Syracuse, NY - New York state balanced its budget on the hopes that people will buy higher-taxed clothing and cigarettes, that state investigators will recover hundreds of millions of dollars from tax and Medicaid fraud, and that the state will successfully start collecting taxes from cigarettes sold by American Indian stores. Critics, including state Comptroller Tom DiNapoli, say it...
Shopper Kelly Hulslander, of Jamesville, right, talks with Jet Black operations manager Joanna Taddeo, left, in the Armory Square shop on Thursday. The 2010-11 state budget counts on raising $330 million by temporarily reinstating a 4 percent sales tax on clothes and shoes under $110. Syracuse, NY - New York state balanced its budget on the hopes that people will buy higher-taxed clothing and cigarettes, that state investigators will recover hundreds of millions of dollars from tax and Medicaid fraud, and that the state will successfully start collecting taxes from cigarettes sold by American Indian stores.
Critics, including state Comptroller Tom DiNapoli, say it is risky business to balance the budget on estimates that may not come true.
The state has in the past made some optimistic predictions that didn’t pan out, including tax fraud collections, casino revenue and plans to collect taxes from Indian cigarette sales.
Last year’s revenue came up so short, the state had to make drastic mid-year spending cuts, which resulted in layoffs and cuts in services at schools and local governments that rely on state aid.
This year, legislators and Gov. David Paterson debated for eight months about new ways to close a $9.2 billion hole in the budget. Some proposals, which were rejected, included taxing sugary soft drinks, allowing wine to be sold in grocery stores and borrowing millions of dollars.
The $134 billion state budget is relying on:
$45 million from expanding video lottery gaming.
$221 million from additional tax audit recoveries.
$300 million from Medicaid fraud recoveries.
$330 million from a temporary 4 percent sales tax on clothing that was previously
exempted.
$440 million in new cigarette taxes, including collecting taxes from tobacco sold on Indian land.
$250 million in workforce reductions, which would require cooperation from public employee unions.
DiNapoli said these initiatives and others amount to $4.8 billion in estimates that have the potential to fall short of projections.
“There are significant risks in this budget, and little has been done to align recurring spending with recurring revenues,” he said.
E.J. McMahon, director of the conservative Empire Center, said the budget “shapes up as a flimsy house of cards that could begin to collapse before the year is out.”
The state tends to rely on one-time fundraisers and borrowing gimmicks to raise money in a crisis, critics say.
If they fall through, schools and basic government services fall victim.
For example, West Genesee Superintendent Chris Brown said he had not seen anything like last year’s mid-year cuts in his 11-year career.
“We had to scramble,” he said.
Brown said the district laid off 24 people and has not hired them back.
Specific fundraising initiatives have come up short in the past. A temporary personal income tax increase enacted several years ago was predicted to generate $3.8 billion between 2008 and 2010, but came in about $200 million short. The tax department ran a brief tax amnesty program earlier this year that was supposed to bring in $250 million for the mid-year budget crunch. It only brought in about $52 million.
The state has promised for almost a decade to collect money from casino revenue.
When the Sept. 11, 2001 attacks threatened a decline in state revenue, the state approved six new American Indian casinos and new video lottery terminals at race tracks, promising up to $1 billion in revenue. Half of the Indian-run casinos, proposed for the Catskills, have not opened.
The state budgeted for $154 million in American Indian casino revenue last year and received $97 million. Existing video lottery terminals brought in $474 million in 2009-10, according to the division of budget.
Previous governors and legislators have also been promising for more than a decade to collect taxes on cigarettes sold on Indian lands.
Robert Megna, the state budget director, said this time, the state intends to enforce that law, starting Sept. 1.
Cigarette taxes: A U.S. Supreme Court ruling in 1994 gave New York the power to collect taxes from stores on American Indian territories, but Gov. George Pataki and his successors, Eliot Spitzer and Paterson, never collected the taxes. One attempt, in 1997, resulted in a violent confrontation between N protesters on the Onondaga Nation and state police.
The state’s new tactic is to shift the burden of collecting taxes from the Indian nations to the people who sell cigarettes to the nations. It would essentially require wholesalers to collect the taxes from tribes, then pass the money to the state.
Some advocates for Indian tax collections have estimated the state could be bringing in more than $1 billion a year. Megna said he went with a much more conservative estimate of $150 million.
Megna said it is possible the state will end up on court again, but officials are making it clear that they intend to enforce the law.
“We believe we’re being pretty prudent,” he said.
The state also raised the tax on cigarettes by $1.60 per pack, making New York the state with the highest cigarette taxes in the country, at $4.35 per pack.
Tax fraud: New York state already is cracking down on tax fraud like never before. The tax department is building a sophisticated database to use every available piece of information to find tax cheats. The department collected record amounts in the first years of the Spitzer administration and the department is estimated to increase its collections by $220 million for this budget year. That brings the total take to almost $3 billion.
The tax department underestimated by about $200 million the amount of money it would bring in with a one-time program earlier this year.
Workforce reductions: The state plans to save $250 million by cutting payroll. Even the budget director said that is an aggressive target. The state has not had much luck so far in negotiations with unions.
The state failed in an attempt earlier this year to suspend salary increases or furlough state employees after public employee unions sought a court injunction. Now, Paterson is offering buyouts, targeting more than 1,000 positions. After that, Megna said, they will consider whether to resort to layoffs to make the goal.
A union spokesman said $250 million is a “nonsensical number.”
Steve Madarasz, spokesman for CSEA, said Paterson is simply throwing out a dollar figure without negotiating with the unions. He said there are not enough employees left to take buyouts. The unions say the governor has signed a no-layoff agreement that lasts until the end of his term, but the governor has said he would not have a problem breaking it if the circumstances warrant it. CSEA represents about 70,000 state workers, the bulk of the state agency workforce.
“That number is just something he’s made up,” Madarasz said.
With all the risks, Megna said there is also the possibility that the state will do better than projected in some areas.
For example, the budget counts only a slight increase in sales tax revenue when history has proven that consumer spending can jump in the years after a recession. Sales tax revenue has increased in the first half of this year.
County sales tax collections outside of New York City grew by 3.7 percent in the first half of this year, compared to a 6.9 percent decline during the same period in 2009, according to the state comptroller.
The state will know soon enough what kind of shape it is in. Megna said September will be a “test month” for the state’s cash flow because the state must make large quarterly payments to school districts at the same time income tax payers make estimated payments.
Contact Michelle Breidenbach at mbreidenbach@syracuse.com or 470-3186.