NY State Searches for Funds in Unusual Places
By Robert Brannum
State surcharges for Yankees tickets? Tax bills issued to the state’s own industrial development agencies? Closures of parks and monuments? Delays in state tax refunds?
T hese are among the most recent revenue-raising and expense-cutting ideas New York State is considering to help close its estimated $8.2 billion budget deficit.
Gov. David A. Paterson announced in early February that the state would need to address a larger deficit than earlier estimated. In a statement, the governor’s office cited the shortfall as being driven “primarily by the continued effects of the current state-level recession, as well as changes in the timing and structure of financial services sector compensation, which have resulted in lower than expected personal income tax revenues.” Also adding to the budget difficulties is the higher than usual demand for Medicaid services, increasing New York’s legally-directed spending commitment.
With bad news following more bad news, the state finds itself needing to develop out-of-the-box efforts to close the deficit. Unfortunately, those efforts tend to lie in two camps: raising taxes and cutting programs. And while these basic options are standard, the targets for both efforts are unusual.
Take Me out to the Pawn Shop
Paterson recently announced a proposed 4 percent sales tax on event tickets, which he hopes will generate $70 million during the 2010-11 fiscal year. The governor’s proposal, part of the state’s “recurring General Fund revenue” is being reviewed by the legislature and by the New York State Assembly’s Tourism, Arts and Sports Development Committee.
This tax, if enacted, would add a surcharge to sporting events, concerts, and theater tickets. In addition, New York City which had been considering its own 4.5 percent ticket tax, would raise Broadway theater tickets by 8.5 percent when combined with potential state tax.
Opponents of the tax proposal argue that ticket increases, particularly during the current recession, could have a serious impact on entertainment and tourism across the state. In an interview with industry publication TicketNews, Jason Berger, a broker specializing in Broadway shows, commented, “Historically, we have seen the arts subsidized by the city to make them accessible. This is a huge change in direction which could have a devastating effect on performances coming to New York State. I believe there are many casualties to this tax, such as hotels, restaurants and taxis, as well as museums and retail shops. We’ve already seen a drop in the restaurants in the theater district of over 40 percent from the same time last year.”
Parks and Historic Sites
The state’s parks system will experience its first budget-related closures in the system’s 125-year history. The executive director of the nonprofit advocacy group Parks & Trails New York calls the situation as bad as she’s ever seen it. Last year in New York, 100 of the state’s parks and historic sites reduced their services, ranging from pool and beach closing to reduced hours of operation. But none of the parks or sites closed entirely.
Carol Ash, the commissioner of the Office of Parks, Recreation and Historic Preservation, had mentioned that park closures would be unavoidable in 2010. The governor’s budget proposal called for a $20 million reduction in state park funding. When combined with budget cuts made in the two previous fiscal years, the agency will see its funding reduced by 40 percent over the three-year period, Ash said.
In mid-February, The Office of Parks, Recreation and Historic Preservation (OPRHP) released its recommended list of closures and service reductions. In a statement, Paterson commented that “in an environment when we have to cut funding to schools, hospitals, nursing homes, and social services, no area of state spending, including parks and historic sites, could be exempt.”
The Park Office’s plan included the closure of 41 parks and 14 historic sites, with service reductions at another 24 parks and sites. The plan also assumes $4 million in park and historic site fee increases to be defined at a later date. The parks system will operate with 1,100 fewer people – including lifeguards, cleaners and security guards – than it did just a few years ago.
The Final Straw:
Taxing the Nonprofits?
New York’s Industrial Development Agencies, non-profit economic development groups with authority to negotiate tax breaks and provide incentives to attract new business and expand existing businesses, recently got an unwelcome surprise: a tax bill. Assessments to different agencies around the state ranged from a low of about $900 to more than $600,000.
In a letter dated February 4 from the state’s Department of Taxation and Finance, obtained by the newspaper Madison County Courier, Commissioner and Treasurer Aida M. Brewer wrote “Public Authorities Law Section 2975 establishes a cost recovery of central governmental services to various public authorities. This statute directs the Division of Budget to determine the amount to be assessed to each public authority. Opponents argue that this new law was buried in the 2009 budget bill, which gave budget authority to assess New York state public authorities “cost recovery fees.”
IDAs typically have three sources of income – interest on bank accounts, funding from the county, and fee income. Their main source of revenue, of course, is from the taxpayers. After that is funding from the IDA’s local county authority – and there is the point of contention: the state is now considering the county’s contribution to the IDA as “revenue.” At the same time, the legislature allowed the IDA Civic Facility legislation to sunset, which eliminated the IDAs’ authority to issue bonds – essentially eliminating a source of fee income.
These bills, due at the end of March, would most likely need to be paid from the IDAs’ emergency reserve funds, as all budgets were submitted to the state for review and approval last November, before news of the new “cost recovery” was made public.
Of course, after reading about all these tax revenue and expense cutting plans, one wonders: what’s next?
It’s likely that the state is looking at other cash-rich bank accounts – those maintained by towns, villages, cities, schools, and others public authorities – and they might also exercise their authority to consolidate it, tax it, or otherwise leverage it to fill the budget gap.
Good Luck Getting it Back
If having to pay extra taxes on baseball tickets and closing public parks isn’t bad enough, the state is also considering a delay in issuing state income-tax refunds. A tax-refund delay would help the state from going broke in April. New York is facing a $1.4 billion deficit for the remainder of the fiscal year. In addition to a potential tax return delay, the state is contemplating a delay in aid payments next month, covering about $20 billion in bills for programs and services.
But the governor’s office stressed it has not yet decided whether the tax-refund checks would be delayed – or if any aid payments would be deferred.
A spokesperson for Paterson was quoted as saying, “A final determination hasn’t been made at this point about which particular expenses will be delayed in the March portion of the year,” noting that delaying income-tax checks “is one of the options.”
The proposal, however wouldn’t affect refunds already filed. In fact, according to the governor’s staff, the state so far this year has paid in income-tax refunds to 281,000 taxpayers – 51,000 more than at the same period last year.
To be fair, the tax-return-delay-strategy isn’t exactly a new concept: to manage cash flow each year, the state puts a cap on how much in income-tax refunds it pays before March 31. The cap is set at $1.75 billion, and the option being discussed would lower the cap to $1.25 billion. The state has until June to pay the refunds before it has to pay interest on the overdue refunds.
Morgan Hook, a spokesman for the governor, commented that while the legislature criticizes the governor’s proposals, it has failed to offer alternatives. “We have heard shouting against the governor’s proposals, but not a whisper about where they would make reductions.”
State Conservative Party Chairman Michael Long called delaying income-tax checks “ludicrous,” saying New Yorkers who pay their taxes on time and are due a refund shouldn’t be punished.
Robert Brannum is a freelance writer based in Boston with special expertise in the finance industry.