Testimony, State Fiscal Year 2007-08 Executive Budget, Economic Development and Taxes Budget Hearing
February 28, 2007

Thank you for the opportunity to comment on the State Fiscal Year 2007-08 Economic Development and Taxes portion of the State Budget. My name is Matthew Guilbault and I am the Executive Director of the New York State Taxpayers Union.

BACKGROUND
The New York State Taxpayers Union announced its formation on May 9th 2006 to coincide with “Tax Freedom Day” in New York - the day marking the point at which average New Yorkers have earned enough money to pay off their taxes for the year. Incidentally, New York’s Tax Freedom Day was the 2nd latest in the nation, ahead of only Connecticut.

Our group is a grassroots organization that works and speaks for all New York taxpayers on tax and spending issues. We are committed to protecting every New Yorker’s right to keep what they’ve earned. Our guiding principle is: “This is your money, and the government should spend it wisely or return it to you.”

We believe that we all must remain vigilant about how our government collects and spends our tax dollars. We also recognize that our tax code is far too complex for the average taxpayer to understand and, therefore, we remain committed to fighting for sweeping tax reform designed to make the tax system both fair and comprehensible for the folks who actually pay those taxes.

BUDGET CONCERNS
We are encouraged by Governor Spitzer’s pledge not to raise taxes and his continued commitment to pursue real economic growth for New York State. Moreover, we support measures to ensure that taxpayers are properly reflecting New York taxable income and that unintended and anachronistic tax statutes are changed to eliminate corporate tax loopholes.

In fact, the prior administration proposed closing the RIC/REIT loophole several times in earlier budget proposals and the combination rule proposed in this executive budget simply codifies the Tax Department’s successful litigation position relative to decision by the New York State Tax Appeals Tribunal in the Sherwin- Williams decision. Most importantly, however, the NYSTU believes that any revenue generated through the implementation of the combination rule should be dedicated to broad-based corporate rate reduction.

We do, however, have specific concerns regarding the level of spending proposed in the Governor’s budget as well as the continued reliance upon the STAR program as the exclusive remedy for skyrocketing property taxes paid by homeowners.

-TAX RATES
During the past three decades New York has consistently had one of the nation’s highest combined state and local tax burdens in the nation. Estimated at 12.9% of income, New York’s state/local tax burden percentage is the highest in the nation and 53 percent above the average for all states.

Personal-income taxes are also the highest in the nation, and over twice the national average. And New York State ranked 50th in the Tax Foundation’s most recent State Business Tax Climate Index.

Two recent surveys reiterate what New Yorkers have known for years. The first, by The Urban Institute measured each state’s actual tax collections against what it would have raised if “taxable economic activity” and tax rates equaled the average for all states.

New York’s resulting “tax effort” was 34 percent above the national average. Meanwhile, the report found New York’s need to provide taxpayer-financed services is only slightly higher than the average state’s.

A second study, this one by CFO Magazine found that New York’s tax environment is one of the least fair and least predictable in the country. The survey cited aggressive state auditors and inconsistent tax regimes as among the biggest agonies facing companies.

-SPENDING INCREASES
The state-funded portion of the Executive Budget as originally proposed called for a spending hike of 7.8 percent - three times the projected inflation rate for the state’s 2007-08 fiscal year. This is larger than any of the spending increases that have been proposed the last eight years. Moreover, the Governor’s proposed 21-day amendments raise spending an additional $18 million.

Most alarmingly, however, is the fact that New York’s Legislature consistently adds significant spending to the governor’s budget before a final agreement is reached. In the last four years, the cumulative total of the former Governor’s proposed increases in state- funds spending was 17 percent. But the budgets enacted over this period raised spending by 35 percent.

New York taxpayers clearly need relief, and real relief begins with spending restraint. Out-of-control state spending is what necessitates tax increases and we must realize that we’ll never –ever– get taxes under control unless we first control spending. The NYSTU, therefore, endorses a reduction in State spending across the board. Realizing the minute chances of this proposal being endorsed in the current budget, however, we call for the Legislature to resist efforts to increase overall spending above the level proposed by Governor Spitzer.

Obviously, the recent fiscal reports by the Assembly and Senate identifying $1 billion more in surplus and revenues than originally accounted for in the Executive budget proposal are cause for concern for New York taxpayers. Newspaper accounts have already documented additional spending plans for the money by both houses. Instead, NYSTU believes that the money should be used to leverage broad-based tax rate reductions.

-PROPERTY TAXES
School property tax hikes add up to truly punitive spikes in costs nearly every year. School budget increases considered by voters last year averaged 6 percent — almost twice the rate of inflation. For typical suburban homeowners, that means a tax hike of $500 a year or more. Moreover, these increases weren’t unexpected. The State Comptroller reported back in April that total property taxes rose 42 percent in just five years.

Per capita property tax burdens in New York are 49 percent higher than the national average. Local property taxes totaled $38 billion in 2005 and grew by 60 percent from 1995 to 2005, more than twice the rate of inflation during that period.

The cause of these constant tax increases is obvious - - ever-rising school spending. Last year, school budgets brought the average funding to over $16,000 per pupil. And although local voters may occasionally reject school budgets, their anti-tax votes don’t affect major cost centers such as teacher contracts.

-$6 BILLION SCHOOL PROPERTY TAX PLAN
The Executive Budget proposal includes a $6 billion school property tax plan. The major feature of this plan is to create a new “Middle Class” category within the existing STAR program and increase this exemption up to 80 percent. The plan would give homeowners in the “Middle Class” an 80 percent increase in the STAR exemption.

The Basic and Senior Citizens exemption will be increased by 30 percent for every homeowner except the wealthiest 2 percent of New Yorkers. And for New York City residents there will be an additional personal income tax reduction to all but the wealthiest 2 percent.

NYSTU appreciates the Governor’s efforts toward property tax relief, but questions the focus on expanding a program that has been documented as facilitating school property tax rate increases.

Begun in 1997, the $3.2 billion STAR program reduces the school taxes paid by a homeowner by exempting some of the home’s value from taxes. School districts don’t lose out though, the state makes up the difference in funding to districts.

So in reality STAR has done little to reduce or even keep school property taxes in check (they continue to rise faster than inflation). In fact, a Comptroller’s report made it clear that STAR has actually encouraged faster school spending growth by hiding the increases from homeowners.

Make no mistake; STAR represents a tax shift, not tax relief. A program that subsidizes local school taxes with state funding is merely a transfer of tax burden, not a tax cut.

According to a study from the Maxwell School at Syracuse University, school districts actually have raised taxes under STAR more than they would have otherwise, offsetting about one-third of the savings. Moreover, owners of apartment buildings and commercial and industrial properties aren’t eligible for STAR.

- STRUCTURAL CHANGES AND SYSTEMIC REFORMS
NYSTU believes that instead of an expansion of the STAR program, New York homeowners deserve structural changes and systemic reforms for the property tax problem. Systemic reforms address the root causes of the property tax problem, they’re not band-aid fixes like STAR that mask the fundamental problems contributing to perennial property tax increases.

First off, we need to realize that spending as much as we possibly can on schools every year is not the way to improve our kids’ education. Moreover, we must realize that we’ll never –ever– get property taxes under control unless we first control spending.

As we’ve already discussed, NYSTU believes that we must reign in school budget increases by reducing spending. First and foremost, we need to eliminate un-funded mandates. The current structure of un- funded mandates creates a burden on school budgets that continues to grow faster than the tax base.

- CAP SCHOOL BUDGET INCREASES
Furthermore, we believe that this budget must include provisions to provide homeowners with the ability to cap school budget increases. NYSTU endorses the inclusion of language that would prevent local districts from raising their property taxes as they take state STAR money, by capping the rate of growth in school property taxes by the lower of 4% or the rate of inflation. The Senate already included a capping mechanism into their property tax relief proposal. And we believe a similar safeguard should be incorporated into any proposed expansion of the STAR program.

CONCLUSION
I want to thank the members of the Legislature for your time today and for your efforts to address New York’s onerous tax burden. We look forward to working with you in the coming year to ensure that the FY 2007-08 budget provides real relief for New York’s overburdened taxpayers.

Submitted by:
Matthew F. Guilbault, Esq., Executive Director
New York State Taxpayers Union
Albany, NY
518-605-8100
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email: mfguilbault@nystu.org
phone: 518-605-8100
web: http://www.nystu.org/