August 1999

State Budget Late Again

Includes $378 Million in Tax Cuts

By Fong Chan

Governor Pataki and the New York State Legislature finally agreed to a budget on August 5, setting a record by one day for the latest budget in state history. Passed 127 days after the April 1 deadline mandated by state law, this marks the 15th year in a row that lawmakers did not pass the budget on time.

"After fifteen years, it is time for New York state public officials to sit down and make sure that this never happens again," said NYSSCPA Executive Director Louis Grumet. "It is difficult for everyone in the state to go about their business when their elected officials do not go about theirs."

The budget increases spending by 3.8 percent but does not include the $1.8 billion surplus accumulated last year. The surplus will be used, in part, to pay for tax cuts that were enacted in the past two years. The budget includes $378 million in tax cuts to be phased in over the next two years, including a corporate income tax break for banking and insurance firms, a reduction in the alternate minimum tax, and an increase in the state's earned income tax credit for low income families. The budget also implements the $1 billion in tax cuts enacted in 1997 and 1998 but scheduled to take effect in 1999.

In addition, the $73.3 billion budget:

* Increases operating aid to school districts by 7.7 percent, including a $140 million expansion of pre-kindergarten and other related services;

* Provides $1.3 billion for school construction, an increase of $430 million compared to last year's amount;

* Overhauls the state's funding of special education to provide more financial resources to districts to return children to regular classrooms, a change spurred in part by the U.S. Department of Education's threat to cut off $335 million in federal aid because of the high number of inappropriate referrals and placements in special education classes;

* Postpones the elimination of sales tax on clothing from December 1, 1999 to March 1, 2000 but provides for two tax-free weeks, one in September and one in February;

* Substantially increases child care subsidies for low-income families; and

* Allows Nassau County to impose a county-wide tax that could generate more than $50 million to help the county reduce its budget deficit. The revenue will come from a 1 percent tax that all sellers in real estate transactions will pay. The law, which will expire on January 31, 2001, also requires the county to form an advisory panel to review and report annually on county finances.