Unshackle Upstate 2011-12 Mid-Term Progress Report

A Review of Progress on Budget and Legislative Issues

November 2011

NEW YORK’STAXPAYERS AND JOB CREATORSWANT A 2%Property TAX CAP

INTRODUCTION

In recent years, businesses and families have left Upstate New York in record numbers. Private sector job losses have devastated our communities. New York State’s leaders have not shown a commitment to job creation and economic development. In fact, our image over the last decade has been quite the opposite – we have one of the worst business climates in the nation.

It is beyond dispute that the state’s policies have contributed to our economic problems by failing

to meet the economic challenges we face. In many cases, Albany hasn’t just failed to act – state government has actually adopted policies that have made our economic situation even worse.

This report takes a hard look at what New York State has done right since the beginning of 2011, and what additional steps will address the high cost of doing business in the state.

A NEW DAY AT THE CAPITOL

Overall, 2011 has been a good year for taxpayers and employers – perhaps the best year in recent history.

New Year’s Day 2011 began with the inauguration of a new governor and the promise of changing Albany’s dysfunctional ways. Immediately upon taking office, Gov. Andrew Cuomo spoke of the many challenges facing New York State – including

a $10 billion state budget deficit. The governor also made it clear that he intended to follow through on his campaign promise to cap the growth of local property taxes.

New Yorkers also returned the Republicans to the

majority in the State Senate, and Senator Dean Skelos (R-Rockville Centre) was elected Senate Majority Leader. This new leadership brought with it stability and predictability – representing a welcome change from the chaos and dysfunction that characterized the Senate in 2009 and 2010.

Much remains to be done. Upstate New York’s economy did not crumble overnight, nor can it be revitalized immediately. Restoring the Upstate economy will require a long-term, sustained effort by state government to understand and address the needs of the business community – and of the taxpayers – who help make our communities thrive and prosper.

Gov. Andrew Cuomo delivered his State of the State address across New York in January 2011.

Unshackle Upstate Executive Director Brian Sampson spoke alongside legislative leaders during a pro-property tax cap event in April 2011.

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UNSHACKLE UPSTATE’S CORE PRINCIPLES

Unshackle Upstate continues to focus its work on the following principles:

Reducing State and Local Spending

Government spending continues to be a major issue for New York State. While the 2011-12 state budget reduced spending by 2 percent, the downward trend must continue in order to “right size” state spending. Additional savings must continue to be explored by consolidating and streamlining services. Spending on education and Medicaid - which make up a significant majority of the state budget - were capped in this year’s budget, but additional recurring savings must be found for the future.

Reducing Mandates

The tangle of laws and regulations that makes New York notoriously unfriendly to business and job creation also saddles local governments with expensive requirements, typically without funding to pay for them. The result: a tax shift to local governments to cover the cost of paying for a range of services – all at the expense of the taxpaying public.

Reducing State Borrowing

Also included in this year’s state budget were significant corrections to the state’s future debt and borrowing policies. For example, the governor and Legislature reduced the 2012-13 projected budget deficit from $15 billion to approximately $2 billion. As it continues to reduce its spending, the state should avoid relying on irresponsible borrowing and long-term debt.

Reducing Taxes, Fees and Assessments

The 2009-10 and 2010-11 state budgets included $9.2 billion in new taxes and fees. This year’s state budget did not include any new taxes or fees. This action was a significant first step toward improving the state’s economic climate, and the 2012-13 state budget should continue reducing the tax burden on New Yorkers.

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REVIEW OF THE 2011 LEGISLATIVE SESSION

How did Albany lawmakers do in 2011? When compared to recent years, they did extraordinarily well.

New Yorkers saw an on-time state budget that not only reduced spending, but successfully addressed a $10 billion budget gap. The governor signed into law an historic 2-percent property tax cap which also established a Mandate Relief Council that can address and provide relief from costly and burdensome regulations that the state has imposed on local governments.

But by virtually every measure, the Upstate economy is still struggling. There is still much more that needs to be done. The mandate relief provisions – which will save taxpayers more

than $125 million annually, according to the Division of Budget – included in the property tax cap law were woefully inadequate.

And while it is too early to say whether the Regional Economic Development Councils will succeed in promoting private-sector job creation, we are pleased that the effort is a regionally-based one that will take advantage of the unique attributes and strengths that each part of New York State has to offer.

The remainder of this report looks at what Gov. Cuomo and the Legislature accomplished during

the 2011 legislative session, and also discusses what remains to be accomplished during 2012.

2011 BUDGET REVIEW

WHAT HAPPENED UU OPINION

Overall 2011-2012 State Budget

Lawmakers enacted an on-time state budget that cut spending by 2 percent and closed a $10 billion deficit without increasing taxes or state debt.

This year’s state budget represents a huge improvement over the 2009-10 and 2010-11 state budgets, both of which increased taxes and state spending.

State Agency Consolidation

The governor advanced and achieved a number of state agency consolidations through the state budget, saving over $50 million during the current fiscal year. The governor also achieved passage of the Executive Reorganization Act of 2011, which allows him to submit an agency reorganization plan to the Legislature that must be voted on.

These state agency consolidations that were achieved represent an excellent first step toward “right-sizing” state government.

The Executive Reorganization Act can be an important tool in achieving additional agency consolidation and savings for state taxpayers.

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Unshackle Upstate Executive Director Brian Sampson discussed the organization’s advocacy efforts with members of the Capitol press corps.

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WHAT HAPPENED UU OPINION

Spending and Government Efficiency (SAGE) Commission

The governor launched the SAGE Commission in mid-April “to undertake a comprehensive review of every state agency of state government and recommend structural and operational changes to it.” The group held two meetings, but did not advance an agency reorganization plan for consideration by the Legislature.

The SAGE Commission is the means through which the governor will propose an agency reorganization plan to the Legislature. Unfortunately, while the SAGE Commission began its work, it did not present an agency re-organization plan by the statutory deadline.

The governor should direct the SAGE Commission to begin working again to ensure that it is able to present an agency reorganization plan to the Legislature in 2012.

Recharge NY The state budget included the Recharge New York, which made the Power for Jobs Program permanent.

Making this program permanent – which was long overdue – will provide low-cost energy to job-creating businesses and not-for-profit organizations across New York State.

Sales Tax Exemption

The enacted state budget renews the state sales tax exemption for clothing purchases under $55. Next year, the state sales tax exemption will apply to all clothing purchases under $110.

This is an example of a tax reduction that will immediately benefit families, and it will also benefit businesses close to the state’s borders by keeping shoppers in-state.

Reducing Medicaid Spending

Governor Cuomo’s Medicaid Redesign Team (MRT) recommended some $5 billion worth of cuts to the program, and to cap the state’s share of Medicaid spending. Most of the MRT’s proposals became law.

The enacted budget provides for a two-year Medicaid appropriation, providing for a fixed rate of growth for the 2012-13 budget.

This represents a huge step forward – reductions in Medicaid spending were long overdue.

However, the failure of the governor and Legislature to reach agreement on medical malpractice reform – which was recommended by the MRT – represents a missed opportunity.

Education Spending

The governor proposed a $1.5 billion cut in education spending, and the Legislature restored about $230 million.

The enacted budget provides for a two-year appropriation for education, providing for a fixed rate of growth for the 2012-13 budget.

Ending the practice of increasing state aid each year – regardless of the state’s ability to support such spending – is critical to restoring the state‘s long-term economic well-being.

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2011 LEGISLATIVE REVIEW

WHAT HAPPENED UU OPINION

Property Tax Cap

The governor signed into law a 2-percent property tax cap (Chapter 97 of 2011) that exempts some pension costs and tort costs. The cap allows for growth, and includes an override option that would allow for the tax levy to exceed the cap when 60 percent of voters (for school districts) or 60 percent of the total voting power of the governing body (for local governments) approve such an increase.

This historic law, while not perfect, should provide most Upstate New Yorkers with relief from ever-increasing property taxes.

The sunset date built into the law means that it will have to be approved again in the coming years.

But the failure to achieve real mandate relief this session (discussed below) will put a great deal of pressure on local government officials to live within the property tax cap.

SUNY The governor signed into law the NYSUNY 2020 bill, which includes a Challenge Grant Program to encourage economic development plans on SUNY campuses and the surrounding communities and a rational tuition program of predictable tuition increases which will benefit the SUNY campuses themselves.

This will strengthen SUNY’s ability to provide quality affordable education, enable students and parents ensure that they can afford their education, and will enable SUNY campuses across the state to become engines for economic development.

Health Insurance Two proposals would have increased health insurance premiums – the Health Care Reform Act (HCRA) surcharge and a bill that would have allowed for collective negotiations by health care providers (S.3186-A/A.2474-A) – were not approved.

As the cost of health insurance coverage continues to rise, the Legislature should not approve any legislation that will increase costs for those with private health insurance.

We note again that the Health Care Quality and Cost Containment Commission does not appear to have met since it was enacted into law in 2007. We urge the governor to appoint the members of this Commission to analyze the costs and quality of proposed health insurance mandates as soon as possible.

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WHAT HAPPENED UU OPINION

Article X Siting The Power NY Act included a new power plant siting law to streamline the decision-making process with respect to the construction and operation of new major electric generating facilities, or the re-powering of existing facilities.

The new power plant siting law will encourage the construction of new electric generation and help reduce rising energy costs incurred by Upstate’s manufacturing industries and other large energy users, providing a much needed boost to the Upstate economy.

Workers’ Compensation

The Legislature introduced several bills that would erode cost reduction components in the 2007 Workers’ Compensation reform package, including S.3741/A.6294 (which passed the Assembly, but did not pass the Senate).

It is critical that the 2007 reform law be implemented as intended to ensure that it provides the savings to businesses while ensuring access to medical care and benefits for injured workers. Bills that undermine the historic 2007 reforms – such as S.3741/A.6294 – must be rejected.

Project Labor Agreements

During the final negotiations on the property tax cap/mandate relief legislation, attempts were made to encourage the use of Project Labor Agreements (“PLAs”) by enabling project owners to require them instead of going through the separate bidding process otherwise required by the Wicks Law.

Mandating or encouraging the use of PLAs arbitrarily increases public construction costs since bids must include antiquated and costly union rules that increase labor costs and render the majority of local construction workers ineligible to work on the project in favor of hiring only union construction workers. Proponents argue that PLAs ensure the speed and quality of construction plans. But PLA projects cost taxpayers, on average, 12-18 percent more than projects awarded by open, competitive bidding.

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WHAT HAPPENED UU OPINION

Union Contracts Governor Cuomo reached agreement with the leadership of the state’s two largest unions (CSEA and PEF) on contracts that included pay and health care concessions in exchange for avoiding layoffs.

CSEA and PEF members have approved their respective contracts.

The 2011-12 state budget reflects savings that are to be achieved through a reduction in labor costs, and the governor negotiated fair contracts with CSEA and PEF given the state’s financial situation. The governor’s determination that the state government must tighten its belt will help put New York State on a stable financial footing in future years.

Mandate Relief for Local Governments

Governor Cuomo started well on this, issuing Executive Order #6 appointing a Mandate Relief Redesign Team (MRRT) in early January to “look for ways to reduce the costs of mandated programs on schools and local governments.”

The MRRT held 6 meetings throughout the legislative session and issued a preliminary report on March 1st. But the MRRT failed to issue a final report, and did not reach agreement on mandate relief measures.

The property tax cap law (Chapter 97) included some mandate relief provisions that will save over $100 million, but much more must be done.

Under Executive Order No. 6, the MRRT must issue a final report to the governor by March 31, 2012.

The state must provide for real mandate if local governments and school districts are going to be able to live within the state’s newly-enacted property tax cap.

But the mandate relief measures that were ultimately adopted as part of the property tax cap legislation are woefully inadequate.

The new 11-member Mandate Relief Council, tasked with identifying and reviewing mandates that can be eliminated or reformed, may provide some relief in the future. But that is uncertain.

Achieving real, sustainable mandate relief for local governments and school districts will be a major 2012 priority for Unshackle Upstate.

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WHAT HAPPENED UU OPINION

Economic Development

In late July, Governor Cuomo launched the Regional Economic Development Council initiative, which he says will “redesign the relationship between the state government and businesses to stimulate regional economic development and create jobs statewide.” Ten Regional Councils throughout the state are developing a plan for the development of their respective regions, and the state has committed to work with each one to help them carry out their plans for development and to distribute state economic development funding.

While it is too early to gauge whether the Regional Economic Development Council approach will be successful, it is important that the state has established a process by which those closest to the communities in need can work together in setting priorities for the allocation of limited state resources.

Natural Gas Development

There were a number of bills that would have banned or limited the practice of using hydraulic fracturing to drill for natural gas. Most were based on fear and misinformation, rather than on science and a clear understanding of the practice and its risks and benefits. None of these bills were enacted into law this session.

The Department of Environmental Conservation (DEC) recently issued its draft regulations for high-volume hydraulic fracturing, and is now accepting public comments on them before any drilling permits can be issued.

Unshackle Upstate believes that hydraulic fracturing can be done safely, and that New York State must be prepared to take full advantage of this tremendous economic opportunity.

DEC should continue its science-based, comprehensive review of the potential environmental impacts of natural gas development, and determine whether its draft regulations strike an appropriate balance between economic development and environmental protection.

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LOOKING AHEAD

Unshackle Upstate believes that Gov. Cuomo is committed to improving the environment for families and businesses throughout Upstate New York, and we are committed to support those efforts.

We recognize that the problems facing Upstate New York did not occur over night, and that they cannot be solved in a single legislative session.

We look forward to continuing to help move New York State government in the right direction to create an economic environment that permits private sector job creation and offers relief to taxpayers.

Unshackle Upstate is looking for the following from Albany:

Another fiscally responsible budget

We look forward to a state budget that is enacted on-time, that does not increase state spending, and includes no new taxes, fees or borrowing.

Real mandate relief for local governments

Now that the property tax cap has passed, it is essential to work with local governments and schools on efforts to reduce costly state mandates.

Relief from business mandates

It is long overdue for the state to provide relief for business from unnecessary, burdensome and anti-competitive business mandates.

Action from the SAGE Commission

We look forward to the SAGE Commission submitting a wide-ranging and comprehensive plan to consolidate state agencies, authorities and commissions that have overlapping functions, and to provide a road map to ensure that the remaining ones provide better services to the taxpayers.

Economic development plans from the Regional Economic Development Councils

We have high expectations for what the Governor has promised will be “a new operating model for New York State government” that is intended to “stimulate economic development throughout the entire state, while improving the business climate statewide.”

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