Medicaid Redesign Team will produce recommendations resulting inexpenditures at or close to the cap of $15.88 billion.

The State share of Public Assistance disbursements is projected to reach $396,385,252 in SFY2011-12 and grow to $396,436,382 in SFY 2012-13, an increase of $51,130 or .013 percent.Public Assistance consists of Family Assistance (financed by Federal Temporary Assistance to Needy Families (TANF) funds) and Safety Net Assistance for both families and singleindividuals. Safety Net is financed from State and Local sources only. The Family Assistancecaseload is projected to be 260,383, a decline of 1,114 or .43 percent in SFY 2012-13. This isalso compounded by a decline in the caseload for Safety Net for individuals, which is projectedto drop by 4,758 or 2.7 percent. Safety Net for Families is also projected to decline by 672 or .56percent in SFY 2012-13.

As is always the case, there are substantial risks with this or any other forecast. However, currentnational and international conditions make the situation even more risky. For example, theeconomic recovery, at both the State and national level is fragile. Job growth remains weak andthe stock market is highly volatile. Also, internationally, there are pervasive concerns about theviability of the European Union and more specifically, the health of the Greek, Italian andSpanish economies. Any major shock to the national and/or international political economycould have widespread negative implications for the American economy.


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ECONOMIC OUTLOOK

National Economy

The United States economy continues to encounter slow growth. The real gross domesticproduct (GDP), the output of goods and services produced by labor and property located in theUnited States, is estimated to have increased at an average annual rate of less than 1 percentduring the first half of this year. According to the Bureau of Economic Analysis (BEA), theGDP increased at an annual rate of 1.3 percent in the second quarter of 2011 (thirdestimate). In the first quarter, real GDP increased 0.4 percent. The GDP increased at anannual rate of 2.5 percent in the third quarter of 2011 according to the BEA advanceestimate.

The GDP increase in the second quarter chiefly reflected positive contributions fromnonresidential fixed investment, personal consumption expenditures (PCE), exports, andfederal government spending. These positive developments were partly offset by negativecontributions from state and local government spending and private inventory investment,according to the BEA.

The GDP acceleration in the second quarter primarily represents a deceleration in imports, anupturn in federal government spending, and an acceleration in nonresidential fixed investmentthat were partly offset by a deceleration in PCE, a downturn in private inventory investment,and a deceleration in exports, according to the BEA.


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According to Federal Reserve Board, factors that contributed to this weak growth include political unrest in the Middle East and North Africa, strong growth in emerging marketeconomies, and significant increases in the prices of oil and other commodities and the naturaldisaster in Japan. Despite these setbacks, growth in the second half of the year will likely

increase more than in the first half due to commodity prices coming off their highs andmanufacturers' problems with supply chains nearing a resolution.

Since the start of the intense financial crisis in the second half of 2008, there have been somehopeful developments. U.S. manufacturing production increased nearly 15 percent since itstrough, due largely to the growth in exports. The U.S. trade deficit has been lower recently thanit was before the crisis began in 2008. The U.S. current-account deficit for internationaltransactions decreased $1.6 billion to $118.0 billion (preliminary) in the second quarter of 2011.Real exports of goods and services increased 3.6 percent in the second quarter as compared withan increase of 7.9 percent in the first quarter. Real imports of goods and services increased 1.4 percent as compared with an increase of 8.3 percent in the first quarter. Despite this positive

news, economic challenges still persist. The aggregate output in the United States had notreturned to the level that it had achieved prior to the crisis by the second quarter of 2011. Thisslow economic growth has led to slow rates of increase in jobs and household incomes.


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House prices and financial asset values have declined resulting in a reduction in householdwealth. This reduction in household wealth has led numerous families to face high debt burdensand reduced access to credit. New home construction is at only about one-third of its average

level in recent decades. A number of factors are causing this poor housing market. Thesefactors include the high number of distressed and foreclosed properties, tight credit conditionsfor builders and potential homebuyers, and the large number of "underwater" mortgages (this iswhen homeowners owe more than the market value of their homes).


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Perhaps the most important factor keeping consumer confidence low has been a poor job market.The growth rate of private sector employment has slowed in 2011. State and local governmentshave tightened their belts by cutting spending and employment in the face of ongoing budgetarypressures. The unemployment rate has remained approximately 9 percent since early this year.

Recent indicators, including new claims for unemployment insurance, point to the probability ofmore slow job growth in the short-run.


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According to the BEA , real personal consumption expenditures increased 0.7 percent in the2nd quarter as compared with an increase of 2.1 percent in the first. Durable goods declined5.3 percent as compared to an increase of 11.7 percent. Nondurable goods increased 0.2percent as compared with an increase of 1.6 percent.


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U.S. banking and financial conditions have improved notably since the beginning of the depthsof the crisis in 2008. Despite this improvement, credit remains tight for many households, smallbusinesses, and residential and commercial builders. The reason for this tight credit is partly dueto weaker balance sheets and income expectations which have increased the estimated credit risk

of many potential borrowers.

U.S. corporate profits from current production (corporate profits with inventory valuation andcapital consumption adjustments) increased by $61.2 billion in the second quarter as comparedwith an increase of $19.0 billion in the first quarter. Current-production cash flow (net cashflow with inventory valuation adjustment) -- the internal funds available to corporations forinvestment -- increased $86.2 billion in the second quarter as compared with an increase of$21.1 billion in the first quarter, according to the BEA.


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The raising of the federal debt ceiling controversy and the subsequent downgrading of the U.S.long-term credit rating by a major rating agency partly added to the financial turbulence thatoccurred this summer. Global financial markets have been under significant stress recently due toconcerns over the sovereign debt in Greece and other euro-zone countries and the sovereign debtexposures of the European banking system. The natural disaster in Japan put upward pressure onprices of motor vehicles by disrupting the global supply chain. Due partly to this factor, inflationpicked up during the first half of this year. During the first half of this year, the price index for personal consumption expenditures rose at an annual rate of about 3-1/2 percent while thepreceding two years had an average of less than 1-1/2 percent. Inflation has already begun tomoderate as this temporary factor fades in its impact.


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Since early July 2011, interest rates on 10-year Treasury notes have decreased by nearly a full percentage point. According to the Congressional Budget Office (CBO), this drop in interestrates is attributed largely due to such factors as a weaker U.S. economy, potential losses on thesovereign debt of some major euro-zone countries, and because the Federal Reserve indicatedthat it would maintain short-term interest rates low for an even longer period than many market

participants may have anticipated.

The prices of oil and other commodities have either leveled off or have come down from theirhighs. Increased automobile production has begun to reduce pressures on car and light truck prices. Longer-term inflation expectations have remained stable according to surveys of

households and economic forecasters. The significant amount of excess resources in U.S. laborand product markets, and the stability of longer-term inflation expectations should restraininflationary pressures, according to Federal Reserve Board.


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New York Economy

National GDP compared to New York State GSP

While the national recession has technically ended, both the national and state economicrecovery has been slow and incomplete. As shown below, there was negative growth in thenational GDP of -2.5% as the recessions effects took hold in 2009. In New York there was a lesssignificant decline of -1% in 2009.

Even though the New York economy declined in 2009, it declined at a much slower rate than thenational economy. For 2010, the New York economy is estimated to perform slightly worse thanthe national economy, growing by 3% in the first two quarters and then slowing to 1.2% duringthe second half of the year. In 2010 the national economy began to recover and saw growth ofapproximately 4.2%, with the most significant growth seen in the first two quarters of the year.In 2011, national growth is projected to slow to approximately 2.8% in the first half of the year.

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

2002 2003 2004 2005 2006 2007 2008 2009 2010

Economic Growth

US GDP NY GSP

Source: Bureau of Labor Statistics

Financial Sector

Due to Wall Streets location in New York State and the large segment of New York Statepopulation that is employed by this sector, projections of weaker earnings on Wall Street havedetrimental effects on the rest of the States fiscal outlook. The Comptroller is predicting thateconomic uncertainty due to the lingering European debt crisis, a sluggish recovery, and arelatively weak job market will lead to weaker Wall Street profits. As a result of weakening WallStreet profits, it is projected that bonuses and overall jobs from the financial sector will be weakin 2011. The Comptroller predicts a loss of 10,000 jobs by the end of 2012, beginning in April


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of 2011. Additionally, New York Citys four year financial plan expects profits to decline from$20 billion in 2011 to $14 billion in 2012. These factors have led the Office of the StateComptroller to estimate that Wall Street related tax collections will fall short of their targets inSFY 2011-12 and could be even greater in SFY 2012-13. The Comptroller also warns that aslowdown in the financial sector can cause a ripple effect throughout the rest of the State

economy, causing a decrease in consumer spending and a weakening of other tax collections.

Housing Market

Similar to the experience of the nation as a whole, the housing market in New York has notrecovered from the recession. Housing prices in New York State fell sharply in 2009 as thehousing crisis deepened nationwide. In 2010, the number of houses sold in NYS decreased from2009, but the sales price of existing homes rebounded considerably, surpassing 2008 prices.Additionally, in 2011 year to date housing prices have increased 4% over 2010. However, in thefirst eight months of 2011, home sales were down 9.2% from the same period in 2010 and 3.3%

from the same period in 2009.

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

2008 2009 2010 2011*

Number of Houses Sold in New York State

Number of Houses

*Represents first 8 months of 2011

Source: New York State Association of Realtors


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$175,000

$180,000

$185,000

$190,000

$195,000

$200,000

$205,000

$210,000

$215,000

$220,000

$225,000

2008 2009 2010 2011

Annual Median Sales Price of Existing Single

Family Homes in New York State

Price Value of Homes

Source: New York State Association of Realtors

New York State Unemployment

During the recession, New York States unemployment rate fared better than the nationalaverage. At the height of the recessions effects on employment in 2010, the State unemploymentrate was 8.6%, nationwide the unemployment rate was 9.6%. In 2011, unemployment in NewYork is currently at 8%, while the national unemployment rate is 9.1%.

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

1/1/2010

2/1/2010

3/1/2010

4/1/2010

5/1/2010

6/1/2010

7/1/2010

8/1/2010

9/1/2010

10/1/2010

11/1/2010

12/1/2010

1/1/2011

2/1/2011

3/1/2011

4/1/2011

5/1/2011

6/1/2011

7/1/2011

8/1/2011

9/1/2011

NYS Unemployment

U.S Unemployment

Source: New York State Department of Labor


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New York Employment by Sector

Since September of 2010 the New York State economy has gained 103,400 jobs from thefollowing sectors: Educational and Health Services, Professional and Business services, Leisureand Hospitality, Financial Activities, Trade, Transportation and Utilities, Construction and

Information.

During the same period the New York State economy lost 13,000 jobs in four sectors. Thesesectors were: Government, Manufacturing, Other Services, and Natural Resources and Mining.

The number of jobs created in New York State since September 2010 total 90,400.

0 500,000 1,000,000 1,500,000 2,000,000

Educational and Health Services

Government

Trade, Transportation and Utilities

Professional and Business Services

Leisure and Hospitality

Financial Activities

Manufacturing

Other Services

Natural Resources, Mining and Construction

Information

2011

2010

2000

Source: NYS Department of Labor

Wage and Personal Income Growth

In general, New York State has weathered the recession better than the country as a whole,however in 2009 at the height of the recession New York State had negative 7.2% wage growth

compared to the national average of negative 4.3%. This is principally due to NYS dependenceon Wall Street and the financial sector and a 31.6% fall in bonuses for that sector. After themajor fall in wage growth and the gradual Wall Street recovery, NYS wages have continued togrow, 2.2% in 2010, 3.8% in 2011 and 4.6% in 2012. This is compared to a National average of1.6%, 1.7%, and 1.7% in 2010, 2011, and 2012 respectively.


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-14.0%

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

2007 2008 2008 2009 2010 2011 2012Average NYS Wage

Average U.S Wage

Source: NYS Division of Budget

As the State is realizing wage growth during the economic recovery, it is also realizing personalincome growth. As shown in the diagram below that personal income nationwide dropped 5.1%in 2009, it grew by 2.8% in 2010. In NYS personal income fell 5.4% in 2009, and grew by 3.7%in 2010.

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

2007 2008 2009 2010

United States

New York State

Source: Bureau of Economic Analysis


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New York State Adjusted Gross Income

$0

$100,000,000

$200,000,000

$300,000,000

$400,000,000

$500,000,000

$600,000,000

$700,000,000

$800,000,000

2004 2005 2006 2007 2008 2009 2010 2011 2012

NYSAGI in Dollars

Source: NYS Division of Budget

Adjusted Gross Income (AGI) is the income base that determines personal income tax liability.During the height of the recession in 2008 and 2009 NYS AGI fell 8.7% and 10.8% respectively.These major declines followed four years of substantial growth. The strong growth seen in the

pre-recession years were fueled by strong equity and real estate markets. When the recession hit,both of these elements of growth were hit hard, resulting in the drastic decline in 2008 and 2009.It is estimated that recovery in AGI started in 2010 and will gather strength in 2012.

NYS Adjusted Gross Income (AGI) By Percent Change

Year Percent Change2004 11%2005 8.7%2006 10.6%2007 14.6%2008 -8.7%2009 -10.8%2010 5.1%2011 4.5%2012 7.0%

Source: NYS Division of Budget, Executive Budget SFY 2011-12


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Empire State Manufacturing Survey

The Empire State Manufacturing Survey released by the Federal Reserve Bank of New York,indicates the conditions for New York State manufacturers. The survey has found that conditionsfor New York State manufacturers continued to deteriorate in October. According to the survey,the general business conditions remained negative, but largely unchanged from previous surveys.New orders were flat, but the shipments index increased. Additionally, the inventory index wentbelow zero, showing that there was a decline in overall amount of inventory. The overall report,indicates that conditions in the future will be steady, but dramatic growth will not be seen in thenear future.


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ECONOMIC INDICATORS

Economic Outlook (CY)(Percent Change)

2010 2011 2012

National Economy

GDP 4.2 3.8 3.9

Real GDP 3.0 1.7 2.0

Personal Consumption Expenditure 2.0 2.1 1.9

Real Net Exports (billions) 422 412 402

CPI - All Urban, Percent Change 1.6 3.1 2.2

Pretax Corporate Profits 32.2 7.3 5.0

Disposable Personal Income 1.8 1.5 1.6

Wages and Salaries 1.6 1.7 1.7

Nonagricultural Employment (0.5) 0.7 2.2

Unemployment Rate 9.6 9.1 9.0

T-Note Rate, 10-Year 3.20 2.80 2.60

Housing Starts (millions) .590 .590 .700

New York Economy

Personal Income 3.2 3.2 4.2

Wages and Salaries 2.2 3.8 4.6

Nonagricultural Employment (0.4) 1.0 1.9

Unemployment Rate 8.5 8.3 7.8

Source: Blue Chip Economic Indicators/DOB Forecasts


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REVENUE OUTLOOK

All Funds

All Funds tax collections are estimated to total $64.7 billion in SFY 2011-12. This reflects anincrease of 6.3 percent from collections of $60.8 billion in SFY 2010-11.

For SFY 2012-13, All Funds tax collections are projected to increase by 1.4 percent to $65.6billion.

General Fund

General Fund tax collections are estimated to be $41.9 billion in SFY 2011-12, an increase of 7.0percent from SFY 2010-11 collections of $39.2 billion. Similar to the increase in tax collectionsat the All Funds level, the increase in General Fund collections is a result of the moderateeconomic recovery.

For SFY 2012-13, General Fund tax collections are projected to increase by 1.1 percent to $42.4billion. As with All Funds collections for SFY 2011-12, this increase primarily reflects projectedmoderate economic growth.


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ALL FUNDS TAX COLLECTIONS(Millions of Dollars)

2010-11

Actual

2011-12

Estimated

2012-13

ProjectedPersonal Income Tax 36,209 38,939 38,980

Withholding 31,240 31,777 32,281Estimated Payments 9,735 11,785 11,553Final Returns 1,964 2,130 2,219Other Payments 1,063 1,089 1,134Gross Collections 44,002 46,781 47,187Refunds (7,693) (7,694) (8,059)State/City Offset (100) (148) (148)

User Taxes and Fees 14,206 14,753 14,968Sales and Use 11,538 12,005 12,121

Auto Rental 95 102 107

Cigarette/Tobacco 1,616 1,676 1,762

Motor Fuel 517 512 515

Highway Use 129 144 144

Alcoholic Beverage 230 233 238

MTA Taxicab Surcharge 81 81 81

Business Taxes 7,279 7,888 8,343

Corporate Franchise 2,846 3,203 3,388

Corporation and Utilities 813 832 904

Insurance 1,351 1,410 1,466

Bank 1,179 1,337 1,434

Petroleum Business 1,090 1,106 1,151

Other Taxes 3,176 3,072 3,275

Real Estate Transfer 579 620 690

Estate and Gift 1,219 1,015 1,070

MCT Mobility Tax 1,359 1,422 1,501

Pari-mutuel 17 14 14

Other 2 1 1

Total All Funds Taxes 60,870 64,652 65,566


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GENERAL FUND TAX COLLECTIONS(Millions of Dollars)

2010-11

Actual

2011-12

Estimated

2012-13

ProjectedPersonal Income Tax 23,894 25,912 25,913

Withholding 31,240 31,777 32,281

Estimated Payments 9,735 11,785 11,553

Final Returns 1,964 2,130 2,219

Other Payments 1,063 1,089 1,134

Gross Collections 44,002 46,781 47,187

Refunds (7,693) (7,694) (8,059)STAR (3,263) (3,292) (3,322)

RBTF (9,052) (9,735) (9,745)

State/ City Offset (100) (148) (148)

User Taxes and Fees 8,795 9,171 9,221

Sales and Use 8,085 8,460 8,465

Cigarette/Tobacco 480 492 518

Alcoholic Beverage 230 219 238Business Taxes 5,279 5,836 6,171

Corporate Franchise 2,472 2,797 2,928

Corporation and Utilities 616 631 715

Insurance 1,217 1,286 1,318

Bank 974 1,122 1,210

Other Taxes 1,237 1,030 1,085

Estate 1,219 1,015 1,070

Pari-mutuel 17 14 14

Other 1 1 1

Total General Fund Taxes 39,205 41,949 42,390


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Personal Income Tax

Article 22 of the Tax Law imposes a tax on the income of individuals, estates and trusts.Personal Income Tax (PIT) receipts contribute over one half of all tax collections deposited intothe General Fund. New Yorks definition of income closely follows federal rules, which include

wages, salaries, capital gains, unemployment compensation, and interest and dividend income.Those components sum to federal adjusted gross income (FAGI). New York State adjusted grossincome (NYSAGI) is calculated starting with this base, from which certain income items arethen added or subtracted. The New York standard deduction or itemized deductions aresubtracted from NYSAGI to arrive at New York State taxable income. Certain credits are thensubtracted from the calculated tax to determine total personal income tax liability.


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The personal income tax is paid in a variety of ways: the withholding of wages and other incomepayments, the payment of estimated taxes, the payment of unpaid taxes through final returns, andthe payment of overdue taxes known as delinquencies through assessments. Any overpayment ofthe personal income tax is refunded to the taxpayer. The manner of payment determines theincome year to which the tax applies. For example, withholding is paid when the income is

earned. Therefore, 2011 wages would be reflected in 2011 withholding. However, tax paymentsmade with the final returns are based on the prior years income. As a result, final paymentsmade in 2011 are a reflection of income earned in 2010. The same pattern holds true for refunds.

All Funds net personal income tax receipts for SFY 2011-12 are estimated at $38,939 million, anincrease of $2,730 million, or 7.5 percent over SFY 2010-11. Gross PIT collections are estimatedto increase by $2,779 million, or 6.3 percent over SFY 2010-11. All Funds net personal incometax receipts for SFY 2012-13 are projected to increase by $41 million, virtually no change fromSFY 2011-12. For SFY 2012-13, gross collections receipts are projected to increase by $406million, or .86 percent over SFY 2011-12.

General Fund PIT receipts for SFY 2011-12 are estimated to be $25,912 million, $2,018 millionhigher than SFY 2010-11. Net General Fund receipts for SFY 2012-13 are projected at $25,913million, virtually no change from the current year.

Components of PIT Collections

Withholding

In order to spread the payment of the personal income tax over the course of the tax year,employers are required to withhold a portion of the taxpayers tax liability from the employees

earnings. Withholding has a slight lag from the period in which it is withheld to the time theState receives the payment from the employer. Withholding is closely correlated to wage andsalaries received during any given quarter. As part of the SFY 2009-10 Enacted Budget, the taxrate was increased on New Yorks high income taxpayers. For SFY 2011-12, withholdingpayments are estimated to be $31,777 million; an increase of $537 million from SFY 2010-11.For SFY 2012-13, the withholding component is projected to increase to $32,281 million, anincrease of $504 million from SFY 2011-12.

Estimated Taxes

Individuals make estimated payments if the tax they will owe for the year is significantly morethan the amount of tax being withheld from their wages. Individuals who have large amounts ofnon-wage income (self-employment income, interest, dividends, or capital gains) generally makethese quarterly payments. Estimated tax payments are due on the fifteenth of April, June,September, and January. Estimated payments are also made when a taxpayer files for anextension to file his annual return. When a taxpayer files for an extension, he or she is required toestimate his tax liability and, if payment is due, submit it with the extension. Estimated payments


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for SFY 2011-12 are estimated to be $11,785 million, an increase of $2,050 million from SFY2010-11. For SFY 2012-13, estimated payments are projected to be $11,553 million.

Final Returns

Final returns are due by April fifteenth of every year. The final return is essentially areconciliation between a taxpayers withholding and/or estimated payments and the tax liabilitycalculated on the total personal income received throughout the tax year. A payment is duewhen the combination of withholding and estimated payments result in an underpayment of thetotal tax liability. For SFY 2011-12, personal income tax collections from final returns areestimated at $2,130 million, $166 million higher than collections in SFY 2010-11. For SFY2012-13, collections from final returns are projected to be $2,219 million, an increase of $89million from SFY 2011-12.

Other Payments

These collections are comprised of assessments due on later or audited returns and filing feesrequired to be paid by the States limited liability companies and limited liability partnerships.For SFY 2011-12, other payments are estimated at $1,089 million, an increase of $26 millionfrom SFY 2010-11. For SFY 2012-13, collections from other payments are projected at $1,134million.

Refunds

A refund occurs when a taxpayer overpays his personal income tax, either through over-withholding or remitting excess estimated payments. Similar to payments made with finalreturns, refunds are made as a result of filing an annual return. For SFY 2011-12, refunds are

estimated at $7,694 million, no change from SFY 2010-11. For SFY 2012-13, refunds areprojected to be $8,059 million, an increase of $365 million.

User Taxes

Cash flow in user taxes and fees follows a quarterly pattern. Collections for the months at theconclusion of a calendar quarter exhibiting larger collections as a result of taxes remitted byquarterly taxpayers. User taxes in New York are comprised of six taxes, as follows:

Sales and Use Tax Cigarette & Tobacco Tax Motor Fuel Tax Alcoholic Beverage Tax Highway Use Tax Auto Rental Tax


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Source: NYS Tax & Finance Department & Senate Finance Committee /Minority

As can be seen from Figure 24, the sales and use tax is the largest component of user taxes.However, sales tax as a proportion of All Funds collections, declines over the years from SFY2004-05 while cigarette and tobacco taxes has increased as a result of various tax rate changes.

Similarly, collections from the motor fuel tax decline marginally while the other taxes in thiscategory remain the same.

All Funds sales and user taxes collections are estimated to be $14.75 billion in SFY 2011-12, a3.9 percent increase from SFY 2010-11. On a General Fund basis, receipts are estimated toincrease by 4.3 percent to $9.2 billion in SFY 2011-12. All Funds collections from sales and usertaxes are projected to be $14.97 billion in SFY 2012-13, a 1.5 percent increase from the SFY2011-12 estimate. General Fund collections are projected to be $9.2 billion in SFY 2012-13, a.55 percent increase from the estimate in SFY 2011-12.

Sales Tax

The Sales and Use tax is the second largest tax revenue source for the State. Sales of tangible personal properties and some services are taxed under Article 28 of the Tax Law unlessstatutorily exempt. The sales tax is imposed upon receipts from the following:

the sales of tangible personal property statutorily specified services


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specified electricity gas, refrigeration, and steam services telephone service food and beverages sold by restaurants and caterers hotel occupancy

certain admission charges.

In New York State, the sales and compensating use tax was enacted in 1965 at the rate of 2percent. The tax rate was subsequently increased to 3 percent in 1969, 4 percent in 1971, and to4.25 percent in 2003. The last increase in the tax rate was a temporary change as a result of theeconomic recession beginning in 2001. The sales tax rate reverted back to 4 percent in June2005.

For SFY 2011-12, All Funds sales and use tax receipts are estimated to be $12.0 billion, a 4.1percent increase from that in SFY 2010-11. General Fund collections are estimated to increaseto $8.46 billion in SFY 2011-12, an increase of 4.6 percent. All Funds collection are projected to

be $12.12 billion in SFY 2012-13, an increase of .97 percent. On a General Fund basis, salesand use tax collections are projected to be $8.47 billion in SFY 2012-13, virtually no changefrom the current state fiscal year.

The increase in sales tax collections is impacted by economic activities, such as changes inemployment, prices of consumer goods and services, the consumer sentiment index, and tax lawchanges. One of the factors impacting collections is the temporary removal of the sales taxexemption on clothing from October 2010 until March 2011. In SFY 2011-12, the exemptionwas reinstated, except at a threshold of $55 per item of clothing or footwear.

Cigarette & Tobacco Tax

The New York State cigarette excise tax is imposed by Article 20 of the Tax Law on the importor use of cigarettes within the State. The tax is paid through the purchase of a tax stamp which isadhered to the package of cigarettes. The tax rate is currently $4.35 per package of 20 cigarettes.

Over the past ten years, the cigarette tax has been increased four times. New York City levies aseparate cigarette excise tax equal to $1.50 per pack.

In addition to the excise tax on cigarettes, the State imposes a tax on other tobacco products,such as chewing tobacco, snuff, and cigars. These products are taxed at a rate of 75 percent of

the wholesale price. However, snuff products are taxed at a rate of 96 cents per ounce.

All Funds receipts in SFY 2011-12 from the cigarette and tobacco taxes are estimated to be$1.67 billion, a 3.7 percent increase from collections in SFY 2010-11. General Fund receipts areestimated to increase 2.5 percent to $492 million in SFY 2011-12.


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In SFY 2012-13, All Funds collections are projected to be $1.76 billion, with $518 million to bedeposited into the General Fund. This reflects a 5.1 percent increase in All Funds receipts and a5.3 percent increase in General Fund receipts.

Taxable cigarette consumption is a function of retail cigarette prices and a long-term downward

trend in consumption. The decline in consumption reflects the impact of increased publicawareness of the adverse health effects of smoking, smoking restrictions imposed bygovernments, anti-smoking education programs, and changes in consumer preferences towardother types of tobacco.

0

200

400

600

800

1,000

1,200

StampSales(millions)

New York State Taxable Cigarette Consumption

Source: New York State Department of Tax and Finance

Motor Fuel Tax

Motor fuel and diesel motor fuel taxes are imposed by Article 12-A of the Tax Law upon thesale, generally for highway use, of motor fuel and diesel motor fuel, respectively. The motorfuel tax is levied on fuel used in motor vehicles operating on the public highways of the State oron fuel used in recreational motorboats operating on the States waterways. Currently, the tax is

imposed at a rate of 8 cents per gallon on both gasoline and diesel motor fuel.

All Funds receipts from the motor fuel tax are estimated to be $512 million in SFY 2011-12,virtually no change from SFY 2010-11. For SFY 2012-13, All Funds collections are projected tobe $515 million.

All motor fuel receipts are deposited into the Dedicated Highway and Bridge Trust Fund(DHBTF) and Dedicated Mass Transportation Trust Fund (DMTTF).


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Motor fuel tax collections are a function of the number of gallons of fuel imported into the Stateby distributors. Gallonage is determined in large part by fuel prices, the amount of fuel held ininventories, the fuel efficiency of motor vehicles and overall state economic performance.

0

200,000,000

400,000,000

600,000,000

800,000,000

1,000,000,000

1,200,000,000

1,400,000,000

1,600,000,000

1,800,000,000

2,000,000,000

2005Q1

2005Q2

2005Q3

2005Q4

2006Q1

2006Q2

2006Q3

2006Q4

2007Q1

2007Q2

2007Q3

2007Q4

2008Q1

2008Q2

2008Q3

2008Q4

2009Q1

2009Q2

2009Q3

2009Q4

2010Q1

2010Q2

2010Q3

2010Q4

2011Q1

2011Q2

BillionsofGallons

New York State Motor Fuel Gallonage

Diesel Gasoline

Source: New York State Department of Taxation & Finance

On a calendar year basis, taxable gasoline gallons increased by 1.53 percent in CY 2010compared with CY 2009, while the taxable diesel gallons declined by 1.40 percent. In the firstquarter of CY 2011, taxable gallons of diesel gasoline decreased 6.1 percent compared with salesin the fourth quarter of 2010. Compared with the first half of CY 2010, taxable diesel gallons inthe first half of CY 2011 have increased by 3.3 percent while sales of taxable gasoline decreasedby 1.5 percent.

Alcoholic Beverage Tax

New York State imposes excise taxes at various rates on liquor, beer, wine and specialty

alcoholic beverages. The tax is remitted by licensed distributors and noncommercial importersof such beverages in the month following the month of delivery.

Overall, per capita consumption of taxed beverages and receipts has remained fairly constant inrecent years with declines in one beverage class being offset with increases in others. This shiftis primarily due to shifts in consumer preferences.


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Collections from the alcoholic beverage tax are estimated to be $233 million in SFY 2011-12, aslight increase from SFY 2010-11. In SFY 2012-13, All Funds collections are projected to be$238 million, a 2.1 percent increase from SFY 2011-12.

Currently, all receipts from the alcoholic beverage tax are deposited in the General Fund. In the

SFY 2009-10, the rate on beer increased from 11 cents to 14 cents per gallon and that on wineincreased from 18.9 cents to 30 cents per gallon.

Auto Rental Tax

Since June 1990, the State has imposed a 5 percent tax on charges for the rental or use in NewYork State of a passenger car with a gross vehicle weight of 9,000 pounds or less. The tax doesnot apply to a car lease covering a period of one year or more. In SFY 2009-10, this rate wasincreased to 6 percent. Receipts from the auto rental tax are influenced by the overall health ofthe economy, particularly consumer and business spending on travel.

For SFY 2011-12, collections from the auto rental tax are estimated to be $102 million, a 7.4% percent increase from that in SFY 2010-11. In SFY 2012-13, collections from this tax areprojected to be $107 million, a 4.9 percent increase.

Highway Use Tax

Articles 21 and 21-A of the Tax Law impose a highway use tax on commercial vehicles usingthe public highways of the State. Highway use tax revenues are derived from three sources:

the truck mileage tax, fuel use tax, and registration fees

The truck mileage tax (TMT) is levied on commercial vehicles having a loaded gross weight ofmore than 18,000 pounds, or an unloaded weight in excess of 8,000 pounds for trucks and 4,000pounds for tractors. The tax is imposed at rates graduated according to the gross vehicle weight.All highway use tax receipts are directed to the Dedicated Highway and Bridge Trust Fund. Inaddition, a supplemental tax equal to the base truck mileage tax is imposed.

For SFY 2011-12, collections from the highway use tax are estimated to be $144 million, a

11.6% percent increase from SFY 2010-11. Collections from this tax are projected to beessentially the same as in SFY 2012-13. Fuel tax collection on highway use fluctuates with fuelconsumption and hence, in turn, is influenced by economic conditions. These tax collections canalso be affected by fuel prices.


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Business Taxes

All Funds business tax receipts are estimated to total $7.89 billion for SFY 2011-12, an increase6.9 percent from SFY 2010-11 collections. Much of this increase reflects increased economic

activity and generally increasing corporate profits. Also, this increase is partially attributed tothe business tax credit deferral program enacted in SFY 2010-11.

For all business tax collections, General Fund collections are estimated to total $5.84 billion forthe current fiscal year, an increase of 10.5 percent from SFY 2010-11.

For SFY 2012-13, All Funds business tax receipts are projected to increase to $8.34 billion, anincrease of 5.8 percent over SFY 2011-12. General Fund receipts are projected to increase to$6.2 billion, an increase of 6.6 percent. Projected growth reflects revenues as a result of thedeferral of tax credits and increased corporate profitability as businesses continue to reboundfrom the latest economic recession.

Corporation Franchise Tax

Levied by Article 9A of the New York State Tax Law, the corporate franchise tax imposes a taxon income from domestic and foreign corporations for the privilege of exercising their corporatefranchise or doing business, employing capital, owning or leasing property, or maintaining anoffice in New York. The corporate franchise tax is imposed at a rate of 7.1 percent onbusinesses entire net incomes. Article 13 imposes a 9 percent tax on unrelated business incomefrom not-for-profit organizations. The corporate franchise tax generates nearly half of allbusiness tax revenues, averaging 43 percent in All Funds receipts over the last five years.

For SFY 2011-12, All Funds receipts are estimated to total $3.20 billion, 12.5 percent growthover SFY 2010-11. Excluding audits, corporate franchise tax revenues are estimated to increase27 percent primarily due to growth in corporate profits and additional revenues from the deferralof tax credits. General Fund receipts are estimated to total $2.80 billion, an increase of 13.1percent.

For SFY 2012-13, All Funds receipts are projected to increase to $3.39 billion, an increase of 5.7percent. On a General Fund basis, receipts are projected to increase to $2.93 billion, 4.7 percentgrowth. The projected growth is a result of increased revenues from the continued deferral of thetax credits and continued growth in corporate profitability.

Corporation and Utilities Tax

Specialized industries, including public utilities, newly organized or reorganized corporations,out-of-State corporations doing business in New York State, transportation and transmissioncompanies, and agricultural cooperatives are required to pay taxes and fees under Article 9 of theTax Law. Historically, a majority of Article 9 revenues have been derived from public utilities


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and the transportation and telecommunications industries. However, due to regulatory andstatutory changes over the last seven years, the telecommunications industry has become theprimary source of revenues from this tax.

For SFY 2011-12, All Funds receipts are estimated to total $832 million, an increase of 2.3

percent from SFY 2010-11. General Fund receipts are estimated at $631 million for SFY 2011-12 compared with $616 million in SFY 2010-11. This increase is largely the result of increasingunderlying trends in liabilities, partially attributable to increasing telecommunications services inSFY 2011-12. Through September, All Funds receipts have amounted to $310.4 million, slightlyless than the comparable period last year and 14 percent less than the average midyear totals overthe last five years.

For SFY 2012-13, All Funds receipts are projected to increase to $904 million, an increase of 8.7percent. General Fund receipts are projected to increase to $715 million, an increase of 13.3%.The rebound in revenues is a result of steady increases in the consumption oftelecommunications and public utilities services projected through 2012.

Insurance Tax

Article 33 of the Tax Law imposes taxes on insurance companies, insurance brokers, and certaininsurers for the privilege of conducting business in the State. The tax base for Article 33 isdivided between life and non-life insurers. A premiums-based tax is levied on non-life insurersand independently procured insurance. Life insurance companies pay an income tax similar tothe corporate franchise tax, as well as a premiums tax component at a rate of 0.7 percent oftaxable premiums. However, the sum of the two cannot exceed 2 percent of taxable premiums.Accident and health insurers are taxed at a rate of 1.75 percent of premiums and all other insurers

are taxed at a rate of 2 percent.

All Funds Insurance Tax receipts are estimated to total $1.41 billion for SFY 2011-12, anincrease of 4.4 percent. A slight increase in liability over the fiscal year is offset by a reductionin receipts as a result of the increased prepayment from 30 to 40 percent that went into effect lastMarch as well as an anticipated decline in audits receipts. General Fund receipts are estimated tototal $1.286 billion in SFY 2011-12, a 1.4 percent increase from the previous fiscal year.

All Funds revenues are projected to increase by 4.0 percent in SFY 2012-13, totaling $1.466billion. General Fund revenues, in turn, are projected to increase 2.5 percent for a total of $1.31billion. This growth is primarily attributed to increased revenues from the provision that defers

certain tax credits.

Bank Tax

Bank Tax revenues are collected under Article 32 of the Tax Law. The tax is imposed on banking corporations conducting business in New York State, comprised of three types:clearinghouses, savings institutions, and other commercial banks. Similar to Article 9-A


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requirements, bank tax liability is computed under four alternative bases: alternative minimum,entire net income (ENI), asset base, and a fixed dollar minimum. The tax is collected on the basethat yields the highest liability.

For SFY 2011-12, All Funds receipts are estimated to total $1.34 billion, an increase of 13.4

percent from SFY 2010-11. The increase is attributable to slightly better profits and a largedecrease in the amount of refunds that are being paid out this year. General Fund revenues areestimated to total $1.12 billion in SFY 2011-12, an increase of 15.3 percent.

In SFY 2012-13, All Funds and General Fund receipts are projected to increase by 7.8% percentto $1.43 billion and by 7.3 percent to $1.21 billion, respectively, as increased revenues arecollected from the deferral of tax credits and liability growth steadily increases year over year.

Petroleum Business Tax

The Petroleum Business Tax (PBT) is levied under Article 13-A of the Tax Law. The tax isimposed on petroleum related businesses and is based upon the quantity of various petroleumproducts imported for sale or use in the State. PBT rates are amended on January 1st of each yearto reflect the change in the Petroleum Producers Price Index for the twelve month period endingthe previous August 13th. The changes in the rates are, by law, only allowed to fluctuate by 5percent per year.

All Funds receipts for SFY 2011-12 are estimated at $1.11 billion, a 1.5 percent increase overSFY 2010-11. The PBT index increased by 5 percent on January 1, 2011. This increase iscapped in the Tax Law regardless of what the petroleum producer price index actually is. ForSFY 2012-13, PBT receipts are projected to increase to $1.15 billion, a 4.1 percent increase

partially attributed to a 5 percent increase in the PBT index effective January 1, 2011. There areno General Fund receipts for this tax.

Other Taxes

Other taxes are primarily comprised of the estate and gift taxes, real estate transfer taxes, theMetropolitan Commuter Transportation Mobility Tax (Payroll Tax), and pari-mutuel taxes.

Estate Tax

New Yorks estate taxes do not have to be remitted until nine months following a persons death.As a result, the amount of estate taxes paid in any particular month is not a reflection of thecurrent economy, but the economy at the time of death. These collections are also a function ofthe size of the estates on which the taxes are paid.

Estate tax collections are estimated to decrease in SFY 2011-12 by 16.7 percent from SFY 2011-11, to $1.02 billion. Three super-large estates were settled in SFY 2010-11. Estate taxes are


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projected to slightly increase by 5.3 percent in SFY 2012-13 to $1.07 billion. The Estate Taxrevenue is a function of households real net worth, indirectly to the stock index and any kind oftax law change, specifically related to credit exemption on the value of inherited estates. Incurrent fiscal year, households real net worth is expected to increase compared to SFY 2010-11.

Real Estate Transfer Tax

Real estate transfer tax collection for SFY 2011-12 are estimated to be $620 million, up by $41million. Real estate transfer collections for SFY 2012-13 are projected to total $690 million,increasing by $70 million, this increase reflects the projected general improvement in thehousing market statewide. There are no General Fund receipts for this Tax.

Metropolitan Commuter Transportation Mobility Tax

Established in 2009, the Metropolitan Commuter Transportation Mobility Tax, also referred to as

the payroll tax, provides additional revenue to the Metropolitan Transportation Authority(MTA). The tax imposes a rate of 0.34 percent on the payrolls of certain employers and self-employed individuals doing business within the Metropolitan Commuter Transportation District.

All Funds receipts for SFY 2011-12 are estimated at $1.42 billion, a 4.6 percent increase overSFY 2010-11. In SFY 2012-13, receipts are projected to increase 5.6 percent, totaling $1.50billion. This increase is attributed to forecasted growth in wages and proprietorship incomes inthe NYC metropolitan area.

General Fund Miscellaneous Receipts

SFY 2010-11Actual

SFY 2011-12Estimated

SFY 2012-13Projected

Licenses, Fines, and Fees 680 455 525Abandoned Property 645 755 735Motor Vehicle Fees 34 132 109Alcoholic Beverage License Fees 52 49 51Reimbursements 270 202 202Investment Income 6 10 10

Other 1,408 1,495 1,285Total 3,095 3,098 2,917

General Fund miscellaneous receipts are estimated to total $3.1 billion in SFY 2011-12. ThisReport accepts DOB projections for Miscellaneous Receipts in all categories.

Collections in SFY 2012-13 are projected to decrease by 5.8 percent; decreasing from $3.1billion to $2.92 billion.


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Alcoholic Beverage License Fees:

New York State distillers, brewers, wholesalers, retailers, and others who sell alcoholic

beverages are required by law to be licensed by the State Liquor Authority. License fees varydepending on the type and location of the establishment or premises operated, as well as the classof beverage for which the license is issued.

For SFY 2011-12, collections are estimated to be $49 million, a 5.8 percent decrease from SFY2010-11. Collections are projected to be $51 million in SFY 2012-13, a 4.1 percent decreasefrom SFY 2011-12.

Lottery/VLTs

Traditional Lottery

Many provisions were enacted in SFY 2011-12 that impact Lottery receipts. These provisionsincluded:

Provide "Free-Play Allowance" to Video Lottery Gaming Facilities. Facilities are authorizedto provide free game ("free-play") credits as a marketing tool to increase play at the facility. Thisaction allows Video Lottery Gaming facilities to offer free-play credits that are excluded fromnet machine income. The amount of free-play allowance provided to each facility is capped at 10percent of the net machine income at that facility.

Number of 75 Percent Instant Games. Increases the number of instant games with a 75 percentprize pay-out from three to five new games per year.

Increase Prize Payout Percentage on Multi-Jurisdictional Games.New York currently offerstwo multi-jurisdictional lottery games, Mega Millions and Powerball. If the prize payout oneither of these games were to increase above their current 50 percent prize-pay, New York wouldnot have been able to participate due to the statutory limit prohibiting a prize-payout in excess of50 percent on multi- jurisdictional games. This action allows the Lottery to have up to a 55percent prize-payout on multi-jurisdictional games.

Multi-State Progressive Video Lottery Games. The Lottery offers progressive jackpots (a cash prize that grows larger until won) for certain Video Lottery Games. Currently, terminals indifferent New York State video lottery gaming facilities can be combined into a progressive jackpot pool. This allows New York to combine with play in other states to increase theprogressive jackpots through larger pools.

It is estimated that these changes will increase revenue this year by $111 million (All Funds) andby $127 million in SFY 2012-13.


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For SFY 2011-12 it is estimated that traditional lottery sales will contribute $2.2 billion on Aidto Education for New York State compared with $2.1 billion for the current State Fiscal Year.

Video Gaming

The current trend of increased revenue from video gaming is estimated to continue through theend of SFY 2011-12.

For SFY 2011-12 it is estimated that revenue from video gaming sales, combined with therevenue from the franchise agreement for Aqueduct and the anticipated increase in sales withexpanded hours at VLT facilities, will contribute more than $682 million in Aid to Education for New York State. In total, collections from video gaming are projected to decrease by $238million to $682 million in SFY 2011-12. However, this decrease is caused the lack of a one-timepayment related to Aqueduct that was received by NYS in SFY 2010-11. However, base levelVLT proceeds are expected to increase by approximately $150 million in the current year.


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DISBURSEMENT PROJECTIONS

Education

The State Education Department (SED) is required by law to provide an update of State Aidclaims for school districts. This update takes place three times a year in the months of February,May and November, on or before the 15th of each month. The most recent data we currentlyhave in an unofficial update provided by SED in September 2011.

The State Budget process for the 2011-2012 School Year continues a similar path than in prioryears due to the States continuing fiscal crisis and the loss of American Recovery andReinvestment Act (ARRA) federal funds. School Districts were scheduled to receiveapproximately $16.03 billion in Foundation Aid for School Year (SY) 2011-2012. However, theenacted budget continued to freeze Foundation Aid at the 2008-2009 level of $14.89 billion; a

decrease of $1.14 billion from current law.

The enacted school aid run reduced State Aid in the amount of $700 million or 3.8 percent on aYear to Year basis. The enacted budget included a school aid restoration of $230 million forSchool Year 2011-2012. This brings computerized aids funding to $19.64 billion in School Year2011-2012. At the same time, the enacted budget applied a Gap Elimination Adjustment in theamount of $2.55 billion to formula-based aids. Only Building Aid, Building Aid ReorganizationAid and Universal Pre-kindergarten (UPK) are excluded from the Gap Elimination Adjustmentformula.

Tax Levy and General Fund Support for Public Schools (GSPS) Caps

Chapter 97 of the Laws of 2011 established a tax levy limit that affects all school districts inNew York State, except the Big Five City school districts. The law is effective for the 2012-2013School Year. The tax levy for school districts cannot increase more than the rate of inflation or 2percent, whichever is lower. At the same time, the enacted budget included legislation that wouldlimit school aid growth to the rate of growth of personal income. It is estimated that personalincome growth would increase within a range of 4.1 percent and 4.5 percent or approximatelybetween $805 million and $870 million for SY 2012-2013.

According to the New York State School Boards Associations policy agenda titled NYSSBA:

Essential Fiscal Reform Play Book, school districts experienced double-digit increases in healthinsurance costs in both 2009 and 2010, and average annual increases in employer-providedhealth care benefit costs nationwide are projected to increase in 2011 by another 10.6 percent to11.6 percent, depending on the type of plan.According to a recent study by the Empire Centerfor New York State Policy, tax-funded annual contributions to the Teachers Retirement Systemover the next five years will quadruple. The $3.6 billion rise in teacher pension contributions(from about $900 million in FY 2010-11 to $4.5 billion by FY 2015-16) equates to an averageincrease of nearly 3.5 percent a year. At the same time, school districts have eliminated about


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30,000 teaching and support staff positions and cut programs as way to deal with the fiscal crisisand loss of State Aid. However, costs are expected to increase.

*Source: New York State Education Department, Fiscal Challenges Facing New York State School Districts:Prepared for the Regents School Finance Symposium, September, 2011.

The New York State Education Department estimated that if current spending patterns continueto increase at their historical rate of growth of 5.3 percent, school districts could be facingadditional adjustments to their school budgets. According to SED, projected revenues will beoutpaced by current costs (after adjusting for the 2 percent tax cap on local revenue growth andno growth in federal aid or School Tax Relief Program (STAR) by almost $17.6 billion in SY2016-2017.

Foundation Aid

Foundation Aid accounts for over 70 percent of total School Aid. Foundation Aid has beenfrozen at the 2008-2009 level of $14.894 billion for the last three years. The enacted budgetcontinued the freeze in SY 2011-2012, however, it authorized the restart of Foundation Aid inSY 2012-2013. Full phase-in of the formula would be delayed until 2015-16.


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The Foundation Aid formula drives funds to schools districts with the greatest needs. Theformula was the result of the 13-year court battle between the Campaign for Fiscal Equity andthe State of New York.

* Source: State Education Department Local Assistance Tables. Foundation Aid is subject to reduction as part of the

Gap Elimination Adjustment formula.

Universal Pre-K

According to the National Institute for Early Education Research (NIEER), approximately morethan 1.3 million children participate in State-funded Prekindergarten programs, about 40% of all3 and 4-year-olds in the nation. State spending on Prekindergarten programs totals more than$5.4 billion across the Nation.

The New York State Universal Prekindergarten (UPK) program was established under Chapter

436 of the Laws of 1997. During the 2004-05 school year, 192 districts (224 eligible) servedapproximately 57,000 students. In School Year 2011-2012, this number has increasedconsiderably from 192 to 450 school districts and the number of 4-year old has increased from57,000 to almost 108,400.

The Senate Finance Committee estimates that Universal Pre K for the 2012-2013 School Yearwill be funded at the $384.2 million level. However, funding for UPK could increase if NewYork State is awarded funds from a Race to the Top Early Learning Grant. The State application


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has a request of $100 million of the $500 million total federal grant. These funds could be usedto increase the number of high-quality early childhood learning programs, provide teachers withtools to measure students strengths and weaknesses, assist parents in becoming more involved intheir childrens education and improve the quality of the early education workforce.

*Source: State Education Department Local Assistance Tables

Expense-Based Aids

Expense based aids are an important part of the funding received by school districts. These fundsreimburse school districts for costs already incurred in areas such as transportation, schoolconstruction, special education and cooperative services. For SY 2011-2012, the enacted budgetfunded all expense-based aids at present law levels.

BOCES services are created when two or more school districts decide they have similar needsthat can be met by a shared program. BOCES helps school districts save money by providingopportunities to pool resources and share costs. Sharing is an economical way for districts toprovide programs and services that they might not be able to afford otherwise. It is often moreefficient and less costly to operate one central service than it is to have separate programs in eachschool district. BOCES services are often customized offering districts the flexibility to meettheir individual needs. The reported School Aid amount for School Year 2011-2012 totaled$724.8 million, an increase of $23.7 million or 3.39 percent above SY 2010-2011. If we were toestimate BOCES aid based on percentage increases over the last five years, BOCES Aid for thenext School Year could increase by 4.48 percent or $32.4 million in SY 2012-2013.

Transportation Aid reimburses school districts for approved transportation expenses including

equipment, salary, and benefits. The reported School Aid amount for School Year 2011-2012totaled $1.65 billion, an increase of $74.6 million or 4.73 percent above SY 2010-2011. Aprecise estimate for SY 2012-2013 cannot be provided at this time since the most recent data thatwe currently have is based on the latest SED September 2011 database update. If we were toestimate Transportation Aid based on percentage increases over the last five years,Transportation Aid would increase by 4.24 percent or $70 million in SY 2012-2013.

Building Aid allows school districts to receive aid for approved building projects. The reportedSchool Aid amount for School Year 2011-2012 totaled $2.55 billion, an increase of $164.2million or 6.88 percent above SY 2010-2011. We will not have actual data until the November2011 release of the database update. If we were to estimate Building Aid based on percentage

increases over the last five years, Building Aid would increase by 8.75 percent or $223.43million in SFY 2012-2013.

Private Excess Cost Aid provides reimbursement for public school children with more severedisabilities who are placed in private school settings or in the schools in Rome and Batavia. Thereported School Aid amount for School Year 2011-2012 totaled $351.1 million, an increase of$10 million or 2.96 percent above SY 2010-2011. If we were to estimate Private Excess Cost Aid


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based on percentage increases over the last five years, Private Excess Cost Aid would increaseby 9.37 percent or $32.9 million in SFY 2012-2013.

Public Excess Cost: It is difficult to determine the total amount of this increase since PublicExcess Cost Aid is folded into the Foundation Aid formula. In the case of High Cost Excess Cost

Aid the data can only address four years making a precise estimate difficult. If we were toestimate High Cost Excess Cost Aid based on percentage increases over the last four years, HighCost Excess Cost Aid would increase by 0.75 percent or $3.77 million in SFY 2012-2013.


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2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Total Growth

Building Aid $1,679,767,224 $1,799,607,048 $1,980,717,668 $2,193,556,373 $2,389,392,474 $2,553,687,981

$ Change $119,839,824 $181,110,620 $212,838,705 $195,836,101 $164,295,507 $873,920,757

% Change 7.13% 10.06% 10.75% 8.93% 6.88% 52.03%

Transportation $1,345,266,148 $1,439,597,699 $1,534,399,005 $1,556,151,317 $1,578,509,079 $1,653,161,482

$ Change $94,331,551 $94,801,306 $21,752,312 $22,357,762 $74,652,403 $307,895,334

% Change 7.01% 6.59% 1.42% 1.44% 4.73% 22.89%

BOCES $583,090,493 $625,080,931 $671,492,579 $693,198,605 $701,067,912 $724,850,871

$ Change $41,990,438 $46,411,648 $21,706,026 $7,869,307 $23,782,959 $141,760,378

% Change 7.20% 7.42% 3.23% 1.14% 3.39% 24.31%

Private Excess

Cost Aid $226,763,492 $625,080,931 $671,492,579 $693,198,605 $701,067,912 $724,850,871 $150,856,130

$ Change $51,086,190 $46,411,648 $21,706,026 $7,869,307 $23,782,959 66.53%

% Change 22.53% 7.42% 3.23% 1.14% 3.39%

High Cost

Excess Cost $473,038,208 $521,445,823 $495,629,073 $500,840,499 $505,295,422$ Change $48,407,615 -$25,816,750 $5,211,426 $4,454,923 $32,257,214

% Change 6.00% -4.95% 1.05% 0.89% 6.82%

Year to Year Aid Growth

Medicaid

Methodology

The Senate Finance Medicaid forecast model is comprised of five components including,institutional, non-institutional, managed care, non institutional long term care, and other

categories and is based on the projections of price and service units to forecast Medicaidexpenditures for Department of Health Medicaid spending. This forecast does not includeMedicaid spending in other agencies. These calculations are derived from data contained in theManagement Accounting Reporting Subsystem (MARS) reports 39, 51, 72 and 73. Projectionsare based on an analysis of service category trends. State spending is analyzed and compared toprior year levels of spending. The projected changes are further refined to larger data sets andcompared with quarterly percentage changes. In order to account and adjust for periodicreconciliation of account, the Senate Finance forecast model includes review of quarterly data,which is more reliable.

The total expenditures for the next year are projected from the current year base by multiplying

the cost per unit of beneficiary by the trended units of service. This total is also multiplied by theexpected State share for each category of service. The Senate Finance model also continues torefine these calculations to apply other variables not expressed in the model such as economicindicators like unemployment rate trends, public assistance caseload trends and wages and salarytrends.

In terms of the estimates produced with this methodology, the accuracy must be balanced againsta number of unknowns. Principally, as part of phase one of Medicaid redesign, a total of 78


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individuals proposals are being implemented with the global goals of moving Medicaid towardsa managed care model, implementing new payment/reimbursement models, phasing in newutilization/cost control structures, and the transferring of local administrative responsibilities forthe Medicaid program to the State. The financial impacts of such actions in terms of overallState savings or additional costs for the current State Fiscal Year (SFY), and subsequent SFYs

are not entirely understood.

Another factor that must be considered is associated with the 52 State plan amendments (SPAs)submitted to Centers for Medicare and Medicaid Services (CMS) as part of phase one of theMedicaid Redesign process. Twenty of those recommendations have been approved by CMS.Failure of the Centers for Medicare and Medicaid Services to approve the remaining 32 measurescould result in the State not achieving a number of anticipated saving actions, and spendingcould be higher than projected by the Medicaid expenditure forecasts for SFY 2011-12 and SFY2012-13.

Total Medicaid spending reflects payments for more than twenty major service categories.

Although the eMedNY system provides monthly data for a substantial percentage of budgetedMedicaid spending, significant expenditures remain outside the confines of eMedNY (in theform of offline payments), and are thus not accounted for in a detailed manner on a consistent basis. Examples of significant expenditures that are made outside the eMedNY system areadministrative costs that are reimbursed by the State to local governments, cash receipts fromaudit recoveries made by the Office of the Medicaid Inspector General (OMIG), and Statespending related to its assumption of localities Medicaid payments under the existing spendingcap. Although Medicaid payments made outside the eMedNY system total more than $1 billionper year, there is no readily available information source to allow Senate Finance to track thisspending on a regular basis.

Midyear Projections

As part of the efforts associated with the Medicaid Redesign Team, Medicaid State spending wascapped for a two year budget cycle. Medicaid spending is capped at $15.28 billion in SFY 2011-12, and $15.88 billion for SFY 2012-13. The midyear forecast projects State Medicaid baselineexpenditures for SFY 2011-12 at $15.21 billion (including enhanced FMAP adjustment)representing a negligible $70 million decrease in Medicaid baseline expenditures whencompared to the enacted $15.28 billion cap.

The Senate Finance forecast projects increased spending in freestanding clinic services andMedicaid Managed Care (MMC). These two categories of spending are expected to experiencethe greatest year to year growth. The projected increase in spending for freestanding clinicservices and MMC spending are driven primarily by the increase in number of beneficiariesserved in clinics, and higher than anticipated enrollment in MMC. These expected increases areexpected to be offset by projected year to year reductions in spending for hospital inpatientservices. This spending trend can be attributed to the enactment of Medicaid reimbursementreform for inpatient and outpatient services, which has a goal of shifting spending from inpatientservices to outpatient and primary care services, and the migration of recipients to MMC.


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The number of Medicaid enrollees, including MMC, is expected to exceed 5 million before theend of 2011. Economic factors continue to drive Medicaid enrollment, and Senate Financeestimates a total of 208,000 new enrollments in the Medicaid program for SFY 2011-12.

SFY 2012-13 Forecast for Medicaid Spending

The Senate Finance forecast model was trended forward primarily using the most recent 12months of spending and utilization data with various projected adjustments. Medicaid spendingis capped at $15.88 billion for SFY 2012-13. The Senate forecast projects that baseline Medicaidexpenditures for SFY 2012-13 would be $16.42 billion, an increase of $544 million or 3 percentabove the SFY 2012-13 enacted cap. These projections must be balanced against potential fiscalimpacts resulting from actions associated with phase two of Medicaid redesign, and also fromfully annualized State savings associated with phase one initiatives started in the current SFY.This report anticipates that savings measures will lower projected State spending levels backdown to or close to the enacted cap for SFY 2012-13.

Risks to the Financial Plan

A significant portion of the forecast relies on economic indicators such as unemployment rates.As a result, upward or downward trends in the State and national economy can change theprojections of the forecast for SFY 2011-12 and SFY 2012-13. Furthermore, a two house bill,S.5889-B (Gallivan)/Same as A.8644 (Paulin), has been introduced that would gradually transferall local Medicaid costs to the State over an eight-year period between calendar years 2012 and2019. The total fiscal impact to the State between State Fiscal Years 2011-12 and 2019-20would be $33.0 billion. In State Fiscal Year 2019-20, the annual cost to the State would be $8.7billion.

Public Assistance

New York States Public Assistance caseload consists of two major categories of recipients:Family Assistance and Safety Net Assistance. The temporary cash assistance programs offersupport services and cash assistance to eligible low-to moderate-income families and individuals.The Family Assistance program is financed through federal Temporary Assistance for NeedyFamilies (TANF) funds. Recent changes as part of the enacted budget will fully finance Family

ny state senate minority finance committee 2011 mid year budget report

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