To be argued by:
OWEN DEMUTH
Time Requested: 20 minutes
(tCourt of ~ppeaI~
of tbe $>tate of 1!etu ~ork
In the Matter of the Application of
WL,LLC,
Petitioners-Plaintiffs-Respondents,
-AGAINST-
THE DEPARTMENT OF ECONOMIC DEVELOPMENT (AlKIA "EMPIRE STATE
DEVELOPMENT"), THE DEPARTMENT OF TAXATION AND FINANCE,THE EMPIRE ZONE
DESIGNATION BOARD, DENNIS M. MULLEN, AS COMMISSIONER OF THE DEPARTMENT OF
ECONOMIC DEVELOPMENT, JAMIE WOODWARD, AS THE ACTING COMMISSIONER OF THE
DEPARTMENT OF TAXATION AND FINANCE, AND MARIO MUSOLINO, AS THE CHAIR OR
CHAIR-DELEGATE OF THE EMPIRE ZONE DESIGNATION BOARD,
Respondents-Defendants-Appellants.
BRIEF FOR RESPONDENTS-DEFENDANTS-APPELLANTS
BARBARA D. UNDERWOOD
Solicitor General
ANDREW D. BING
Deputy Solicitor General
OWEN DEMUTH
Assistant Solicitor General
of Counsel
ERIC T. SCHNEIDERMAN
Attorney General of the
State of New York
Attorney for Respondents-Defendants-
Appellants
The Capitol
Albany, New York 12224
Telephone: (518) 474-6639
Facsimile: (518) 473-8963
Dated: September 25. 2012
Reproduced on Recycled Paper
TABLE OF CONTENTS
PAGE
TABLE OF AUTHORITIES iii
PRELIMINARY STATEMENT 1
ISSUES PRESENTED 3
JURISDICTIONAL STATEMENT 4
STATUTORY BACKGROUND AND PRIOR LITIGATION 5
Overview of the Empire Zones Program 5
Compliance With Program Requirements 6
The April 2009 Amendments 9
The Review Process Under the April 2009 Amendments 11
The August 2010 Amendments 12
The Decisions in James Square Associates and Matter of
J-P Group 13
THE FACTS AND THE PROCEEDINGS BELOW 17
A. The Commissioner's Revocation of Petitioner's Certificate
of Eligibility l 7
B. This Hybrid C.P.L.R. Article 78 Proceeding and Action
for Declaratory Judgment 19
C. The Decisions Below 20
Table of Contents (cont'd)
PAGE
ARGUMENT 22
POINT I THE LEGISLATURE INTENDED THE APRIL 2009
AMENDMENTS TO APPLY TO DECERTIFIED
BUSINESSES AS OF JANUARY 1,2008 24
POINT II THE LIMITED RETROACTIVE APPLICATION OF THE
APRIL 2009 AMENDMENTS DOES NOT VIOLATE THE
DUE PROCESS CLAUSE 30
A. Petitioner Had Sufficient Forewarning of Amendments to
General Municipal Law § 959 35
B. The Retroactivity Period Was Not Excessive .41
C. The Amendments Serve Valid Public Purposes 44
CONCLUSION 48
ADDENDUM Al
11
CASES
TABLE OF AUTHORITIES
PAGE
Affronti v. Crosson,
95 N.Y.2d 713 (2001) 18n
Astoria Fed. Savings & Loan Ass'n v. State of New York,
222 A.D.2d 36 (2d Dep't 1996), appeal dismissed, 88 N.Y.2d
1064 (1996), lv. denied, 89 N.Y.2d 87 (1997),
cert. denied, 522 U.s. 808 (1997) 29,43
Canisius Coll. v. United States ofAm.,
799 F.2d 18 (2d Cir. 1986) .43
Capital Fin. Corp., Matter of v. Commissioner of Tax. & Fin.,
218 A.D.2d 230 (3d Dep't), appeal dismissed, 88 N.Y.2d 874 (1996) ...38n
Clarendon Trust v. State Tax Commission,
43 N.Y.2d 933 (1978) 47
Duell, Matter of v. Condon,
84 N.Y.2d 773 (1995) 27
Furlong v. Commissioner of Internal Rev.,
36 F.3d 25 (7th Cir. 1994) .40,46
Gleason [Michael Vee, Ltd.], Matter of,
96 N.Y.2d 117 (2001) 29
Grace, Matter of v. New York State Tax Comm 'n,
37 N.Y.2d 193 (1975) 38n
Grand Jury Subpoena Duces Tecum [Museum of Modern Art), Matter of,
93 N.Y.2d 729 (1999) 28
Hague Corp., Matter of v. Empire Zone Designation Bd.
96 A.D.3d 1144 (3d Dep't 2012) 2n,30
James Square Associates, LP, et al. v. Mullen, et al.,
91 A.D.3d 164 (4th Dep't 2011) passim
111
-----------------------------------,
TABLE OF AUTHORITIES (cont'd)
CASES (cont'd) PAGE
J-P Group, Matter of v. New York State Dep't of Economic Dev.,
91 A.D.3d 1363 (4th Dep't 2012) 16,21,30
Lacidem Realty Corp., Matter of v. Graves,
288 N.Y. 354 (1942) 43
Long v. State of New York,
7 N.Y.3d 269 (2006) 26
Majewski v. Broadalbin Perth Cent. School Dist.,
91 N.Y.2d 577 (1998) 24,29
Moran Towing Corp., Matter of v. Urbach,
1 A.D.3d 722 (3d Dep't 2003) .42n
Morris Builders, LP v. Empire Zone Designation Bd.,
95 A.D.3d 1381 (3d Dep't 2012) 2n
Neuner, Matter of v. Weyant,
63 A.D.2d 290 (2d Dep't 1978),
appeal dismissed, 48 N.Y.2d 975 (1979) 36,46
North, Matter of v. Board of Examiners of Sex Offenders
of State of N. Y,
8 N.Y.3d 745 (2007) 29
Onbank & Trust, Co., Matter of,
90 N.Y.2d 725 (1997) 26,27
Outlet Embroidery Co. v. Derwent Mills,
254 N.Y. 179 (1930) 8n
Pension Benefit Guar. Corp. v. R.A. Gray & Co.,
467 U.S. 717 (1984) 32,37
IV
---------------------------------,
TABLE OF AUTHORITIES (cont'd)
CASES (cont'd) PAGE
People ex rel. Beck v. Graves,
280 N.Y. 405 (1939) 29
Replan Development, Inc., et al., Matter of v. Department of
Housing & Preservation and Development, et al. of
City of N.Y.,
70 N.Y.2d 451 (1987) passim
Rocanova v. United States ofAm.,
955 F.Supp. 27 (S.D.N.Y. 1996), aff'd, 109 F.3d 127
(2d Cir. 1997), cert. denied, 522 U.S. 821 (1997) .46
Roosevelt Raceway, Inc., Matter of V. Monaghan,
9 N.Y.2d 293 (1961) ! 36
St. Clair Nation, Matter of V. City of New York,
14 N.Y.3d 452 (2010) 24
State V. Green,
96 N.Y.2d 403 (2001) 8n
Tate & Lyle, Inc. V. Commissioner of Internal Revenue,
87 F.3d 99 (3d Cir. 1999) .43
United States V. Carlton,
512 U.S. 26 (1994) passim
United States v. Darusmont,
449 U.S. 292 (1981) 38n,41
Usery v. Turner Elkhorn Mining Co.,
428 U.S. 1 (1976) 37
Varrington Corp., Matter of V. City of New York Dept. of Finance,
85 N.Y.2d 28 (1995) 33,36,43
v
CASES (cont'd)
TABLE OF AUTHORITIES (cont'd)
PAGE
Venable v. Commissioner of Internal Revenue, 2003 WL 21921052
(U.s. Tax Ct. 2003), afi'd, 110 Fed. Appx. 421, 2004 WL
2297334 (5th Cir. 2004) 46
Welch v. Henry,
305 U.S. 134 (1938) 32,33,34,43
Wiggins v. Commissioner of Internal Rev.,
904 F.2d 311 (5th Cir. 1990) 38n
NEW YORK CONSTITUTION
article XVI, § 1 36
STATE STATUTES
C.P.L.R.
article 78 4
5601(b)(1) 4
General Municipal Law
article I8-B 5
§ 959 passim
§ 959(a) 6,23,24,26,27
§ 959(a)(v) 13
§ 959(a)(v)(5) 9,25
§ 959(a)(v)(6) 9, 18,25,28
§ 959(w) passim
§ 960 12
L. 2005, ch. 63, Part A (sub-part W), § 2 8,39
vi
TABLE OF AUTHORITIES (cont'd)
STATE STATUTES (cont'd) PAGE
L. 2009, ch. 57, Part 8-1
§ 3 9
§ 10 8
§ 11-22 10,24
§ 44 10
§ 44(a) 24
L. 2010, ch. 57, Part R
§ 1 13
§ 2 13
Tax Law
§ 210 24
§ 2IO(I2-B) 6
§ 2IO(I2-C) 6
§ 210(19) 6
§ 606 24
§ 606(j-I) 6
§ 606(k) ~ 6
§ 606(1) 6
§ 1456 24
§ 1456(d) 6
§ 1511 .' 24
§ 15II(g) 6
§ 15II(h) 6
STATE RULES AND REGULATIONS
5 N.Y.C.R.R.
§ II.9(c) 11
§ II.9(c)(I) 10
§ II.9(c)(2) 10
Vll
TABLE OF AUTHORITIES (cont'd)
MISCELLANEOUS PAGE
Joint Budget Hearing of the Assembly Ways and Means Committee
and the Senate Finance Committee on the Economic
Development and Taxes Budget for Fiscal Year 2008-09 7,40
Office of the State Comptroller, Assessing the Empire Zones Program-
Reforms Needed to Improve Program Evaluation and
Effectiveness, Report 3-2005 (Apirl2004), available at
www.osc.state.ny.us/reports/empirezone3-2005.pdf 5,45
Office of the State Comptroller-Division of Local Government and
School Accountability, The Effectiveness of Empire Zones:
Follow-up Report, 2007-MS-2 (2007), available at
www.osc.state.ny.us/localgov/audits/swr/empirezones.pdf. 7,44
Press Release, Governor Patterson Submits Legislation Creating
The Excelsior Jobs Program (June 18, 2010), available at
http://www.governor.ny.gov/archive/paterson/press/
06181OExcelsiorJobsProgram.html 8-9,45
Tax Department Technical Services Memorandum
http://www.tax.ny.gov/pdf/memos/multitax/m09_5c_4i.pdf ll
Vlll
PRELIMINARY STATEMENT
The Empire Zone Program is a set of legislatively created tax incentives
for economic development in certain regions of New York. In April 2009, the
Legislature amended the Empire Zone Program statutes in order to rein in long-
documented abuses in the Empire Zone Program and to raise immediately much-
needed revenue for the 2009-2010 fiscal year. The amendments added two
criteria that businesses were required to meet as of January 2008 in order to
claim state tax credits available to Program participants for 2008. Petitioner-
plaintiff WL, LLC ("petitioner") is a company that failed to meet those criteria
and thus was decertified from the Program and denied its 2008 tax credits.
Petitioner brought this proceeding claiming, among other things, that the
retroactive revocation of its eligibility for the tax credits denied it due process of
law. Supreme Court and the Appellate Division agreed, and respondents, all
State entities, appealed as of right to this Court.
This appeal raises the same issue as the State's appeals in this Court in
James Square Associates v. Mullen and Matter of J-P Group v. New York State
Department of Economic Development: whether the limited retroactive
application of the 2009 amendments violates the due process rights of a company
that has been decertified from the Program pursuant to those amendments.
In both James Square and J-P Group, the Fourth Department found that it did.
In this case, and in two others from which the State has also appealed,l the
Third Department has now joined the Fourth Department, holding that
retroactive application of the amendments was unconstitutional. In each case,
however, the Third Department disagreed with the Fourth Department's holding
that that the Legislature intended that the April 2009 amendments to the
Empire Zones Act would apply retroactively to January 1, 2008. The Third
Department held, without analysis, that the Legislature did not make the April
2009 amendments retroactive until August 2010, when it enacted additional
amendments to the Program clarifying that the April 2009 amendments were
retroactive.
The Third Department erred in both holdings. The Legislature intended
that the April 2009 amendments were to be retroactive to January 1, 2008.
Moreover, the Legislature's limited retroactive denial ofthe Program tax credits
to companies that failed to satisfy the two statutory criteria did not violate
petitioner's due process rights. Both the Supreme Court of the United States
and this Court have repeatedly upheld retroactive tax legislation against due
process challenges, and this case fits squarely within the pattern the Courts
1 The State has also appealed to this Court from two decisions of the Third
Department that summarily followed its holding in WL. See Matter of Hague Corp.
v. Empire Zone Designation Bd., 96 A.D.3d 1144 (3d Dep't 2012), and Morris
Builders, LP v. Empire Zone Designation Bd., 95 A.D.3d 1381 (3d Dep't 2012).
2
_ .. _--_._---------------------
have approved. In particular, this Court's analysis in Matter of Replan
Development, Inc., et al. v. Department of Housing & Preservation &
Development of City of N. Y, et al., 70 N.Y.2d 451 (1987), demonstrates that the
April 2009 amendments are constitutional because (1) petitioner was forewarned
of the possibility of Program changes and thus could not reasonably rely on the
continued availability of the tax credits, (2) the period of retroactivity, slightly
more than 15 months, to the beginning of the year before the year of enactment,
has been routinely upheld and is not excessive, and (3) the amendments serve
two legitimate public purposes by curing abuses of the Program and providing
essential budget savings for the State and its taxpayers. Accordingly, the
limited retroactive effect of the April 2009 amendments is constitutional because
the retroactive effect is supported by legitimate legislative purposes furthered by
rational means. This Court should reverse so much of the Third Department's
order as found retroactive application of the April 2009 amendments
unconstitutional and dismiss the petition.
ISSUES PRESENTED
1. Whether the Third Department erred in holding that the period
of retroactivity for the April 2009 Program amendments was to be measured
from August 2010 rather then April 2009.
3
2. Whether the limited period of retroactivity satisfies the
requirements of the Due Process Clause for retroactive tax legislation.
JURISDICTIONAL STATEMENT
This Court has jurisdiction of this appeal pursuant to C.P.L.R. 5601(b)(1).
This action originated in Supreme Court, Albany County, which dismissed the
combined C.P.L.R. article 78 proceeding and action for declaratory judgment and
declared that the decertification ofpetitioner retroactive to January 1, 2008, was
constitutional (6-9).2 The Third Department modified Supreme Court's decision
in an opinion and order, holding that the April 2009 amendments were
unconstitutionally retroactive and that the period of retroactivity was to be
measured from August 2010; that order finally determined this action (436-446).
Accordingly, the question whether the retroactivity of the April 2009
amendments unconstitutionally denied petitioner due process of law is a
substantial constitutional question that is directly involved in this appeal. The
issues presented in this appeal are preserved for this Court's review because, as
reflected in the decisions of Supreme Court and the Appellate Division (8, 443-
445), and in our briefs filed in those courts, the State argued in both courts that
the April 2009 amendments were constitutional.
2 Numbers in parentheses refer to pages in the Record on Appeal.
4
STATUTORY BACKGROUND AND PRIOR LITIGATION
Overview of the Empire Zones Program
An overview of the Empire Zones Program and the April 2009
amendments giving rise to this case demonstrates that, from its inception, the
Program has been subject to review and oversight by the Department of
Economic Development ("DED"), the Legislature and the Comptroller to ensure
that it was accomplishing its goals in a cost-effective manner. New York State
adopted the Empire Zones Program in 2000 as a successor to the Economic
Development Zones Program to encourage economic development in
disadvantaged areas of the State. Benefits available to Program participants
included, among other things, tax credits for investment and job creation. See
generally Office of the State Comptroller, Assessing the Empire Zones Program-
Reforms Needed to Improve Program Evaluation and Effectiveness, Report
3-2005 (April 2004), available at www.osc.state.ny.us/reports/empirezone3-
2005.pdf.
The Commissioner of Economic Development (the '~Commissioner")
administers the Program pursuant to General Municipal Law Article I8-B.
Businesses that build in qualifying Empire Zone areas and otherwise meet the
statute's criteria may apply to the Commissioner for "Certificates of Eligibility,"
which they may then submit to the Tax Department in support of their claim for
5
tax credits. See General Municipal Law § 959(a). Among the tax credits
generally available to qualified businesses are the Empire Zone Wage Tax
Credit, permitting certified Program participants to claim a credit of $1,500 to
$3,000 per new job created against their New York State tax liability. See Tax
Law §§ 210(19), 606(k). For the wage tax credit and other tax credits, the Tax
Law provided that certified Program participants may carryover unused
portions of the credit to the following tax year. See Tax Law § 210(12-B), (12-C),
(19), (20); § 606G-1), (k), (1); § 1456(d), (e); § 1511(g), (h).
Compliance With Program Requirements
Since its creation in 2000, the Program has provided that a company's
continued eligibility for Program benefits requires it to meet the Program's
wage, employment, and investment goals. Before the Legislature's enactment of
the April 2009 amendments involved here, the Commissioner was authorized to
revoke the Program certification of any business that, among other things, made
misrepresentations or failed to disclose information in its application for
certification, "failed to construct, expand, rehabilitate or operate or invest in its
facility substantially in accordance with the representations contained in its
application for certification," or that, for reasons not beyond its control, "failed to
create new employment or prevent a loss of employment" in their designated
Empire Zone. General Municipal Law § 959(a). The Commissioner was directed
6
to decertify and remove from the Program any business that failed to satisfy
these criteria; the decertification would take effect on "the date determined to be
the earliest event constituting grounds for revoking certification." Id.
In reports issued in 2004 and 2007, the State Comptroller noted problems
with verifying that Program participants were meeting the job creation and
investment goals that were the reason for the Program's existence. See id.; see
also Office of the State Comptroller-Division of Local Government and School
Accountability, The Effectiveness of Empire Zones: Follow-up Report, 2007-MS-2
(2007), available at www.osc.state.ny.us/localgov/audits/swr/empirezones.pdf.
In particular, there was growing concern that some firms participating in the
Program had received more in tax benefits than the economic returns they were
providing and that some firms were claiming benefits for existing jobs, and
counting them as new jobs (272). Recognizing these concerns, the Legislature
and DED began to audit Program participants and to explore ways to improve
the Program's effectiveness. See Joint Budget Hearing of the Assembly Ways
and Means Committee and the Senate Finance Committee on the Economic
Development and Taxes Budget for Fiscal Year 2008-09, at pp. 11-12, 55-56,
79-82 (describing letters that were sent to Program participant,s in 2007,
informing them that the Commissioner's audits of these companies' Program
performance revealed that they were not meeting at least 60% of their job
7
creation and investment goals under the Program, and that the companies might
therefore be subject to Program decertification unless their performance
improved).3
In 2005, the Legislature tightened the Program requirements, mandating
that companies entering the Program meet a cost-benefit test in order to be
certified, but this requirement was not applied to companies already in the
Program. See L. 2005, ch. 63, Part A (sub-part W), § 2. And in April 2009, the
Legislature adopted the amendments at issue here, which are described below,
and made them applicable to all Program participants. Also in 2009, the
Legislature closed the Program to new participants. L. 2009, ch. 57, Part S-l,
§ 10, effective as of June 30, 2010. In 2010, when Governor Paterson proposed
legislation to replace the Empire Zones Program with a new economic
development incentive, he explained, "[t]he Empire Zone program was
continually hampered by abuses, lack of results and skyrocketing costs. Despite
annual Empire Zone expenditures in excess of$550 million the State's returns of
investment have been difficult to quantify, and businesses participating in the
programs have not been held accountable." Press Release, Governor Paterson
3 The transcript of this legislative hearing has been attached to our brief as an
addendum. Although the transcript is not in the Record on Appeal, this Court may
take judicial notice of it as a legislative proceeding. State v. Green, 96 N.Y.2d 403,
408 n.2 (2001); Outlet Embroidery Co. v. Derwent Mills, 254 N.Y. 179, 183 (1930).
8
-------
submits legislation creating the Excelsior Jobs Program (June 18, 2010),
available at http://www. governor.ny.gov/archive/paterson/press/06181OExcelsior
JobsProgram.html ("Press Release").
The April 2009 Amendments
On April 7, 2009, the Legislature enacted amendments to General
Municipal Law § 959, L. 2009, ch. 57, part 8-1, § 3, introducing two criteria that
businesses must meet to retain their certificates of eligibility (298-317). The
impetus for the amendments was the Governor's Enacted Budget Financial Plan,
which identified a series of revenue-saving actions for the 2009-2010 fiscal year
(296). The Governor's plan stated that the new criteria and other reforms were
necessary to "rein in long-documented abuses in the Empire Zone program"
(296). The Governor projected that the amendments would "provide savings of
$90 million in 2009-10" (296).
The April 2009 amendments required the Commissioner to verify during
2009 that Program participants met the following criteria: (1) the businesses
must not have simply reincorporated or transferred employees or assets among
related entities in order to appear have created new jobs or made new
investments to maximize Program benefits, a practice known in agency parlance
as "shirt-changing," see General Municipal Law § 959(a)(v)(5); and (2) the
businesses must have "provide[d] economic returns to the state ... greater in
9
value to the tax benefits the business enterprise used and had refunded to it,"
also referred to as the "1:1 benefit-cost standard" (302-303). General Municipal
Law § 959(a)(v)(6). A business that failed to meet either of these standards
would be subject to Program decertification. Id.; see also 5 N.Y.C.R.R.
§ 11.9(c)(I), (2). A business that met both criteria would be issued a retention
certificate. See General Municipal Law § 959(w).
The April 2009 amendments also amended twelve separate provisions of
(
the Tax Law regarding Program tax credits. The amendments to each of these
statutes was similar, directing that a carryover of the credit from a prior taxable
year would not be allowed if the company was not issued a retention certificate
pursuant to General Municipal Law § 959(w) (308-310). L. 2009, ch. 57, Part
8-1, §§ 11-22. The April 2009 amendments provided that the sections amending
General Municipal Law § 959 would "take effect immediately, provided,
however," that the corresponding amendments to the Tax Law "shall apply to
taxable years beginning on and after January 1, 2008" (316-317). L. 2009,
ch. 57, Part 8-1, § 44.
Both the Commissioner of Economic Development and the Department of
Taxation and Finance (the "Tax Department") announced that the amendments
to the General Municipal Law regarding revocation ofcertification applied to tax
years beginning on and after January 1, 2008. The Commissioner's regulations
10
mirror language from the 2009 amendments and provide that "[t]he effective
date of decertification ... shall be January 1, 2008" (229). 5 N.Y.C.R.R. § 11.9(c).
Additionally, in a Technical Services Bureau Memorandum, the Tax
Department advised Program participants that they must "obtain the
[Empire Zone] retention certificate to receive any Empire Zone benefits
for tax years beginning on or after January 1, 2008" (131-132). See
\
http://www.tax.ny.gov/pdf/memos/multitax/m09_5c_4i.pdf. The Tax Department
further advised that "when filing a tax return claiming any [Program] credits
(including carryovers) for a tax year that begins on or after January 1, 2008, you
must attach an Empire Zone retention certificate to your tax return" (id.).
Claims for such credits for this period without an accompanying retention
certificate would be denied (id.).
The Review Process Under the April 2009 Amendments
The 2009 amendments directed the Commissioner to "[c]onduct a review
during [2009] of all business enterprises to determine whether the business
enterprises should be decertified pursuant to [General Municipal Law
§ 959(a)(v)(5) and (6)]" (306). General Municipal Law § 959(w). In applying the
1:1 benefit-cost standard criterion, the Commissioner was directed to analyze
data "contained in at least three business annual reports ["BARs"] filed by the
business enterprise." Id. Businesses that demonstrated their continuing
11
eligibility under this statute would receive an "empire zone retention certificate";
businesses that did not would be notified that their Program certificates of
eligibility would be revoked. Id. The Commissioner was required to provide the
company with written notice of the revocation and the reasons for it, together
with notice that the company may administratively appeal the revocation to the
Empire Zones Designation Board ("Board"). Id. The Board is a different entity
from the Commissioner's office and it finally determines whether or not a
company's certificate of Program eligibility should be revoked. Compare General
Municipal Law § 959 with General Municipal Law § 960. The Board is
authorized to reverse the Commissioner's notice of revocation only if the Board
unanimously finds that there was sufficient evidence presented that the
Commissioner's decision was in error. See General Municipal Law § 960.
The August 2010 Amendments
In August 2010, in response to Supreme Court's first decision in James
Square Associates, described below, the Legislature amended the Program
statutes to confirm that decertifications pursuant to the April 2009 amendments
were effective as of January 1, 2008. As relevant here, the August 2010
amendments stated:
12
[i]t is the intent of the legislature to clarify and
confirm that the [April 2009] amendments ... are
deemed to be in effect for the taxable year commencing
on or after January 1, 2008 and before January 1,2009.
(331). See L. 2010, ch. 57, Part R, § 1.
The Legislature additionally amended General Municipal Law § 959(a)(v)
to provide that "with respect to any business enterprise whose certification has
been revoked pursuant to subparagraph five or six of this paragraph . . .
revocation ... will be effective for a taxable year beginning on or after January
first, two thousand eight and before January first, two thousand nine and for
subsequent taxable years, unless the business enterprise is subsequently
re-certified" (333). See id. at § 2.
The Decisions in James Square Associates and Matter ofJ-P Group
James Square Associates, LP, et al. v. Mullen, et al., 91 A.D.3d 164 (4th
Dep't 2011) was the first appellate court decision to review the Commissioner's
construction of the April 2009 amendments; as noted previously, that decision is
now on appeal to this Court. The plaintiffs in that case were five private
companies who brought an action for declaratory judgment against the
Commissioner and the Commissioner of the Department of Taxation and
Finance to challenge their Program decertifications pursuant to the April 2009
amendments. Plaintiffs argued that the Legislature could not have intended for
13
these amendments to operate retroactively as of January 1, 2008, but even if
such operation was intended, it was unconstitutional because it effected a
deprivation of property without due process of law, namely, their right to claim
Program tax credits for the 2008 tax year. In its first decision, Supreme Court,
Onondaga County (Cherundolo, J.) granted plaintiffs' motion for summary
judgment and denied defendants' cross-motion for summary judgment, holding
that there was insufficient evidence in the language and legislative history ofthe
April 2009 amendments to indicate that the Legislature intended for Program
decertification to take effect as of January 1, 2008.
Defendants subsequently moved to renew their cross-motion, citing the
August 2010 amendments that were enacted after the court's first decision in
James Square Associates, and that clarified that the April 2009 amendments
were indeed effective as of January 1, 2008. In its second decision, Supreme
Court granted defendants' motion to renew, but again denied them summary
judgment. The court held that the Legislature had not indicated its intent to
make the April 2009 amendments retroactive until the August 2010
amendments. In the court's view, the period of retroactivity between the
amendment's enactment in August 2010 and January 1, 2008 caused an
unconstitutional deprivation ofplaintiffs' property interest in the 2008 Program
tax credits they might have otherwise been able to claim. Accordingly, Supreme
14
Court declared that the amendments were null and void to the extent they made
plaintiffs' decertification effective as of January 1, 2008.
By opinion and order entered November 18, 2011, the Fourth Department
affirmed. See James Square Associates LP, et al. v. Mullen, 91 A.D.3d 164 (4th
Dep't 2011). The court disagreed with Supreme Court that the April 2009
amendments were not meant to be retroactive to January 1, 2008. Id. at 171-72.
Instead, the court held that the legislative history ofthe April 2009 amendments
and the related Tax Law provisions that were expressly given retroactive effect
supported the State's construction of the statute. See id.
However, the court found that the retroactivity of the April 2009
amendments was unconstitutional. See id. at 172-74. In the court's view, the
retroactive denial of the Program tax credits for 2008 violated plaintiffs' due
process rights. Id. Citing this Court's decision in Matter ofReplan Development,
the Fourth Department concluded that retroactive application of the April 2009
amendments was unconstitutional because (1) "[t]here is no indication in the
record that plaintiffs had any warning that the criteria [for Program
certification] were going to change, prospectively or retroactively, prior to April
2009"; (2) plaintiffs "were induced to conduct their businesses in a particular
way in specified disadvantaged areas in reliance upon the availability of
[Program] tax credits"; and (3) defendants failed to provide a "legitimate public
15
---- --------------:-----------------------------
purpose" for retroactive application of the April 2009 amendments. ld. at 173-
74. Accordingly, the Fourth Department held that "the revocations ofplaintiffs'
certifications, to the extent they were made retroactive to January 1, 2008, are
null and void" ld. at 174.
Matter ofJ-P Group concerned another company's Program decertification,
which was upheld by Supreme Court, Erie County. On J-P Group's appeal, the
Fourth Department affirmed Supreme Court only "to the extent that it
determined that the amendments to General Municipal Law § 959 are
prospective only," citing, without further discussion, its previous ruling in James
Square Associates. See Matter ofJ-P Group v. New York State Dep't ofEconomic
Dev., 91 A.D.3d 1363, 1364 (4th Dep't 2012). The Fourth Department also
affirmed the dismissal of all other causes of action stated in J-P Group's petition,
including a claim that the decertification was arbitrary and capricious and a
challenge to the emergency regulations filed by the Commissioner pursuant to
the amendments. See id. at 1364-67. The State appealed the Fourth
Department's constitutional holding to this Court. The State's appeals in James
Square and J-P Group are fully briefed.
16
THE FACTS AND THE PROCEEDINGS BELOW
A. The Commissioner's Revocation of Petitioner's
Certificate of Eligibility
Petitioner is a private company that was issued a certificate of Program
eligibility by the Commissioner effective in May 2000 (99, 277). Petitioner's
certificate provides that it "shall continue in effect until terminated by operation
oflaw or by action taken pursuant to such laws, rules and regulations as may be
applicable" (id.). Petitioner began receiving Program tax credits in 2001 (id.).
As directed by the April 2009 amendments to General Municipal Law
§ 959(w), the Commissioner conducted a review ofProgram accounts in 2009 and
subsequently decertified petitioner for its failure to meet the 1:1 benefit-cost
standard (278). By letter dated May 29, 2009, the Commissioner informed
petitioner that, because of the statutory amendments, DED was required to
perform a review of petitioner's business records, and that an initial review of
those records indicated that petitioner did not "meet the qualifications for
continued certification" (341).
After the Commissioner completed his review, he revoked petitioner's
Program certification. In a letter dated June 29, 2009 (342-343), the
Commissioner explained that petitioner had failed the 1:1 criterion, that is, it
had "failed to provide economic returns to the state in the form of total
17
remuneration to its employees (i.e. wages and benefits) and investments in its
facility greater in value to the tax benefits [petitioner] used and had refunded to
it" (342). The Commissioner's letter also informed petitioner of its appeal rights
and cautioned that if no appeal was taken, the revocation would be implemented
after 15 days, effective January 1, 2008 (343).
Petitioner pursued an administrative appeal to the Board (344-348). The
Board met on March 11, 2010 to review and consider petitioner's appeal (280-
281). The Board considered petitioner's BARs for 2001 through 2007, the
documents petitioner submitted on administrative appeal and information
provided by DED staff, all of which indicated that petitioner did not satisfy the
1:1 benefit-cost standard (279, 344-359).
The Board unanimously upheld the revocation of petitioner's Program
certification in Resolution No.3 of 2010 (145, 281). The determination, which
was provided to petitioner on March 24, 2010, stated that the Board had
reviewed petitioner's appeal and determined that the company had "failed to
provide sufficient evidence to demonstrate that the Commissioner's finding
which resulted in the revocation of [petitioner's] business certification under
General Municipal Law § 959(a)(v)(6), was in error" (145). Accordingly, the
Board informed petitioner that it was upholding the Commissioner's June 2009
revocation based on petitioner's failure "to provide economic returns in the form
18
of wages (including fringe benefits) and capital investments greater than the tax
benefits the business was receiving" (145).
B. This Hybrid C.P.L.R. Article 78 Proceeding and
Action for Declaratory Judgment
Petitioner commenced this hybrid C.P.L.R. article 78 proceeding/action for
declaratory judgment in July 2010, arguing that its Program decertification was
arbitrary and capricious, affected by an error of law and in violation of lawful
procedure (68-98). As relevant here, petitioner argued that the retroactive
operation of the April 2009 amendments to January 1, 2008 was
unconstitutional and illegal, and sought a declaration from the court that these
amendments were prospective only (92-93).4
Respondents opposed the petition with an answer, a memorandum oflaw
and an affidavit submitted by Randal D. Coburn, DED's Director of the Program
(239-282). Mr. Coburn explained that the Program "has been under increasing
scrutiny for several years" because there was "growing concern that some firms
4 Petitioner also asserted that respondents' determination lacked a rational basis in
the record because respondents did not consider petitioner's 2000 BAR, filed when
the prior Economic Development Zone Program was still in effect, and also that the
procedures the Commissioner and the Board followed violated petitioner's due
process rights (83-92). The Third Department rejected these arguments. WL, LLC,
97 A.D.3d at 29-31. On September 13, 2012, this Court dismissed petitioner's cross-
appeal with respect to these issues on the ground that no substantial constitutional
question is directly involved.
19
participating in the Program have received more in tax benefits than they have
produced in economic returns in the form of wages paid to workers and capital
investments in their facilities" (272).' Mr. Coburn noted that the April 2009
amendments were also precipitated by "increasing concern" about "businesses
exploiting loopholes in the law," allowing them "to claim tax benefits for existing
jobs by counting them as new jobs" (id.).
Mr. Coburn stated that retroactive operation of the April 2009
amendments to January 1, 2008 was "the only rational way" for the
Commissioner to implement the reforms mandated by the statute, which
directed that the review of the business's Program certifications occur in 2009 in
order to realize "the legislative purpose of achieving savings during the 2009-
2010 fiscal year by reforming the [Program]" (275).
c. The Decisions Below
Supreme Court dismissed the petition/complaint (13-17). The court held
that petitioner "does not have a property interest in continuing to receive the
certification or tax credit at issue," and thus, the April 2009 amendments did not
violate petitioner's due process rights (15). The court further agreed with the
State that the statute was intended to apply retroactively (15).
20
On petitioner's appeal, the Third Department held that the April 2009
amendments could not constitutionally be applied retroactively to January 1,
2008. The court concluded that petitioner's Program certification -- as
distinguished from "the attendant tax benefits and credits" petitioner received
by virtue of that certification -- constituted a property interest that was entitled
to due process protection (443). In the court's view, petitioner, "by fully
complying with the laws then in place to obtain its certification, had every
reason to assume that it would continue to enjoy the benefits of certification so
long as it continued to comply with the provisions in the existing statutory
enactments" (444). The court determined that petitioner had not received notice
that the Program would be amended retroactively, and that in the period before
the amendments were enacted, it "had made decisions in its business that
entitled it to certain tax benefits and credits" (444). The court suggested that
the period of retroactivity was excessive, although, in an unexplained departure
from the Fourth Department's analysis in James Square Associates and Matter
of J-P Group, the court concluded that the period of retroactivity should be
measured from the August 2010 enactment of the Legislature's clarifying
amendments rather than from April 2009 (438,444).
Finally, the court held that the Program amendments were not sufficiently
supported by a legitimate public purpose (445). Accordingly, the court modified
21
Supreme Court's judgment by granting the petition/complaint to the extent that
it sought a declaration that "the April 2009 amendments may not be applied
retroactively to January 1, 2008" and declaring that "said amendments shall be
applied prospectively" (446).
ARGUMENT
The Third Department's opinion and order should be reversed because the
court erred in two respects. First, the court incorrectly held that the period of
retroactivity should be measured from the enactment of the August 2010
amendments. The court's conclusion, which was not supported by any analysis,
failed to recognized that there was sufficient evidence within the text and
legislative history of the April 2009 amendments themselves to establish that
they were meant to take effect as of January 1, 2008. The court overlooked the
fact that the April 2009 legislation also amended the Program tax credits
contained in the Tax Law and made those amendments effective as ofJanuary 1,
2008. Additionally, a common-sense reading of the amendments to General
Municipal Law § 959(w), which directed the Commissioner to complete the
review and any decertification during 2009 based on petitioner's financial
information from earlier years, and the stated legislative goal of realizing
Program savings during the current (2009-2010) fiscal year, further support the
22
conclusion that the Legislature intended the 2009 decertifications to be effective
on January 1, 2008. The August 2010 amendments merely clarified and
confirmed that revocations of certifications pursuant to the April 2009
amendments to General Municipal Law § 959 were intended to be effective for
the taxable year commencing on January 1, 2008. For all these reasons, the
Appellate Division erred in holding that the period of retroactivity exceeded two
years when in fact the actual period of retroactive operation was approximately
15 months between the April 7,2009 enactment date of the 2009 amendments
and January 1, 2008.
Second, the Appellate Division erred in holding that this limited period of
retroactivity deprived petitioner of due process. The retroactive denial ofthe tax
credits here satisfied the analysis set forth by this Court in upholding the
constitutionality of retroactive tax legislation. See Matter of Replan Dev. v.
Department of Hous. & Preservation of City of N. Y., 70 N.Y.2d 451, 455-57
(1987). In addition, under the circumstances of this case, even the period
between the August 2010 enactment date of the clarifying statute and
January 1,2008 did not subject petitioner to any constitutional deprivation. For
all of these reasons, explained further below, this Court should grant the State
summary judgment dismissing petitioner's complaint.
23
POINT I
THE LEGISLATURE INTENDED THE APRIL 2009
AMENDMENTS TO APPLY TO DECERTIFIED
BUSINESSES AS OF JANUARY 1, 2008
The period of retroactivityfor the April 2009 amendments is slightly more
than 15 months, measured from their enactment on April 7, 2009, back to
January 1, 2008. Legislation is retroactive in effect where "the language
expressly or by necessary implication requires it." Matter of St. Clair Nation v.
City of New York, 14 N.Y.3d 452, 457 (2010), quoting Majewski v. Broadalbin
Perth Cent. School Dist., 91 N.Y.2d 577, 584 (1998). In this case, two points in
particular demonstrate that, when it adopted them, the Legislature intended
that the April 2009 amendments were to be effective on January 1, 2008.
First, the January 1, 2008 effective date is necessary to synchronize the
timing of the amendments to General Municipal Law § 959(a) and (w) with the
portions of the 2009 amendments that made corresponding changes to the Tax
Law. The Legislature expressly made the Tax Law amendments to theEmpire
Zone tax credits effective retroactively to January 1, 2008 (308-310, 316). See
Tax Law §§ 210, 606,1456,1511; L. 2009, ch. 57, Part 8-1, §§ 11-22, 44(a). The
~egislature necessarily intended that decertifications issued pursuant to the
April 2009 amendments to General Municipal Law § 959(a) and(w) were to take
effect on January 1, 2008, because the 2009 amendments also changed the
24
corresponding provisions of the Tax Law to disallow carry-over credits for
companies that were decertified by the Commissioner following its required 2009
reVIew. Only businesses that satisfied the criteria set forth in General
Municipal Law § 959(w), as amended, would be issued a retention certificate, a
prerequisite to claiming the carryover credits. Each of the Tax Law
amendments refers to the retention certificate required by the amended section
959(w).
The effective date of the tax credit amendments, i.e., January 1, 2008,
would be rendered meaningless if the substantive provisions to which they refer,
namely General Municipal Law §§ 959(a)(v)(5), (a)(v)(6) and (w), were not also
effective on the same date. In other words, construing the statute to mean that
the Department of Taxation and Finance could disallow credits based on the
Commissioner's decertification as ofJanuary 1, 2008, but that the Commissioner
could not actually make the decertification effective until April 2009, would
produce a conflict that the Legislature could not have intended. Under the Tax
Law amendments, the carryover credits from the pre-2008 years could only be
claimed for 2008 if the taxpayer had a retention certificate, but under the Third
Department's interpretation of the amendments to General Municipal Law
§ 959(a) and (w), the Commissioner could not issue a retention certificate
effective for periods before April 2009. "Although statutes will ordinarily be
25
-------------- -----------------
accorded their plain meaning, it is well settled that courts should construe them
to avoid objectionable, unreasonable or absurd consequences." Long v. State of
New York, 7 N.Y.3d 269, 273 (2006); see Matter of Onbank & Trust Co., 90
N.Y.2d 725, 731 (1997) (declining to read amended statute as prospective-only
because such a construction would render some of its terms meaningless). In
order to eliminate this conflict, the amendments to General Municipal Law §
959(a) and (w) must be effective at the same time as the tax credit amendments,
i.e., January 1, 2008. Second, the history ofthe 2009 amendments shows that
the Legislature intended the January 1, 2008, effective date to govern, because
the Legislature's 2009-10 financial plan projected realizing $90 million in
savings from the decertifications during the then-current 2009-10 fiscal year
(296). As a result, the denial of the tax credits for the decertified companies had
to be effective for 2008 because if it were not, the decertified companies could
claim their tax credits for qualifying expenditures incurred in 2008 (as opposed
to their credit carryovers for earlier years' expenditures, which were barred by
the 2009 amendments in the absence of a retention certificate) during the 2009-
10 fiscal year, and the full amount of the intended savings would then not be
realized in the 2009-10 fiscal year. The fact that the Legislature intended the
savings to be realized in the then-current fiscal year is further shown by the fact
that the Legislature directed the Commissioner to perform the Program review
26
called for by the 2009 amendments in 2009. Since the most recent financial
information available at that time were the BARs for the period ended December
31, 2007, it was reasonable for the Legislature to make the decertifications
effective on January 1, 2008. See General Municipal Law § 959(a)
(decertification would take effect on "the date determined to be the earliest event
constituting grounds for revoking certification").
A common-sense reading of the April 2009 amendments to General
Municipal Law § 959(w) supports this argument. "[T]he reach of the statue
ultimately becomes a matter of judgment made upon review of the legislative
goal." Matter of Onbank & Trust Co., 90 N.Y.2d at 730, quoting Matter ofDuell
v. Condon, 84 N.Y.2d 773, 783 (1995). There can be no dispute that the
legislative goal behind the April 2009 amendments was immediately to generate
significant revenues for the state by restricting tax credits to businesses that
were not fulfilling the Program's ultimate purposes of creating new job and
investment opportunities in the State (185, 367). As amended, General
Municipal Law § 959(w) required the Commissioner to conduct a review of all
Program participants during 2009 and to determine whether any should be
decertified. As noted in the affidavit of Randal Coburn, DED's director of the
Empire Zone Program, the Commissioner could not fulfill this statutory mandate
unless it reviewed those participants' BARs for 2007, the latest documents then
27
available (176). For businesses decertified under General Municipal Law
§ 959(a)(v)(6) (the 1:1 benefit-cost standard), the Commissioner was required to
review "at least three [BARs] filed by the business enterprise." General
Municipal Law § 959(w). The Third Department's construction would
presumably require the Commissioner to wait until BARs were generated at
some point after April 7, 2009, a period that would likely take years, thereby
frustrating the amendments' legislative purpose of realizing immediate savings
to the State during the 2009-2010 fiscal year (185).
Moreover, the Appellate Division's holding derives no support from the fact
that the Legislature did not enact a proposed version of the April 2009
legislation that expressly provided that the amendments to General Municipal
Law § 959 were to be effective on January 1, 2008. The failure to enact proposed
statutory provisions is an unreliable guide to legislative intent. Although
"legislative intent may be inferred from the omission of proposed substantive
changes in the final legislative enactment," the deleted language on which
petitioner relies falls far short of "demonstrat[ing] a clear mandate from the
Legislature" that the decertification of Program participants was to be
prospective from April 2009. Matter of Grand Jury Subpoena Duces Tecum
[Museum of Modern Art], 93 N.Y.2d 729, 738 (1999). Further, the fact that the
amendments to General Municipal Law § 959 as enacted were to take effect
28
I~ ----
"immediately" does not by itself establish an exclusively prospective operation.
,
It may alternatively be supportive of retroactive operation, see Matter ofGleason
[Michael Vee, Ltd.], 96 N.Y.2d 117, 122 (2001) and, at worst, is not dispositive.
See Majewksi, 91 N.Y.2d at 583-84.
Thus, the April 2009 amendments set forth the only substantive changes
to the Program, including its intended effective date of January 1, 2008.
In contrast, the August 2010 amendments merely reaffirmed what the scope of
those changes was. See Matter ofNorth v. Board ofExaminers ofSex Offenders
of State of N. Y., 8 N.Y.3d 745,753-54 (2007) (2002 amendments to New York's
Sex Offender Registration Act were a clarification of existing law, not a
substantive change); Astoria Fed. Savings & Loan Ass'n v. State of New York,
222 A.D.2d 36, 46 (2d Dep't), appeal dismissed, 88 N.Y.2d 1064 (1996),
lv. denied, 89 N.Y.2d 87 (1997), cert. denied, 522 U.S. 808 (1997) (rejecting
plaintiffs argument that 1991 amendment to 1984 statute was impermissibly
retroactive; "we believe it to be worthy of underscoring that the challenged
amendment was promulgated to clarify the 1984 enactment and not to change
it") (emphasis in original); cf. People ex rel. Beck v. Graves, 280 N.Y. 405, 410
(1939) (striking as unconstitutional an amended statute imposing a new tax
assessment with a retroactive period of 16 years, and rejecting the Tax
Commission's argument that the amendment was merely a clarifying statute;
29
the Court noted that prior to the amendment, the income in question was free
,from taxation).
Accordingly, the Appellate Division's determination that the retroactive
period ran from January 1, 2008, to August 11, 2010, was mistaken. Petitioner
was on notice as ofApril 2009 that it was subject to decertification retroactive to
January 1, 2008. Thus, the period of retroactivity here is measured from the
April 7, 2009 enactment date of the amendments back to January 1, 2008, a
period of slightly more than 15 months. As explained in Point II, below, that
limited degree of retroactivity is consistent with the requirements ofdue process.
POINT II
'THE LIMITED RETROACTIVE APPLICATION OF THE
APRIL 2009 AMENDMENTS DOES NOT VIOLATE THE
DUE PROCESS CLAUSE
In this case, as well as in the other four appeals pending in this Court
(James Square, Matter of J-P Group, Morris Builders, LP and Hague
Corporation), the Appellate Divisions erred in holding that the retroactive
operation of the April 2009 amendments was unconstitutional. The effect ofthe
amendments was to deny companies their Program tax credits for 2008 if they
did not satisfy the 1:1 and shirt-changer criteria for the period before 2008.
Petitioner's constitutional argument concerns the retroactive denial of tax
30
credits and thus is properly analyzed under the due process standards for
retroactive amendment of tax statutes provided by United States v. Carlton, 512
U.S. 26 (1994), Matter of Replan Dev. v. Department of Hous. Preservation and
Dev. of City of N. Y., 70 N.Y.2d 451 (1987), and other cases. Under those
standards, the limited retroactive denial of the tax credits involved here was
constitution~land did not violate petitioner's due process rights.
The Supreme Court ofthe United States has repeatedly upheld retroactive
tax legislation against due process challenges. See Carlton, 512 U.S. at 30
(collecting cases). Carlton upheld a retroactive tax law change, and the decision
illustrates the judicial deference accorded to legislative judgments in this area.
In that case, Congress retroactively limited eligibility for an estate tax deduction
by adding a new requirement 14 months after the deduction was enacted. In the
interim, the taxpayer, to qualify for the pre-amendment version of the deduction,
had engaged in a stock transaction that cost it over $600,000 but would have
allowed the taxpayer to save over $2,500,000 in estate tax. The transaction did
not qualify for the deduction under the statute as amended, and Congress made
the amended statute effective back to the date of the deduction's original
enactment, with the result that the taxpayer lost its eligibility for the deduction.
The Supreme Court found that the retroactive amendment satisfied the
requirements of due process. See id. at 32-34. The Court explained that,
31
although some of its precedents had stated that due process prohibits retroactive
tax statutes that are "harsh and oppressive," that standard is the same due
process standard applicable to retroactive economic legislation generally,
namely, whether "the retroactive application of a statute is supported by a
legitimate legislative purpose furthered by rational means." Id. at 30-31
(quoting Pension Benefit Guar. Corp. v. R.A. Gray & Co., 467 U.S. 717, 729-730
(1984». Applying that standard, the Court observed that the purpose of the
amendment, to correct a mistake in the original deduction statute, "was neither
illegitimate nor arbitrary." Id. at 32. In addition, the Court found that the
14-month-period between the enactment of the deduction and its amendment
was "only a modest period of retroactivity." Id. The Court explained, id. at 33,
that in Welch v. Henry, 305 U.S. 134 (1938), it had upheld a Wisconsin income
tax adopted in 1935 on dividends received in 1933, concluding in Welch that a
permissible period of retroactivity included "the receipt of income during the
year of the legislative session preceding that ofits enactment." Welch, 305 U.S. at
150 (emphasis added). Finally, the Carlton Court held that neither the
taxpayer's reliance on the deduction as in effect before its amendment (at a cost
of over $600,000 in addition to the imposition of over $2,500,00 in additional
estate tax) nor the taxpayer's lack of notice regarding the amendment,
established a due process violation. Carlton, 512 U.S. at 33-34.
32
This Court's decisions are in accord with Carlton a.nd Welch. "Retroactive
tax legislation may be treated as valid, unless it reaches so far into the past or so
unfairly as to constitute a deprivation of property without due process." Matter
of Varrington Corp. v. City of New York Dept. of Finance, 85 N.Y.2d 28, 32
(1995). Such legislation will be upheld unless its retroactivity is "so harsh and
oppressive as to transgress the constitutional limitation." Replan, 70 N.Y.2d at
455, quoting Welch, 305 U.S. at 147. And, as noted above, Carlton confirms that
the "harsh and oppressive" standard is simply another way of phrasing due
process rational basis review. See Carlton, 512 U.S. at 30-31.
l\s the Third Department recognized (443-444), Replan is this Court's
leading decision regarding retroactive tax amendments. In Replan, this Court
upheld the retroactive repeal of a real property tax exemption after the taxpayer,
a developer, had incurred significant expenses in reliance on the availability of
the exemption. The taxpayer purchased and began to restore two buildings
formerly used for single room occupancy (SRO). The taxpayer planned to use the
buildings for non-SRO multiple occupancy, and at the time it purchased the
buildings and began renovation, a provision of the city code exempted from
taxation increases in value resulting from the conversion of a building from SRO
to non-SRO multiple occupancy. The city code provided that this program would
be in effect until 1984. See Replan, 70 N.Y.2d at 454. Thereafter, pursuant to a
33
------ ----------------------------------,---------
repeal of the enabling provision of state law, the city code exemption was
repealed, effective retroactively to conversions, including the taxpayer's,
commenced in the year before the repeal. Id.
Relying in part on United States Supreme Court decisions including Welch
v. Henry, this Court in Replan rejected the taxpayer's due process challenge to
the retroactive repeal of the tax exemption. This Court explained that the
determination of whether a retroactively applied tax statute is "harsh and
oppressive" requires a balancing of three factors: (1) the taxpayer's forewarning
of a change in the legislation and the reasonableness of his reliance on the old
statute "under all the circumstances"; (2) the length of the retroactive period,
and (3) the public purpose advanced by the retroactive legislation. Id. at 456
(citation omitted).
Applying those factors in Replan, this Court first noted that the taxpayer
agreed "that the period of retroactivity - one year - is not excessive" and that the
purposes of the retroactive application - to forestall the loss of SRO housing and
discourage the eviction of tenants - were valid public purposes. Id. at 457. The
Court concluded that the taxpayer could not have justifiably relied on the tax
exemption as in effect when it bought the buildings, because the city code
provision was subject to changes in the state enabling legislation which
authorized the exemption in the first instance. Id.
34
In the present case, the analyses in Replan and Carlton compel the
conclusion that the limited retroactive effect of the April 2009 amendments
satisfies due process because it is supported by legitimate legislative purposes
furthered by rational means and thus is not harsh and oppressive. Replan and
Carlton upheld retroactive revocations of tax benefits that taxpayers
indisputably relied on to their substantial financial detriment, because, as here,
the revocation was reasonably foreseeable, was of limited duration (there, 12
and 14 months, respectively, compared to just over 15 months here), and was
justified by legitimate governmental purposes, which in this case included.
ensuring that the Program served its intended economic development purposes
at a reasonable cost and raising the revenues necessary to address the State's
2009 budget shortfalls. The Appellate Divisions misapplied Replan's three
factors and came to the erroneous conclusion that the 2009 amendments were
unconstitutional. We demonstrate below that the retroactivity here -is well
within due process limits.
A. Petitioner Had Sufficient Forewarning of Amendments
to General Municipal Law § 959.
The mere fact of petitioner's reliance is not sufficient to establish a
constitutional violation, because "[t]ax legislation is not a promise, and a
taxpayer has no vested right in the" Tax Law. Carlton, 512 U.S. at 33; see also
35
Matter of Varrington Corp., 85 N.Y.2d at 33 (same); Matter ofNeuner v. Weyant,
63 A.D.2d 290, 300 (2d Dep't 1978) ("almost all new laws upset some
expectations, and frequently changes are made in the legal consequence ofprior
conduct"). Petitioner could not reasonably rely on the pre-April 2009 version of
General Municipal Law § 959 as an assurance that its tax credit eligibility could
never be altered, and thus, its expectations as to taxation have not been
unreasonably disappointed. Replan, 70 N.Y.2d at 456-57.
As an initial m,atter, it is settled that New York's constitutional
restrictions on tax exemptions preclude taxpayers from claiming any vested
right in the continuation of tax credits, exemptions or beneficial rates. Under
article XVI, § 1, subject to narrow exceptions not relevant here, "[t]he power of
taxation shall never be surrendered, suspended or contracted away" and
"[e]xemptions may be altered or repealed." N.Y. Const., art. XVI, § 1. As this
Court held in Matter ofRoosevelt Raceway, Inc. v. Monaghan, 9 N.Y.2d 293, 307
(1961), under article XVI, § 1, "the State may not be said to have breached any
contract or agreement with Roosevelt to maintain its state tax at the level
provided for in 1956 for the reason that no one was empowered to enter into such
an agreement on behalf of the State" (emphasis added).
In addition, an Empire Zone Program certification did not entitle
petitioner to greater protection than that accorded to other taxpayers who relied
36
on the continuing benefit of a tax statute. Accordingly, the Third Department
erred in by concluding that petitioner had a stronger reliance claim because it
"had every reason to expect that as long as it retained its certification and
complied with the requirements then in place for the program, it could ... rely
upon the program's promise that it would receive commensurate tax relief' (444).
Program certification was simply a pre-requisite to the right to claim the tax
benefits, and was explicitly subject to termination "by operation of law" (63).
Thus, the due process claim petitioner asserts here is no different from the
taxpayer's argument in Replan that it "acted in reliance on the inducement" of
the tax exemption to participate in the SRO conversion program, 70 N.Y.2d at
455, or in Carlton that it "specifically and detrimentally relied on the
preamendment version" of the estate tax deduction statute when it engaged in
the stock transaction. 512 U.S. at 33. Indeed, similar inducements and reliance
are the hallmarks of all tax incentives, which exist to encourage taxpayers to
engage in the tax-favored transactions. The Legislature's retroactive
readjustment of the qualifications necessary for the continued tax credits "is not
unlawful solely because it upsets otherwise settled expectations." Pension
Benefit Guar. Corp., 467 U.S. at 729, quoting Usery v. Turner Elkhorn Mining
Co., 428 U.S. 1, 15-16 (1976). In any event, as the Fourth Department
recognized in James Square Associates, the April 2009 amendments "alter [the
37
decertified company's] eligibility for tax credits, and the cases addressing the
retroactive application of tax statutes are therefore instructive." James Square
Assoc., 91 A.D.3d at 173.5 Accordingly, the reliance claim here is the same one
the taxpayers advanced in Carlton and Replan, and it should be similarly
rejected.
Thus, petitioner knew that the Legislature could repeal the Empire Zone
Program tax credits at any time, and that petitioner could have no claim against
the State for continued tax benefits, regardless of the extent of any investment
that it might have been induced to make by theProgram. Indeed, petitioner's
certificate of eligibility explicitly provided that eligibility would continue "until
terminated by operation of law or by action taken pursuant to such laws, rules
and regulations as may be applicable" (99). Similarly, in Replan, this Court
relied specifically on the fact that the city code provision "was subject to such
5 In addition, retroactive tax credit legislation presents fewer constitutional notice
and reliance issues than legislation that "create[s] a new tax" and seeks to apply it
retroactively. United States v. Darusmont, 449 U.S. 292, 300 (1981); cf. Wiggins v.
Commissioner of Internal Rev., 904 F.2d 311, 314 (5th Cir. 1990) ("[t]here is no new
tax here" because the taxpayers "were already subject to tax from recapture of the
investment tax credit and to the alternative minimum tax"); Matter of Capital Fin.
Corp. v. Commissioner of Tax. & Fin., 218 A.D.2d 230, 233 (3d Dep't), appeal
dismissed, 88 N.Y.2d 874 (1996) (rejecting taxpayer's argument that it had a vested
property' right to carryovers of mortgage recording tax credits it had earned prior to
the disputed amendment). And tax credits are, like exemptions, "a matter of
legislative grace." Matter of Grace v. New York State Tax Comm'n, 37 N.Y.2d 193,
196 (1975) (tax exemptions "are allowed only as a matter of legislative grace").
38
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changes as may have been made in the State enabling legislation itself."
70 N.Y.2d at 457. Here too, the likelihood of further statutory amendments was
manifest.
Accordingly, the Third Department was wrong to hold that "there is no
indication in the record that any of the [Program] participants were on notice
that the rules governing certification would be changed" (444). Since the
Program's inception in 2001, petitioner and all other businesses that were
enrolled in the Program were on notice that their eligibility for tax benefits
depended on their ability to create new jobs and investment opportunities in the
State, the reason for the Program's existence. Indeed, the Legislature amended
the statutory eligibility requirements several times prior to April 2009, including
in 2005, when it enacted a cost-benefit standard similar to the one at issue and
directed that it would apply to new Program participants. See L. 2005, ch. 63,
Part A (sub-part W), § 2.
As Mr. Coburn explained, the April 2009 amendments did not appear
without warning, but resulted from "increasing scrutiny" over "several years,"
based on concerns that "some firms participating in the Program have received
more in tax benefits than economic returns they are returning in the form of
wages paid to workers and capital investment in their facilities" (272). The April
2009 amendments were also foreshadowed by legislative hearings held a year
39
before their enactment, during which legislators and agency officials publicly
discussed efforts to audit companies who were not meeting Program goals, see
Joint Budget Hearing of the Assembly Ways and Means Committee and the
Senate Finance Committee on the Economic Development and Taxes Budget for
Fiscal Year 2008-09, at pp. 11-12,55-56,79-82, and by the 2004 and 2007 public
reports of the Comptroller, who found that the Program, based on the then-
existing statutory eligibility criteria, was not meeting its job creation and
investment objectives. Thus, it was "reasonably foreseeable" that the Program's
eligibility criteria would change to address these concerns, particularly since
petitioner's own certificates of eligibility warned it that this could happen. See,
e.g., Furlong v. Commissioner ofInternal Rev., 36 F.3d 25,28 (7th Cir. 1994) (tax
on loans from certain pension plans was reasonably foreseeable because it was
not a "wholly new tax").
Petitioner's reliance claim is further undermined by the fact that it did not
demonstrate that it engaged in any particular activities during 2008, the period
of retroactivity, in reliance on the Program tax credits it expected to claim for
2008. Instead, petitioner alleged only that it "relied upon [r]espondents'
representation that its eligibility would remain in effect until terminated by
operation of law or by action taken pursuant to applicable laws, rules or
regulations," and that its decertification "eliminated Petitioner's tax credits that
40
it had earned by virtue of its transactions prior to June 29, 2009" (403). Nor did
petitioner present any proof that it had already completed and filed its 2009
returns claiming the credits before the April 2009 amendments were enacted.
In the absence of any evidence that petitioner would have "altered [its] behavior
to avoid the [loss of tax credits for 2008]," United States v. Darusmont, 449 U.S.
292, 299 (1981), and in light of petitioner's burden to demonstrate its
entitlement to the tax credits at issue, there is no basis to presume that that
petitioner was "induced to conduct [its] business[ ] in a particular way ... in
reliance upon the availability of [Program] tax credits" for 2008. James Square
Assoc., 91 A.D.3d at 174.
For all of these reasons, the Appellate Division mistakenly concluded that
petitioner did not have any warning before April 2009 that the eligibility criteria
could change. Thus, the first Replan factor favors the constitutionality of the
limited period of retroactivity here.
B. The Retroactivity Period Was Not Excessive.
Consistent with the second factor considered in Replan, the 15-month
retroactivity period of the April 2009 amendments is not constitutionally
excessive. The Third Department did not discuss this factor, but its due process
analysis rested on the erroneous conclusion that the period of retroactivity is
41
measured from the Legislature's August 2010 enactment of its clarifying
amendments back to January 1, 2008, a 32-month period. As we explained in
Point I, above, the August 2010 amendments simply clarified what had always
been the Legislature's intention regarding the effective date of the April 2009
amendments. 6
Viewed correctly as adopting a 15-month period of retroactivity, the April
2009 amendments satisfy the second Replan factor because 15 months is not
excessive. Both the United State Supreme Court and the New York Court of
Appeals have declared that even tax legislation that imposes new tax liabilities
(rather than simply limiting credits for existing taxes) may constitutionally be
applied to the beginning of the year preceding the legislation's enactment, as the
Legislature did here with the disputed tax credit amendments. See United
States v. Carlton, 512 U.S. at 33 (tax laws may be retroactively applied "to
include the receipt of income during the year of the legislative session preceding
6 Even if measured from the enactment of the August 2010 amendment (rather
than from April 2009, as the Fourth Department correctly held), the resulting
retroactivity period is nevertheless constitutional for the reasons stated in this
section and because the August 2010 amendment was a "curative measure." United
States v. Carlton, 512 U.S. at 31-32 (upholding retroactive application of statute
limiting estate tax deductions because the amendment was rationally adopted in
order to stem "a significant and unanticipated revenue loss"); Matter ofMoran
Towing Corp. v. Urbach 1 A.D.3d 722,724 (3d Dep't 2003) ("when legislation is
curative, retroactivity may be liberally construed"). Accordingly, the 2009
amendments are constitutional whether their period of retroactivity is measured
from April 2009 or August 2010.
42
that of its enactment" (quoting Welch, 305 U.S. at 150); Matter of Lacidem
Realty Corp. v. Graves, 288 N.Y. 354, 357 (1942) (upholding 14-month retroactive
period to the beginning of the year before enactment for statute imposing tax on
sales of sub-metered electric current); see also Matter of Varrington Corp.,
85 N.Y.2d at 33 (retroactive period of nearly two years for tax regulation that
required the taxpayer to return a refund previously issued was not
unconstitutional) .
Indeed, courts regularly uphold tax legislation and regulations with far
greater retroactive periods of operation than the 15 months here. See, e.g.,
Welch, 305 U.S. at 144-49 (retroactivity period of two years for statute levying
emergency tax relief on dividends did not violate taxpayer's due process or equal
protection rights); Tate & Lyle, Inc. v. Commissioner ofInternal Revenue, 87 F.3d
99, 107 (3d Cir. 1996) (upholding six-year retroactivity period of a Treasury
Regulation requiring the taxpayer to use a cash method of accounting);
Canisius Call. v. United States of Am., 799 F.2d 18, 27 (2d Cir. 1986) (holding
that four-year retroactivity period for a FICA tax amendment did not violate due
process in light of its curative purpose); Astoria Fed. Savings & Loan Ass'n, 222
A.D.2d at 46 (2d Dep't) (retroactivity period of more than six years for
amendment changing tax exemption eligibility was not harsh and oppressive).
These decisions have even greater force here because, as explained above at note
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6, the Legislature did not impose a new tax but simply limited the use of credits
against existing taxes. Thus, the second Replan factor also supports the validity
of the modest period of retroactivity provided by the 2009 amendments.
c. The Amendments Serve Valid Public Purposes.
Finally, the Third Department mistakenly concluded that "[w]hile
depriving petitioner -- and other entities similarly situated -- of tax credits and
benefits legitimately earned would undoubtedly generate additional revenue for
the state," this purpose "standing alone cannot justify governmental
appropriation of private property" (445). In fact, the April 2009 amendments
furthered two valid public purposes: to correct "long-documented abuses" by
Program participants who were not making good on their promises to create new
investments and jobs in New York in return for Program tax credits, and to
provide the State approximately $90 million in much needed savings for the
2009-2010 fiscal year (98). See Office of the State Comptroller-Division of
Local Government and School Accountability, The Effectiveness of Empire
Zones: Follow~up Report, 2007-MS-2 (2007), available at
www.osc.state.ny.us/localgov/audits/swr/empirezones.pdf. (noting the difficulty of
obtaining reliable data to confirm whether the benefits of the Program outweigh
its costs, and the lack of progress in getting municipalities to identify
44
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performance shortfalls within their respective Empire Zones); Office of the State
Comptroller, Assessing Empire Zones Program-Reforms Needed to Improve
Program Evaluation and Effectiveness, Report 3-2005 (2004), available at
www.osc.state.ny.us/reports/empirezone3-2005.pdf. (same). The Governor
specifically criticized the Program's "abuses, lack of results and skyrocketing
costs," as well as its lack of accountability. Press Release, available at
http://www/governor.ny.gov/archive/paterson/press/061810ExcelsiorJobsProgram
.html.
The Third Department improperly disregarded the legitimate and
uncontested remedial purpose of the April 2009 amendments, namely, to
increase the Program's "cost-effectiveness, strategic focus and accountability" by
ensuring that Program participants return more to the community "in the form
of wages paid to workers and capital investments in their facilities" than they
received in tax benefits (272). Petitioner does not dispute that it was not
meeting these Program goals based on all of its applicable BARs and thus, could
not satisfy the 1:1 benefit-cost test (42). Accordingly, the Third Department
should have taken this valid legislative goal into account when considering the
third Replan factor.
In addition to the Third Department's failure sufficiently to consider the
remedial goals of the April 2009 amendments, that court erred in holding that
45
the revenue-raising purpose of the April 2009 amendments was not a valid
public purpose. The Legislature may rationally retroactively amend a statute to
stem "a significant and unanticipated revenue loss." Carlton, 512 U.S. at 32;
accord Furlong, 36 F.3d at 28; see Rocanova v. United State ofAm., 955 F. Supp.
27, 29-30 (S.D.N.Y. 1996), afl'd, 109 F.3d 127 (2d Cir. 1997), cert. denied, 522
U.S. 821 (1997) (Congress's intent in enacting a retroactive amendment to the
Internal Revenue Code -- "to raise revenue without raising taxes or imposing a
new tax" -- was "rational and reasonable"); Venable v. Commissioner ofInternal
Revenue, 2003 WL 21921052, *7 (U.S. Tax Ct. 2003), afl'd, 110 Fed. Appx. 421,
2004 WL 2297334 (5th Cir. 2004) (Congress's retroactive application of statute
that narrowed income tax exclusion was "rationally linked to the legitimate
objective of raising revenue"). Here, the Legislature recognized that the State
was losin~ a substantial sum of money from the Program in its current state,
and reasonably acted "to provide savings of $90 million" that the State and its
taxpayers could realize during fiscal year 2009-2010 (296).
Each of these purposes amply justifies the short retroactive period of the
April 2009 amendments and outweighs petitioner's limited claim to the 2008
Program tax credits it might have claimed had it not been decertified. See
Matter 01 Neuner v. Weyant, 63 A.D.2d 290, 304 (2d Dep't 1978), appeal
dismissed, 48 N.Y.2d 975 (1979) (retroactive application of tax legislation "served
46
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an important public purpose by delaying the effective date of a 'loosely drawn'
tax exemption which would, in all probability, have permitted large-scale tax
avoidance by land owners who were not intended to be benefitted"). For these
reasons, the Appellate Division's reliance (444), on this Court's pre-Replan
decision in Clarendon Trust v. State Tax Commission, 43 N.Y.2d 933 (1978), is
misplaced; in that case, unlike this one, there was no "persuasive reason for
retroactivity." Id. at 935.
In conclusion, all three of the factors identified by this Court in Replan
support the constitutionality of the retroactive tax statutes at issue here.
Accordingly, the limited retroactive effect of the April 2009 amendments satisfies
,due process because it is supported by legitimate legislative purposes furthered
by rational means. This Court should reverse that portion of the order of the
Third Department that held that retroactive operation of the April 2009
amendments was unconstitutional, and the petition/complaint should be
dismissed.
47
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CONCLUSION
The Third Department's opinion and order should be reversed insofar as it
held that retroactive application of the April 2009 amendments to General
Municipal Law § 959 to January 1, 2008, violated petitioner's due process rights,
and the petition/complaint should be dismissed in its entirety.
Dated: Albany, New York
September 25, 2012
Respectfully submitted,
ERIC T. SCHNEIDERMAN
Attorney General of the
State of New York
Attorney for Respondents-
By: a:t\t:nts
OWEN DEMUTH
Assistant Solicitor General
Office of the Attorney General
The Capitol
Albany, New York 12224
(518) 474-6639
BARBARA D. UNDERWOOD
Solicitor General
ANDREWD. BING
Deputy Solicitor General
OWEN DEMUTH
Assistant Solicitor General
of Counsel
Reproduced on Recycled Paper
48
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JOINT BUDGET HEARING
OF THE
ASSEMBLY WAYS AND MEANS
COMMITIEE
AND THE
SENATE FINANCE COMMITTEE
. ONTHE
ECONOMIC DEVELOPMENT AND TAXES
BUDGET
FOR FISCAL YEAR 2008-09
Hearing Room B
Legislative Office Building
Albany, New York
February 11,2008
10:00 A.M.
1
ADDENDUM A1
ORIGINAL
INfocENTER
MAR 1 1 2008
ASSEMBLY
WN(.SANO~
JOINT BUDGET HEARING - ECO. DEV.rrAXES FEBRUARY 11,2008
A P PEA RAN C E S:
ASSEMBLYMAN HERMAN D. FARRELL, JR., Chairman,
New York State Assembly Ways and Means Committee
SENATOR OWEN H. JOHNSON, Chairman, New York State
Senate Finance Committee
ASSEMBLYMAN JAMES P. HAYES, Ranking Minority
Member, New York State Assembly Ways and Means Committee
SENATOR WILLIAM T. STACHOWSKI, Ranking Minority
Member, Senate Finance Committee
ASSEMBLYMAN ROBIN SCHLMMINGER, Chair, Assembly
Committee on Economic Development, Job Creation, Commerce and
Industry
ASSEMBLYMAN MARK WEPRIN, Chair,-Assembly Small
Business Committee
SENATOR JOHN J. FLANAGAN, Chair, Senate Committee
on Corporations, Authorities and Commissions.
•
ASSEMBLYMAN STEVE ENGLEBRIGHT, Chair, Assembly •
Committee on Tourism, Arts and Sports Development
ASSEMBLYMAN RICHARD BRODSKY, Chair, Assembly
Committees on Corporations, Authorities and Commissions
SENATOR GEORGE WINNER, JR.
ASSEMBLYMAN JOSEPH LENTOL
SENATOR ANTOINE THOMPSON
ASSEMBLYMAN SAM HOYT
SENATOR VELMANETTE MONTGOMERY
ASSEMBLYMAN JEFFRION AUBRY
SENATOR BILL PERKINS
ASSEMBLYMAN MIKE SPANO
ASSEMBLYMAN CLIFFORD CROUCH
SENATOR ANDREA STEWART-COUSINS
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JOINT BUDGET HEARING· ECO. DEV.lTAXES FEBRUARY 11,2008
SENATOR EFRAIN GONZALEZ, JR.
ASSEMBLYMAN JOSEPH MORELLE
ASSEMBLYMAN MARC BUTLER
A L S 0 A P PEA R I N G:
PATRICK J. FOYE, Chairman, Downstate, 'Empire State
Development Corporation
DANIEL GUNDERSEN, Chainnan, Upstate, Empire State
Development Corporation
ROBERT MEGNA, Commissioner, New York State
Department ofTaxation & Finance
EDWARD REfNFURT, Executive Director, NYS Foundation
for Science Technology & Innovation
ED HAMILTON, Executive Deputy, NYS Foundation for
Science Technology & Innovation .
KENNETH ADAMS, President, The Business Council of New
York State, Inc.
KEN POKALSKY, The Business Council of New York State,
Inc.
TOM O'DONNELL, President· Local 8] 7 Teamsters, Motion
Picture Association of America
JOHN FORD, President - IATSE Local 52, Motion Picture
Association ofAmerica
VAN STEVENSON, SVP State Legislative Affairs, Motion
Picture Association ofAmerica
MICHAEL WALBRECHT, VP Studio & Production Affairs,
WB Entertainment Inc., Motion Picture Association of America
BRIAN O'LEARY, SVP, Tax Counsel- NBC Universal,
Motion Picture Association of America
"
NANCY FOX, National Director, Policy and Strategic
PlaMing, Screen Actors Guild, Motion Picture Association of
America .
HAL G. ROSENBLUJH, President, Kaufman Astoria Studios
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JOINT BUDGET HEARING - ECO. DEV./TAxES FEBRUARY 11, 2008
JEAN FROST, Assistant Executive Director, Directors Guild of •
America
STUART MATCH SUNA, President, Silvercup Studios
KATHRYN WYLDE, President, Partnership for New York City
BRIAN MCMAHON, President, NYS Economic Development
Council
RON DEUTCH, Executive Director, New Yorkers for Fiscal
Fairness
DANIEL C. MURPHY, President, NYS Hospitality and
Tourism Association
KRISTEN KEEFE, Staff Attorney, Empire Justice Center
DAvln HOCHMAN, Executive Director, Business Incubator
Association of NYS
SCOTT BRANDI, President, Ski Areas of New York, Inc.
SUSAN WIELER, Senior Policy Associate, Citizens Committee •
for Children .
ANNE ACKERSON, Executive Director, Museum Association
of New York
DAVID CULBERTSON, Member & President of National Pipe
& Plastic Inc.
JAMES COLVIN,President, New York State Association of
Convenience Stores
AMY KRAMER, Vice President of Govemment Affairs, Credit
Union League
JOHN HENDERSON, President & CEO, High Falls Brewery
MARK SORIN I, Flavor Malt Beverage Coalition
•4
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JOINT BUDGET HEARING ~ ECO. DEV.lTAXES FEBRUARY 11, 2008
CHAIRMAN FARRELL: Good morning.
Today we begin the ninth in a series of hearings
conducted by the joint fiscal committees of the Legislature regarding
the Governor's proposed budget for fiscal year 2008-2009. The
hearings are conducted pursuant to Article 7, Section 3, of the
New York State Constitution and the State Finance Law.
.Today, with my colleague Senator Owen Johnson, the
Assembly Ways and Means C;ommittee and the Senate Finance
Committee will hear testimony concerning the budget proposals for
economic development and tax issues.
I would like to now introduce colleagues from the
Assembly that are with us today. Ranking member of the Ways and
Means Committee, Assemblyman Hayes, Chainnan Sam Hoyt,
Chairman Robin Schimminger, and Chairman Englebright.
Senator, will you introduce your Senators?
CHAIRMAN JOHNSON: Thank you, Denny.
To my right is Senator Bill Stachowski, ranking
member of the Finance Committee; Senator Winner, .Senator Perkins.
Senator Flanagan, and Senator Gonzalez. Thank you..
CHAIRMAN FARRELL: Our first witnesses are the
Empire State Development Corporation, Patrick Foye, chainnan
downstate, Daniel Gundersen, chainnan upstate. Gentlemen.
And We've also been joined by Assemblyman
Crouch.
DOWNSTATE CHAIRMAN FOYE: Good morning.
S
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JOINT BUDGET HEARING - ECO. DEV.ITAXES FEBRUARY 11,2008
UPSTATE CHAIRMAN GUNDERSEN: Good
morning, Chairman Farrell, Chairman Johnson, distinguished
members of the Senate and the Assembly. My colleague Downstate
Chairman Pat Foye and I are looking forward to the opportunity today
to discuss the economic development prior priorities of Governor
Spitzer's Executive Budget proposal.
Joining us at the table today is my colleague Ken
Schoetz, the COO for upstate, and Avi Schick, the president of the
Empire State Development Corporation.
2007 was a year oftransition, and the organization
that Pat and I co-manage has been restructured. We now have an
upstate and a downstate headquarters that are better able to address
the economic challenges unique to their respective areas while unified
by one goal: As the Governor so succinctly puts it, "One New York."
Before we get into the budget details, I'd like to
provide a brief update of our 2007 accomplishments,
accomplishments that would not have been possible without the
support and the resources that you provided.
The businesses we helped support with the public
resources provided by the Legislature last year helped retain over
41,000 jobs and secured pledges for another I 1,900 jobs. These
results benefited communities across the state, both up and down, to
provide the support needed so they can flourish and helped leverage
hundreds of millions in private investment.
Let's review some of the significant accomplishments
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JOINT BUDGET HEARING - ECO.DEV.lTAXES FEBRUARY 11,2008
of our subsidiary agencies and regional offices, as through them each
of us are responsible for the development of some of the most
transformational projects in New York State.
Downstate, with Pat Foye's leadership, we have made
substantial progress in advancing the Moynihan Station project
through the purchase of Farley Post Office. Working in conjunction
with the joint venture .- New York City, Madison Square Garden, the
Postal Service, theMTA and the three rail lines which converge into
the current Penn Station -. this project exemplifies the spirit of
collaboration that Pat and his team have fostered in order to make the
Moynihan Station a public treasure.
ESD has broken ground for the first new state park in
Brooklyn in more than 100 years. We've selected a developer and
signed an MOU for the development of the Victoria Theater on 125th
Street through the Harlem Community Development Corporation, and
we've decided upon a convention center developer for the lavits
Convention Center.
Here in Albany, we received 16 responses for our
RFQ to develop 85 acres of vacant state land known as the Harriman
Campus. The project includes an additional 300,000 square feet of
empty building space ready for adaptive reuse and offers
transportation, power, water and sewer infrastructure.
In Western New York, through the Erie Canal Harbor
. Development Corporation, we are undertaking the redevelopment of
12.5 acres of inner harbor property. This proj'ect will transform
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JOINT BUDGET HEARING - ECO. DEV.lTAXES FEBRUARY 1I, 2008
Buffalo's waterfront into a vibrant gathering place for Western
New Yorkers and visitors alike.
Also in upstate, Niagara Falls saw the completion of
the Old Falls Street reconstruction Initiative, through the USA Niagara
Development Initiative. In addition, consultants were selected for the
reconfiguration of the Robert Moses Parkway for better waterfront
access. And through the Governor's City-by-City initiative, we
committed funds to better link the oldest state park in the nation to the
downtown area, from the water through the heart of a rebuilt
downtown to the new casino.
In upstate, the companies the state assisted retained
more than 24,000 jobs and secured pledges for more than 8,500 new
jobs. Just a couple of examples of some of the more significant deals
made throughout upstate:
GE Energy's world headquarters for wind energy
pledged 500 new jobs in Schenectady. Carestream in Rochester, a
medical imaging company, pledged 500 new jobs. Corning Glass, an
international research development center, pledged 300 new jobs in
the Southern Tier. International Paper upgraded its paper mill in the
North Country, retaining 618 employees and jobs of 700 truckers and
loggers in Ticonderoga. And in the Capital Region, International
SEMATECH pledged 450 new jobs at its nanotech headquarters in
Albany.
The story in downstate is similar, where Pat's team
helped secure pledges to create more than 3,400 new jobs and retain
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JOINT BUDGET HEARING - ECO. DEV.lTAXES FEBRUARY 11,2008
more than 16,000 jobs. The efforts of our downstate office stretched
well beyond the New York City boundaries, up to Westchester, the
Hudson Valley and Long Island.
Some of the highlights include Broadbridge Capital,
who consolidated operations in Suffolk County, retaining 1,251
existing jobs and pledging 300 new jobs. J.P. Morgan, the financial
services company, will relocate its headquarters to Lower Manhattan
to the World Trade Center site, retaining up to 7,500 jobs. ITT, a
global engineering and manufacturing firm, has pledged to retain "119
existing jobs and create 96 new jobs at its White Plains headquarters.
As you can see, we have been very busy, and as a
newly reconfigured organization we've worked together effectively to
bring about significant results both upstate and downstate. We've
focused our energies on the need for New York to augment its role in
the innovation economy, which is based on intellectual capital and the
ability to translate ideas into new technologies, products and services
faster and better than the competition.
Pat and I recognize that ESD cannot work in a
vacuum but, rather, we need to collaborate with other state agencies
where responsibilities overlap so that we can all achieve the desired
results. Now, that would seem commonsensical, but past years have
shown that this kind ofcollaboration has been elusive. That's
changing.
Our partnerships with other state agencies incfude Ag
and Markets, where we are working on our agribusiness sector and
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JOINT BUDGET HEARING - ECO. DEV.ITAXES FEBRUARY llt 2008
together are looking to hire a new director to focus on this industry;
DEC, where we're working on brownfields reform; and Small Cities,
Parks and Recreation, and others on the Interagency Main Street
Workgroup~ which is working to leverage programs and target
resources that can revitalize core main streets across upstate.
Now Pat will walk you through some ofour internal
operational accomplishments.
DOWNSTATE CHAIRMAN FOYE: Thank you,
Dan.
And good morning, Chairmen Johnson and Farrell,
committee members and members of the Legislature.
As you have already heard from Dan, thanks to
support from the Governor and the Legislature, over the past year we
have realized a number of successes. We continue to focus on
improving the state's competitiveness as well as on ESD's ability to
attract and retain jobs, investment and growth.
Dan has outlined some of our most public
achievements and accomplishments. Before highlighting sections of
the Governor's budget proposal, I'd like to walk you through some of
the internal changes of this past year and detail the new direction that
Dan and I have set at Empire State Development.
Last year at this hearing we spoke about how ESD
was largely unstrategic, unfocused and reactive. We found an agency
lacking the central theme or internal processes necessary to pursue
potential economic opportunities.
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JOINT BUDGET HEARING - ECO. DEV.lTAXES FEBRUARY 11,2008
Dan and J have worked diligently, together with our
colleagues Avi Schick and Ken Schoetz, to help create better internal
processes, taken a hard look at programs administered by the.
organization, and instituted a clearer vision. Namely, we are One
New York, and the business of ESD is jobs and investment.
To achieve those goals, we've had to think more
strategicaJ]y and efficiently. We've altered the way we look at funding
decisions to see how we can best leverage limited state resources for
maximum private investment, and we've also begun to infuse our
operations with a determination to be smarter, faster and nimbler, so
we can identify and seize opportunities quickly.
Let me take a moment to highlight a few of our key
changes.
As all ofyouknow, the Empire Zone program is the
largest economic development tool the state possesses. The original
intent of the program was to strengthen the economies of the state's
most distressed areas. Today there are more than 9800 certified
businesses in the Empire Zone program employing more than 380,000
people in 82 Empire Zones statewide.
But this program in its current incarnation is neither
equitable, strategic nor cost-effective. Last summer we audited about
3,000 of these Empire Zone businesses. Two weeks ago we sent
letters to 180 of them, upstate and down, informing them of pending
decertification based on the information provided in the business
annual reports furnished to us unJess these companies could provide
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JOINT BUDGET HEARING - ECO. DEV./TAXES FEBRUARY 11,2008
proof that they had fulfilled their end of the bargain.
And that's essentially what it was, a bargain. We
promised to support those businesses in the Empire Zone program as
long as they would support their local communities. But
unfortunately, some of these businesses have been taking advantage of
a system that needs to be fixed. These decertification efforts, along
with recently enacted regulatory and administrative reforms, will save
the taxpayers approximately $50 million in the coming fiscal year.
And this is just the beginning.
In an effort to fulfill Governor Spitzer's call for
greater governmental transparency, as well as our own mission of
attracting more attention to our programs in the state, all ESDC board
meetings are now held at various statewide locations, which helps to
bring increased attention to other regions of the state. We've opened
up our meetings to the public, both in person and via live broadcasting
on the Internet, and we welcome public comments:
, Additionally, we've dramatically increased our
strategic outreach by contacting over 500 technology companies, the
true benefit of which has been establishing relationships with these
organizations, something that had never happened before. In fact,
many of these companies had never before heard from ESDC and
were pleased to receive a call.
With the establishment of a business marketing fund
of$3.5 million in the proposed 2008 budget, we'll encourage more
businesses to stay and grow in New York State.
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JOINT BUDGET HEARING - ECO. DEV.lTAXES FEBRUARY 11,2008
Moreover, we've also established a business
development function to improve origination and business outreach,
and have replaced most of the regional office heads with professional
economic leaders chosen from the area. Each regional office is
involved in a strategic overview of its operations and engaged in
proactive communication with local businesses.
This greater coordination and outreach will help New
York adapt to the innovation economy -- the knowledge-based
economy of new businesses and new ideas that has become the
driving force of job creation in the world today -- and we are asking in
a proposed budget for $400 million in various economic development
and regional initiatives to pursue this goal.
In 2007, we held the first-ever Tourism Promotions
Agency Summit with First Lady Silda Wall Spitzer. We also hired
ESD's first-ever chief marketing officer; who has been actively
working to increase the value of our brand, "I Love New York." And
we also recently hired;Saatchi & Saatchi, the international advertising
agency, to reinvigorate our "I Love New York" campaigns.
Last year the Legislature approved an additional
$5 million for the "I Love New York" campaign, and the state saw a
14.5 percent increase across the entire state in hotel room revenue,
with a full 134 percent jump in online bookings.
As a result of our new web campaigns, we're now
seeing an average of200,000 site visits to ILoveNewYork.com per
month, and our current web traffic ranking is higher than any of our
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JOINT BUDGET HEARING - ECO. DEV./TAXES FEBRUARY 11,2008
neighboring competitor states.
This year we ask for an additional $4 million and
hope to continue our trend of success. As you all know, tourism plays
a crucial role in the New York State economy, and we want to build
on Year One successes and continue to expand our efforts.
Another success in 2007 was the launch of the "I Live
New York" campaign with the First Lady. As you all know, one of
the challenges we all face is the exodus of our educated young people,
our future workforce, leaving all regions of the state for more
promising professional and social opportunities elsewhere. The First
Lady's "I Live New York" initiative will explore ways to attract and
retain the next generation of New Yorkers, both upstate and down.
We are working closely with the First Lady, and our
upstate headquarters will soon house the newly fonned Young
Leaders Congress, designed to enlist regional support to ensure young·
people have viable futures right here in our state. We look forward to
supporting the First Ladis continued efforts to resolve this
challenging problem. .
Dan has already touched on many of the successes of
some of our larger subsidiaries. Many ofthose are due to reevaluating
our working relationships with key stakeholders and constituency
groups and creating consensus among all those involved. For
instance, the Harriman Campus has both new leadership and a new
master plan, while Atlantic Yards saw the hiring ofan ombudsperson
and new construction manager. We have reinvigorated Brooklyn
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JOINT BUDGET HEARING - ECO. DEV.lTAXES FEBRUARY 11,2008
Bridge Park, Queens West and the Javits Convention Center
subsidiaries with new leadership, while achieving a great deal of
progress at LMDC and Moynihan Station.
We are searching for those partnerships, both with
private industry and with our own state and private university systems,
that will help New York State adapt to the innovation economy.
There are a number of proposed expenditures that will help us do that,
and I'd like to take a few moments to highlight them.
The Executive Budget recommends $981 million for
Empire State Development in 2008-2009, an increase of
approximately $545 million from the prior year. This net change
primarily reflects the resources necessary .to implement the $1 billion
Upstate Revitalization Fund.
Seventy-seven million dollars of our requested budget
will support economic development initiatives, including the Empire
State Economic Development Fund, minority- and women-owned
business development and lending programs, the Urban and
Community Development Program, the Entrepreneurial Assistance
Program, and the operation and development ofthe Centers of
Excellence and other high-technology resource centers around the
state.
Major highlights of this proposed funding include,
first, the implementation of a new Venture Capital Program to provide
seed-stage assistance to entrepreneurs and start-up finns in targeted
industries. We are asking for $5 million to establish this fund.
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JOINT BUDGET HEARING - ECO. DEV./TAXES FEBRUARY 11,2008
Second, the efforts to support minority- and
women-owned businesses include a proposed increase of$1.5 million
to provide grants and loans to eligible companies. We are also
seeking an additional $11.5 million for our EDF fund to support
businesses and projects that create or retain needed jobs.
Four hundred million dollars will be used for various
economic development and regional initiatives, consisting of a
statewide competitive grant program to be administered by ESD,
specific downstate regional initiatives, and upstate City-by-City
projects. Portions of these funds shall be made available to support
the $1 billion Upstate Revitalization Fund.
Two hundredfifty million dollars will be used to
enable ESD to work with upstate stakeholders to identify targeted
investments that capitalize on each region1s unique assets and
potential to spur economic development. An additional $100 million
will be made available through the sale of surplus state property.
Finally, $200 million will be used to support
investments indistressed communities in the downstate region to
encourage businesses and community development.
Let me now turn it back to Dan, who will walk us
through the Upstate Revitalization Fund.
UPSTATE CHAIRMAN GUNDERSEN: Thanks
again, Pat.
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The centerpiece of the Governor's proposed $1 bill ion
.Upstate Revitalization Fund is the $350 million designated to address •
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JOINT BUDGET HEARING· ECO. DEV.lTAXES FEBRUARY 11,2008
the priorities that we identified in our regional blueprint sessions.
These sessions helped us to prioritize the urgent needs, with
bottom-up input from those who know these regions better than
anyone else. Let me give you two examples.
First, we heard time and again that we needed to
invest in the construction and enhancement of development-ready
sites in industrial parks. Nobody wants to tell a business looking to
expand or to move to an upstate community that there are not
adequate sites for them. But New York State currentlyfacks the
shovel-ready sites in business parks, stand-alone locations, and in our
urban areas that we need to compete.
The Governor's budget would allow us to invest
much-needed resources to bring existing sites up to standard and to
move forward those that are just on the drawing board. This
investment will have significant returns.
A couple ofyears ago, Pennsylvania faced a similar
situation with a lack of sites. Their governor and legislature moved
quickly to create a shovel-ready program, and within 18 months of
passage, over 100 projects were approved, and most are now housing
new businesses. .
That state is marketing to New York firms. We
cannot allow even one business to leave because we failed to invest in
our communities, leaving them with no other options.
We also need to help our communities with their
aging infrastructures, including water and sewer systems, roads and
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telecommunication networks. That's why the Governor's $1 billion
upstate proposal also includes dedicated funding'to address a variety
of infrastructure issues, from rail to bridges to broadband.
Second, access to capital is something else that we
heard loud and clear across upstate. Small businesses are the
backbone of upstate's economy and the folks who, with the right help,
could become upstate's next big employers.
The Governor's budget includes targeted assistance to
help small businesses and start-ups with loans for equipment, working
capital and real estate. It would also provide loans and grants to help
existing upstate companies invest in R&D facilities and laboratories, a
critical step if we want to help existing businesses in your districts
survive globalization and adapt to and thrive in the innovation
economy.
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ESD is committed to targeting its resources to bring
about not only successful businesses but the maximum community
benefit. Much like'the Restore program, the Governor's proposed
Investment Opportunity Fund will allow the neediest communities to
apply for funding to execute projects that they feel are important to
bringing about transformational change in their communities.
This past year, the Governor asked us to define
projects in our major cities across upstate, those projects that could
break the gridlock and put communities on the path to economic
turnaround. The result of those efforts became the Governor's
City-by-City initiative, for which $115 million in funding is proposed. •
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Consider the Bresee's Building redevelopment project
in Oneonta, one which Senator Seward and Assemblymember Magee
are certainly familiar with and I'm sure will agree is a perfect example
of what City-by-City is meant to achieve. The state stepped in and
committed $1 million to assist the city to restore and rehabilitate this
former 100,000 square-foot department store in the heart of
downtown. You can well imagine that the reuse ofcombined retail,
office and residential space is going to breathe new life into Oneonta.
These projects capitalize on each region's unique
assets and are selected based upon their potential to spur additional
investment and greater economic development. When you consider
the economic impact of projects like a 14-block section of a
downtown area of Rochester, the transfonnation of a pedestrian mall
in Niagara Falls, or the investment of a completely shovel-ready site
in Binghamton; you can clearly see the need for City-by-City funding.
The Governor also recognizes that the same need
exists in our smaller communities across upstate, and in 2008 we need
to consider those cities, towns and villages like Salamanca, Auburn,
and Canajoharie that face the same challenges as our larger cities and
where a City-by-City focus can bring real benefit.
2007 was a year ofchange, a year of
accomplishments for both upstate and downstate. With the
Governor's 2008 Upstate Revitalization Fund and targeted downstate
programs, we can continue to build on the momentum established in
communities all across New York. On behalf of all of our economic
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stockholders throughout New York who have helped to develop this
year's budget, I ask for your continued support so that together we can
produce results and capitalize on the momentum that we have started
in 2007.
Pat and I thank you for your time, and we want to
close by emphasizing that during the past year we've hit our stride in
working together for one common goal, for One New York. And we'll
be more than happy to answer any questions that you may have.
CHAIRMAN FARRELL: Thank you very much.
The first question will be Robin Schimminger. But
before he does, we've been joined by Assemblyman Richard Brodsky,
Assemblyman Jeff Aubry, and Assemblyman Mike Spano.
CHAIRMAN JOHNSON: We've been joined by
Senator Stewart-Cousins, Senator Thompson, and Senator
Montgomery.
CHAIRMAN FARRELL: Robin.
ASSEMBLYMAN SCHIMMINGER: Thank you
very much, Patrick Foye and Dan Gundersen. When I was a young
fellow growing up, I would watch the nightly news. And I am
reminded of "The Huntley-Brinkley Report,ll with your excellent
back-and- forth presentation.
When the Governor was in upstate and gave the State
of the Upstate a~dress, he called out the names of Senator Alesi and
Assemblyman Schimminger as having it on their shoulders to carry
forward, in the Legislature, the revitalization-of-upstate plan.
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JOINT BUDGET HEARING - ECO. DEV.lTAXES FEBRUARY 11,2008
There are some who look with envy at this plan,
some who feel that it does too much for upstate. And I wanted to ask
a couple ofquestions to help me justify this program and to create a
sense of proportionality for the program.
I found in the Governor's Executive Budget briefing
materials a very nice pie chart which describes a billion dollars of
funding for the revitalization of upstate. Most of these elements were
touched on by Dan Gundersen.
As I think about this pie chart and I think about these
appropriations, I am cognizant that somewhere outside this pie are
other very substantial appropriations in the areas outside of upstate.
And I wondered if we could just walk through each of these and you
could identify for me countervailing or counterpart appropriations
which are not dedicated to upstate but which go elsewhere, so as to
help me in justifying the $1 billion.
You provide $350 million for a regional blueprint
fund. What's the counterbalance there?
DOWNSTATE CHAIRMAN FOYE; Well,
Senator -- Assemblyman --
ASSEMBLYMAN SCHIMMINGER: I'm not
running for the Senate, Jet me clarify.
(Laughter.)
DOWNSTATE CHAIRMAN FOYE: The
Governor's downstate capital plan includes the following components,
and aggregates $1.2 billion. That includes $555 million for projects
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JOINT BUDGET HEARING - ECO. DEV.lTAXES FEBRUARY 11,2008
focused primarily on the City of New York and the Hudson Valley.
That comprises downstate commuter transit. The City of New York
includes the Moynihan project on the West Side ofManhattan and
transit enhancements in the Hudson Valley.
The second major piece is a $300 million Housing
Opportunity Fund, which will ~-
ASSEMBLYMAN SCHIMMINGER: A
counterbalance to the $100 million upstate housing --
DOWNSTATE CHAIRMAN FOYE: That's right.
And maybe I've jumped ahead.
ASSEMBLYMAN SCHIMMINGER: Continue.
DOWNSTATE CHAIRMAN FOYE: Let me go
through the $1.2 billion list for downstate.
The second piece, in a declining order of size, would
be a $300 million Housing Opportunity Fund to support development
of affordable supportive and workforce housing initiatives in the
downstate region.
Clearly, as the Governor has stated, one of the
leading impediments to economic development downstate is the
availability of affordable housing.
The next piece, Assemblyman Schimminger, would
be the Downstate Revitalization Fund, which is $200 million, which is
designed to support distressed community revitalization in distressed
communities downstate, especially to encourage business and
community development; a $45 million waterfTOnt park development
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JOINT BUDGET HEARING - ECO. DEV.ITAXES FEBRUARY 11, 2008
in the City of New York; $20 million to support and complete the
Hudson River Park; and $25 million in support of Governors Island.
I think it's important to note that there would also be
a $50 million piece related to the Investment Opportunity Fund that
Dan and I testified on before the Division of Budget several months
ago.
There's aJs~ $35 million for regional initiatives
focused on Long Island and the Hudson VaHey, and various other
pieces. Those pieces aggregate $1.2 billion in the aggregate.
ASSEMBLYMAN SCHIMMINGER: Thank you.
And there are other elements, of course, to the upstate
revitalization billion-dollar package -- $80 million for parks. I assume
that's where most of the parks are, in upstate.
DOWNSTATE CHAIRMANFOYE: Yes.
ASSEMBLYMAN SCHIMMINGER: But there is
some expenditure for parks outside of upstate, I take it.
DOWNSTATE CHAIRMAN FOYE: There is
indeed, I think, $28 million for downstate, a good part of that
dedicated to Long Island. There's a $40 miJIion arts and cultural fund,
which I believe is proposed to be split $12 million upstate, $28 million
downstate. And the aggregate of those funding streams is $1.2 billion
in the aggregate.
ASSEMBLYMAN SCHIMMINGER: Thank you.
Can we focus for a minute on the City-by-City
initiatives? Many of these were announced last year. Some of them
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JOINT BUDGET HEARING - ECO. DEV./TAXES FEBRUARY 11,2008
are funded in the Executive Budget. What is the status of the
initiatives that were not funded?
DOWNSTATE CHAIRMAN FOYE: I'd defer to
Dan on it. .
UPSTATE CHAIRMAN GUNDERSEN: I'm going
to tum to my COO, Ken Schoetz, to assist.
There were two primary projects that were
announced with the full intention that. we would be coming before you
and aski,ng for support. The two primary initiatives that did not have
the funding associated with them, the full funding, was PAETEC --
this is the midtown redevelopment in Rochester and the relocation of
. PAETEC to that site -- and the connective corridor in Syracuse.
Those were the two big projects.
MR. SCHOETZ: Mr. Schimminger, .as Dan says, of
. the $115 million, there is money for five projects. As Dan mentioned,
Midtown Plaza, $55 million. The status of that is that we are in the
planning process. It is an enonnous project. It seeks to have a
shovel-ready site for PAETEC by the spring of2009.
In order to do that, first is aggressive remediation of
that site for asbestos and then ultimately demolition. It will be a very
active 18 months from now, between now and next summer, when we
have committed to PAETEC to turn that site over to them for
development.
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PAETEC is going to use, nor do we know what the PAETEC building •
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JOINT BUDGET HEARING - ECO. DEV.lTAXES FEBRUARY 11, 2008
is going to look like at this time. It's still too early in the process.
But -- so that process is still in planning.
On the Syracuse connective corridor, again, in the
planning process but expecting activity this year, during the current
budget year. Same with the Fort Drum infrastruc.ture improvements,
$15 million.
And then City ofBuffaJo revitalization efforts largely
go to waterfront development and property acquisition for city-owned
property that the state will buy and use as part of the inner harbor.
ASSEMBLYMAN SCHIMMINGER: In terms of
projects that will receive funding going forward, speak to me about
the relationship between ESDC and upstate ESDC in terms oftheir
roles in selecting who will receive funding. And also, would there be
a role for a separate upstate ESDC board in this process?
UPSTATE .CHAIRMAN GUNDERSEN: The
upstate ESD is fully empowered to provide guidance and the
governance to be able to move forward in determining which projects
ought to receive funding. We would consult with -- as we did with the
first round -- with local municipal officials, yourselves and others to
determine which projects are best suited to be transformational.
ASSEMBLYMAN SCHIMMINGER: But a role of
an upstate ESDC board?
UPSTATE CHAIRMAN GUNDERSEN: That could
be something we might consider.
There is a board for upstate ESDC that is not fuJly
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JOINT BUDGET HEARING - ECO. DEV./TAXES FEBRUARY 11, 2008
constituted yet. We have been building the Qrganization and receiving
very good support from the parent ESD board as we move forward.
ASSEMBLYMAN SCHIMMINGER: In regard to
the $350 million regional blueprint fund, we know that a
quarter-million is capital and $100 million comes from the sale of
certain property in the City of New York, an OMRDD facility and a
mental health facility.
wm the funds that are generated through the sale of
those two properties going to be solely dedicated to fund these
investments upstate? Or will there be a diversion of some of the
funds?
DOWNSTATE CHAIRMAN FOYE: No, our
expectation, Ass~mblyman Schimminger, is that the sale of those two
properties, both in the City of New York, will occur. They're quite
valuable properties, and they are:,excess at this point. Our expectation
is that they will be sold and will provide a sufficient .source offunding
to fully fund that program.
ASSEMBLYMAN SCHIMMlNGER: Thank you.
Could you differentiate for me between the Upstate
Regional Blueprint Fund and the Investment Opportunity Fund?
Could you compare and contrast those two funds for me?
DOWNSTATE CHAIRMAN FOYE: Sure. Let me
take a shot at the Investment Opportunity Fund and then I'll turn it
over to Dan on the upstate fund.
Dan and I testified before the Division of Budget
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JOINT BUDGET HEARING - ECO. DEV.lTAXES FEBRUARY IJ, 2008
several months ago. And the Investment Opportunity Fund is
intended to be a $150 million program in the aggregate, of which
$50 million would be dedicated and focused on downstate projects,
with the remainder focused on upstate projects.
Like the Restore New York funding, which we
recently announced last month, this would be a competitive program
available to municipalities"businesses and not-for-profits throughout
the entire state. And it is contemplated that the leaders of the
Legislature, along with the Governor, would have a role in approving
the processes or specific projects as we go forward. Dan and I think
that it's particularly important in tenns of being able to make capital
available both upstate and downstate, to help energize economic
development.
One of the characteristics of this program, we
believe, like much of the programs that we do both from an operating
and capital point of view, is that it would leverage significant private
investment. And as we all in this room know, it's ultimately the
ability to attract and retain private investment that will ensure the
state's prosperity going forward. And we believe the Investment
Opportunity Fund will be an important part of achieving that.
ASSEMBLYMAN SCHIMMINGER: Tell me this.
How will upstate and downstate be defined in your approach to the
split?
DOWNSTATE CHAIRMAN FOYE: You're asking
geographically?
27
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DOWNSTATE CHAIRMAN FOYE:
JOINT BUDGET HEARING - ECO. DEV.lTAXES FEBRUARY 11,2008
ASSEMBLYMAN SCHIMMINGER: I'm asking
Geographically?
ASSEMBLYMAN SCHIMMINGER: Yeah.
DOWNSTATE CHAIRMAN FOYE: As we've said
before, downstate is comprised of Long Island, the City of New York,
Westchester, the Hudson Valley. And Dan and I share the Capital
Region, which is formally part of upstate.
But as a management day-to-day matter, downstate is
responsible for the four southern counties and upstate for management
of the four northern counties and the Capital Region.
ASSEMBLYMAN SCHIMMINGER: So
expenditures from the Upstate Revitalization Fund of $1 billion could
be expended, then, on the Capital District?
DOWNSTATE CHAIRMAN FOYE: Yes.
UPSTATE CHAIRMAN GUNDERSEN: Yes. And
•
let me add that in this construct there are 48 counties that would be
considered upstate. All of those counties participated in the regional
blueprint process that we initiated last summer and fall.
This initiative brought together 500 leaders from
across upstate -- economic development practitioners, civil
professionals, public leaders and others, arts and culture and
academia. They came together in seven different sessions in seven
different regions. One of those was the Capital Region, which
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JOINT BUDGET HEARING - ECO. DEV.lTAXES FEBRUARY Il, 2008
included the eight counties of the Capital Region .
And what we did was something very different. We
said let's focus on the root issues here, the root causes of the problems
that we face today, and let's look at it in tenns of the fundamentals.
And when we did that, it was the infrastructure, it was the investment,
it was intellectual capital and innovation, and it was international,
what I call the five I's.
We came together and we looked at what the issues
were, as weB as what the proposed responses had been up until that
point, and said, What do we need to do in addition, what isn't
occurring now? And that input became the basis for the Regional
Blueprint Fund.
It was not of our doing, it was of everyone's
I
contributions through those blueprint sessions. And we had very good
participation, and that was true in the Capital Region as well. So the
Capital Region, all eight counties of it, would certainly be
beneficiaries of the blueprint fund.
ASSEMBLYMAN SCHIMMfNGER: I think you
know that my longstanding thought had been that the way to
differentiate and draw a line would be to do retroactive analyses of
economic metrics -- job loss, job gain, local economy by local
economy. And those local economies that performed well historically
are on one side ofthe line, those that didn't perfonn well are on the
other side of the line.
I always thought that was a very precise and objective
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and defensible way to draw the line.
UPSTATE CHAIRMAN GUNDERSEN: In some
respects, maybe that is true. Certainly the 48 counties are not doing as
well as the 14 when you look at in the aggregate. That doesn't mean
that there aren't needs, and some of those needs are quite serious in
some areas of downstate. Collectively and in an aggregate, we all
know the upstate is not faring very well.
The regional boundaries, the regional districts that we
inherited are very good representations of economic activity if you
look at the labor area. And for most businesses, they're going to look
at it that way. They're going to say, Where can 1get my workforce?
So if you consider Albany as the core of that Capital
Region, that labor-draw area would extend 40, 45 minutes out, and
that would pick up the eight counties. And if you look at it in that
way, each one of the seven regional areas of upstate are very well
defined, we think.
ASSEMBLYMAN SCHIMMINGER: Could I shift
gears just a little bit and go to another area, not necessarily yours:
NYSTAR.
A couple ofyears ago a program was created, the
Regional Partnership Program, in which on the statutes of New York
State still exists. There were to be some grassroots coming up,
regional partnerships established in various economic development
regions of the state which would then be the objects of substantial
state funding, to assist in programs and programming that the local. .
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JOINT BUDGET HEARING - ECO. DEV.ITAXES FEBRUARY 11,2008
folks believed would make the most sense.
That Regional Partnership Program is not funded in
this budget. What is the view ofESDC and upstate ESDC on that
Regional Partnership Program? It's on the books. but it's not
substantially funded.
UPSTATE CHAIRMAN GUNDERSEN: That's
right. That's right. Clearly, the approach there in bringing together
professionals on a regional basis was the right approach. And that is
the basis for our Spitzer-led agenda in terms of a revitalization of
upstate: Let's do it regionally.
.But what we're saying here is that ESD, as the
primary economic development entity for the state, needs to be
involved in the innovation economy. This was not ground that was
staked out prior to our arrival, and that, quite frankly, was unfortunate.
NYSTAR and the regional partnerships were headed in that direction.
We see great benefit in aligning both what NYSTAR is doing with
what we're doing.
I believe that the regional partnership effort in most
areas was productive, and I think that's yielding some benefits. I think
it can be blended with what we're doing and have a greater gain.
Again, the regional blueprint process brought us in
other areas -- not just in the commercialization and in the research and
development, but also into the infrastructure and other investment
tools that we were lacking. We need to bring these together. And that
is why we've made a determination that NYSTAR and ESD wi/) work
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JOINT BUDGET HEARING - ECO. DEV.rrAXES FEBRUARY 11,2008
together, not have separate regional initiatives.
ASSEMBLYMAN SCHIMMfNGER: Okay.
Another gear shift, your letter-writing campaign.
In Commissioner Foye's testimony you indicated that
two weeks we sent 180 letters to 180 companies infonning them --
Empire Zone-certified companies -- of pending decertification based
upon their own business annual reports unless they could provide
proof that they had fulfilled their own end of the bargain. And that's
essentially what it is, a bargain.
Could you describe for me what that bargain was,
Commissioner?
DOWNSTATE CHAIRMAN FaYE: Sure.
Companies filed and made job and investment commitments, in return
for which they received, in some cases, refunds of previously paid
taxes; in other cases, waivers of taxes.
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In the aggregate, that's a $600 million claim on the
state taxpayer. That program is growing at approximately 10 to
12 percent a year, and at that rate ofgrowth will soon be a
billion-dollar program.
Companies have an obligation to file business annual
reports with ESD. One of the things that Dan and I did last year,
together with staff, was really for the first time review those business
annual reports in some detail. And you may recall that last summer, I
think August, it was, we sent letters to over 2,000 companies around
the state just notifying them that, based on our review of the •
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JOINT BUDGET HEARING - ECO. DEV.lTAXES FEBRUARY 11,2008
information they had previously furnished pursuant to business annual
reports, we did not believe that the job and investment levels had been
achieved.
We had dialogue with a number of those companies,
and what we've done now is taken 180 companies -- neatly divided, as
it turns out, 90 upstate and 90 downstate -- and sent decertification
letters, not decertifying those companies but putting them on notice
that based on the information they've previously furnished us that
unless they're able to make a case that our information, our data is
wrong -- and again, this is infonnation and data that's been furnished
by the companies -- that we intend to review each on a case-by-case
basis to see whether decertification is the appropriate remedy.
I note that this would be the first time that ESDC
would have decertified a company for failure to meet job and
investment commitments previously made for the tax refunds and tax
waivers that these companies and other Empire Zone- participating
companies had received.
ASSEMBLYMAN SCHIMMINGER: The zone's
program is a performance-based program. You create jobs, you get
tax benefits; you don't create jobs, you don't get tax benefits.
You have repeatedly used the word "commitment."
You used it at the beginning and at the end ofyour answer. Where
does a company make the commitment? Where did the company
make the commitment?
DOWNSTATE CHAIRMAN FOYE: In applications
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filed with ESDC prior to participating in the program or applying to
join the program.
ASSEMBLYMAN SCHIM1v1fNGER: So you're
saying that you base your letter writing on a difference between the
commitment which was embodied in the application to get into the
program _. you're calling it a commitment, I would call it a projection, .
okay -- the difference between the commitment, slash, projection at
the beginning to get into the program and what actually happened in
the course of their lifespan as a company within the program as
represented in their BAR report? Is that essentially what you're doing,
you're looking at the original commitment, slash, projection and
comparing it to what happened down the road?
DOWNSTATE CHAIRMAN FOYE: Well, one of
the things we're looking at is the original application. On a
case-by-case basis, we're looking at the amount of the tax refund, in
some cases -- waiver in all cases -- that's been provided, the amount of
state tax dollars involved to date in the tax refund and tax waiver
provision, and the number of jobs and investment, both new and
retained jobs.
And our focus in tenns of the 2,000 companies that
we notified last summer and the 180 companies that we have sent
letters to last month is those companies in which there has been the
greatest divergence between the benefits bestowed by the State of
New York in terms of these tax refunds and tax waivers and the
number of jobs and the amount of the investment provided.
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ASSEMBLYMAN SCHIMMINGER: Again, and I'm
wrapping up, the Empire Zone program is a performance-based
program. You create jobs, you get benefits; you don't create jobs, you
don't get benefits.
What I think you're looking at is the original
application to get into the program to get certified. In that application,
a company had to project -- you say "commit," I say "project" -- what
might happen down the road if they were in the program.
Take two different companies. One company, call it
the Great Expectations Company. The Great Expectations Company
says: "We get into this program, ESDC, we're going to create a
hundred jobs, we expect." That's just a projection. That's not what
triggers the benefit. What triggers the benefit is the jobs actually
created.
So the Great Expectations Company projected a
hundred jobs. Another company called Expectations, they project,
"Well, we'll create maybe five jobs." That's their projection.
At the end of the day, now, Great Expectations gets a
letter from you; the Expectations company doesn't. What's the
difference?
DOWNSTATE CHAIRMAN FOYE: Well, the
difference, first of all, the initial application is but one of a number of
things that we look at. The analysis will be based, at the end of the
day, on the amount of tax dollars in terms of tax refunds and tax
credits that have been provided compared to the number ofjobs, both
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retained and new, and the amount of the investment made.
". And we're focusing first, as you might suspect, on the
situations in which there's the greatest divergence between the state
benefit bestowed in terms of tax refunds and tax waivers against the
number of jobs delivered, both retained and new, and the amount of
investment made;
ASSEMBLYMAN SCHIMMINGER: And is the
State Tax Department involved in this analysis with you?
DOWNSTATE CHAIRMAN FOYE: We are talking
to our colleagues in Tax and Finance, obviously subject to taxpayer
confidentiality provisions. But given the fact that they're involved in
the ultimate administration of the program from a compliance point of
view, yes, we've been in close contact with our colleagues in Tax and
Finance.
ASSEMBLYMAN SCHIMMINGER: Okay. I'll
come back later.
CHAIRMAN FARRELL: Yeah.
(Laughter.)
CHAIRMAN FARRELL: We've been joined by
Assemblyman MorelJe and Assemblyman Butler.
Senator.
CHAIRMAN JOHNSON: We have some questions
on this side from Senator George Winner.
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SENATOR WINNER: Thank you, Senator.
Good morning. I want to follow up in the area of the •
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Empire Zone, and particularly the change in regulations that the
department has put out on an emergency basis on January 16th.
It's my understanding that those emergency
regulations fundamentally changed the ratio that was currently in
existence from 15-to-1 to 20-to-1 for the cost-benefit analysis under
the 2005 legislation. Is that fair? Among other things.
DOWNSTATE CHAIRMAN FOYE: Among other
things, that's correct. That's one of a number of changes that were
made, yes.
SENATOR WINNER: Now, in the specific reasons
and the finding ofnecessity and the filing those regulations, you
indicated that the impact in particular of the regulations that you are
changing would immediately reduce the number ofeligible applicants
by about 30 percent.
What will be the impact on the number of jobs that
will not be created as a result ofthat new regulatory change?
DOWNSTATE CHAIRMAN FOYE: Well, Senator,
if our analysis is correct, that there have been a number ofcompanies
in the program -- and first, we ought to begin by noting that there have
been a number of successes in the Empire Zone program. Which is
why the approach we've taken has been amended and not ended, as
some have urged.
So clearly the Empire Zone program, both in its prior
. form and in its current incarnation, has accounted for some job
creation and investment in the State of New York.
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If our analysis, however, is correct that there have
been a number of companies participating in the program that have
gotten tax refund and waiver benefits that have been significantly
disproportionate to the number of jobs created and maintained and the
amount of investment made, we believe that the trade-off wiJI be
favorable from the point of view of the state and the state taxpayer.
SENATOR WINNER: Well, Pat, I understand that
argument.. However, that belies the language that's in your regulatory
justification section. You're saying, under your section, that you
currently have a 15-to-l ratio. Therefore, those people are creating
jobs, obviously, with a significant benefit of an amount of private
capital investment and a number of jobs and are eligible under the
current 15-to~ 1 ratio.
By raising it from what would be a successful .- and
is not reflective of those bad actors in the past that were not
performing to the 15-to-l -- you're saying now, just to raise it from
15-to-l to 20-to-l, you're going to decrease the number of, in your
language, eligible applicants by 30 percent.
Those good businesses just now that are going to fall
between the 15 and the 20, how many jobs are going to be lost as a
result of that?
DOWNSTATE CHAIRMAN FOYE: Well, Senator,
e·
e
1think if we're effective custodians of the program, the answer ought
to be zero or very little. And the reason for that is that we've retained
the flexibility to make evaluations on a case-by-case basis and apply a e
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lower cost-benefit analysis in areas of economic distress. And the
commissioner is authorized to make that determination.
So while the 15-to-l cost benefit analysis r~tio has
been raised to 20-to-l, which I think increases the amount of
investment and the number of both retained and new jobs that are
required to get the benefit, we're also allowed to make the case and to
allow expectations, to use Assemblyman Schimminger's example, to
participate, if we think that's the right thing to do, on a case-by-case
basis.
SENATOR WINNER: You're not going to reduce
the number ofeligible applicants by 30 percent, then? Is that what
we're saying? What's going to happen with those otherwise 30 perc,ent
people or businesses that would be creating jobs at a ratio of at least
15-to-1 prior to your changing the regulations? Where are they going
to go? What states are they going to go to now?
UPSTATE CHAIRMAN GUNDERSEN: You know,
it's very possible that many of those businesses may create the jobs,
but they may not need benefits. It could be the law firms, the
accounting firms, the car washes, the auto dealers. So in that case
they may in fact have some high cost-benefit, but they're captive.
And in my book, that may not be the best place to put
your public resource if what you're trying to do is encourage
businesses that are going to have a higher value, are going to export
more of their product out of the region, out of the state, and thereby
help the entire state economy. And by bringing this -- not only the
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cost-benefit, but by saying, Look, we want more reasonable assurance;
not just five years, but three years. Tell us what you're going to do in
three years.
Because five years, well, hey, you know: I'm going
to put X, Y, Z job, and maybe 1']) hit it, maybe I won't. It's pretty far
out there. Let's be a little bit tighter and realistic on what the
expectations are for the program and for the public benefit, the public
dollar.
SENATOR WINNER: Well, in following up on
another area, I mean, I clearly realize that the real purpose in raising
the ratio is really to cut down on the number of people that are going
to be able to take advantage of the Empire Zone program, which you
acknowledge is the number-one economic development tool that we
have, particularly in upstate areas.
One problem that I have with regard to the types of
the calculators are it doesn't take into consideration the types of
businesses that you're creating when you use those ratios.
For instance, a manufacturing job that's created, or in
a manufacturing business -- which is something that we all dream for,
particularly in upstate New York, is creating more manufacturing
jobs -- by its nature is going to create a lower ratio, by virtue of fact
that there are going to be higher credits on the other side, investment
tax credits and the like, that may in many instances, as you probably
are aware, not be able to be used in any event, but nonetheless they're
available benefits.
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Now, how are you going to create a differential with
regard to the multipliers that exist as a result of manufacturing jobs
when you make those calculations? Because a hundred retail jobs or a
hundred commercial or service type of jobs, caJJ centers or whatever,
the like, are not going to produce the same benefits as a hundred
manufacturing jobs.
UPSTATE CHAIRMAN GUNDERSEN: Senator,
somehow I knew you'd ask this question, so I looked at all the
applications in your area since the reforms of2005. And there were
39 applications. All of those were approved.
And then We looked at the new changes that we have
put in place, and all but a few of those -- and those would have fallen
into the category ornon-manufacturer and service-oriented. But the
manufacturers that might have had a lower cost-benefit still would
have been at that point where we could have used discretion, such as
ESpace Solutions, SB Fabricators, Fennel Spring, Gray Manufacturing
Industries -- these are all businesses that would meet the test in our
book of businesses that ought to be approved as regionally significant.
SENATOR WINNER: They're all under I5-to-l.
UPSTATE CHAIRMAN GUNDERSEN: That's
what I'm saying. We have the discretion for manufacturing and for
certain distressed areas to be able to say, yes, it doesn't meet the
20-to-l, it may not meet the 15-to-l, but it at least meets the 5-to-l,
and it is something that ought to move forward because manufacturing
is critical to the state economy. Or it's in a distressed area or a rural
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area that, you know, needs this is kind of economic activity. So it's
not going to bias those areas.
DOWNSTATE CHAIRMAN FOYE: The other
thing, Senator, I just would add is that the way the formula is
written -- and the formula is obviously set forth by the Legislature in
the statute -- is manufacturing actually has an advantage in many
cases under the Empire Zone program, as it should. And the reason
for that is because the program is salary of retained jobs, salary of new
jobs, plus investment, divided by the amount of the tax credit.
Given the fact that the amount of capital required for
the typical manufacturing job is usually greater -- significantly greater,
in many cases -- than the amount of capital required for a service or a
law-firm job, as the Legislature intended, manufacturing actually
enjoys advantages and preferences under the Empire Zone program..
And we've been very focused on that as we1ve been considering these
changes.
SENATOR WINNER: Is there any differential in
your regulations or in your detenn inations going forward as to where
that manufacturing job is going to be located? Obviously, a
manufacturing job located in a rural area is going to have a
significantly higher multiplier factor and impact than a manUfacturing
job that's created in a more urban setting.
DOWNSTATE CHAIRMAN FOYE: Senator, that is
a great point. And actually, one of the things we did in adjusting the
cost-benefit analysis was to allow a significantly lower ratio in areas
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of economic distress.
So ESD has the ability to make those judgments on a
case-by-case basis.
SENATOR WINNER: Are those judgment caBs
reduced to writing anywhere? Because they're not present in the
current reguJatoryfiJing that was just made, those differentials.
DOWNSTATE CHAIRMAN FOYE: Well, two
things, Senator. One is the commissioner, in enforcing the program --
or administering the program, rather, has the ability to make
case-by-case judgments. And then in areas of economic distress,
there's a 5-to-l ·ratio which is available for particularly distressed parts
of the state.
So we've anticipated and we believe address·ed the
very legitimate concerns that you're raising.
UPSTATE CHAIRMAN GUNDERSEN: And we
will, in these cases, look to the justification of the local boards that are
bringing them to us.
SENATOR WINNER: Are you going to give them
some administrative money to administer it.so they can make those
judgments?
UPSTATE CHAIRMAN GUNDERSEN: That is not
included in this year's budget.
(Laughter.)
SENATOR WINNER: Just one further question on
the significant regional .- significantly -- I guess its definition is the
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significantly regional --
UPSTATE CHAIRMAN GUNDERSEN:
Regionally significant.
SENATOR WINNER: Regionally significant
projects, thank. you.
The change in that area with regard to the exporting
focus and the like, how do you respond to areas. such as the Southern
Tier that are now developing a strategic type of niche of aviation
manufacturing assistance, Sikorsky and Lockheed?
And now that I'm informed that the ability to create
spin-off businesses that would service, as suppliers, those activities in
that strategic cluster of manufacturing, wouldn't that be eligible, under
your definition of regionally significant businesses, due to the fact that
they would be servicing a business within the state and not be
exporting their product?
UPSTATE CHAIRMAN GUNDERSEN: But their
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service and their product is part of a supply chain, it's part of the
industry cluster that is being exported.
What we're trying to curtail is providing economic
benefit to activity that's going to remain in the region and just have no
net positive effect but, rather, produce more.
So in that case that you just used, I would say it
would be a perfect example of assisting the entire cluster. And if it's
Sikorsky is the one who's providing helicopters, it's critical to their
success. So that would be a part of the criteria that we would •
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consider.
SENATOR WINNER: Thank you.
CHAIRMAN FARRELL: Thank you.
We've been joined by Assemblyman Weprin.
Next, Assemblyman Hayes, to question.
ASSEMBLYMAN·HAYES: Thank you,
Mr. Chairman.
Good morning. According to a report in this
morning's Buffalo News, the Legislature will receive the Governor's
21-day amendments in which he's projecting a decrease of
$384 million in revenue to the state budget. That's $384 million less
than just three weeks ago, when he submitted his original budget to
the Legislature.
The Governor's economists are now projecting a
growth in corporate profits in the state down from an estimated
3.1 percent to less than halfa percent. The response of the Governor
in his amendments is to increase taxes again -- the tax on the
covered-lives assessment on insurance policies in this state by an
additional $50 million -- for over $1 billion ·ofnew taxes that will
almost assuredly be put on the backs of employers and consumers in
this state.
Just last week in Western New York, in Buffalo,
there was another shiver sent down the spine of Western New York
residents when Ralph Wilson, the owner of the Buffalo Bills
announced the team's affiliation with Toronto. And there's a lot of
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discussion this morning in the newspaper and in restaurants and on
street comers and in homes and in businesses around the water cooler
about the chilling effect ofwhat would happen to the Buffalo
economy, to the upstate economy, should the· Buffalo Bills have to
move to another venue.
I'm interested in your opinion, as economic
development advisors to the Governor. Which is better, $1 billion in
new spending, changing the letterhead on the economic development
programs that have been changed many times over the last 50 years in
this state, or $1 billion of tax cuts to help stimulate the upstate
economy? In your view, which is better?
UPSTATE CHAIRMAN GUNDERSEN: I believe
that any public dollar ought to be strategically deployed and targeted.
I believe that programs that -- or policies that are put in place that
benefit all have to be done so very, very carefully. In this case, at this
time, what we believe is that the right kind ofinvestment will yield the
biggest results for us.
We believe clearly that the $1 billion fund is
strategic, it is targeting the resources where they need to be deployed.
And moreover,it is the result of 500 leaders from across upstate who
said enough is enough, this is what we need to do and this is how we
need to do it. So we are very, very convinced that this is the right time
and the right approach.
I'm going to let -- and I think Pat will agree -- we're
going to let the Tax and Finance commissioner address your specific
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questions about the taxes and the fees .
With regard to the Bills, there's no doubt, there's no
doubt that the BiJJs are an institution that we aU love and we want
them to remain. What Ralph Wilson has noted is that the fan base
needs to increase. And by marketing in Toronto and encouraging
some games to be played there, it's going to increase the Iikel ihood
that the Bills will be around Buffalo for many more years to come.
ASSEMBLYMAN HAYES: Well, just in response
to that, I would say that the problem here is that it seems to me there's
a fundamental disconnect between what the Governor has proposed in
tenns of the tax structure and the spending in the state budget and
your role as economic development advisors.
What has happened, clearly -- the reason why the fan
base has to increase -- is what everybody in Western New York knows
first off. When you talk about economic development, I don't care if
you're selling newspapers, tires, groceries, or tickets to sporting
events, Western New York is losing population. That's why we don't
have the fan base. That's why Mr. ,Wilson is talking about selling
more tickets.
What I want to know is what are you doing as
economic development advisors right now to help protect jobs in
Western New York. Not a three-to-five-year plan that -- we've heard
three-to-five-year plans before for the past 50 years, quite frankly. I
want to know what are you doing right now to change the
circumstance and stop the bleeding in Western New York of jobs and
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people and outward migration.
UPSTATE CHAIRMAN GUNDERSEN: We're
focusing on the fundamentals, sir. We are focusing on making smart
investments in infrastructure that will encourage existing businesses to
grow and new businesses to locate in these areas. We're focusing on
the role of the universities and our colleges, being able to transfer the
product of the research into the commercial space.
We are focusing on our workforce and trying to align
our workforce development efforts with our economic development
efforts. That is being done through the "I Live New York" and
through other partnerships that we're establishing with DOL.
We're looking at new investment products that are
absolutely needed so that our businesses can find the support when
they need it and not have to go to other states to find it.
And we're globalizing, we're becoming more engaged
internationally. This budget is proposing to increase our international
activities to $3.5 million from $1.2 million. Quite frankly,
$ 1.2 million is a travesty for this great State of New York, to only
have a million dollars for international activity..
What we need to do in the budget, if you all agree
and will provide us the wherewithal, we need to help counsel our
businesses so that they know how to export the products into the
fastest-growing markets around the world. We need to have
representatives i!1 those markets around the world so that they can
identify investments that are occurring, so we can direct it into our
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communities that need it. Or meet with chief decision-makers of
companies that are based here, but the chiefdecision-makers are
based elsewhere. We need to be able to get in front of them.
And that's part of the marketing resources. We've
had zero money for that. And so if we're not able to get in front of the
chief decision-makers that are making the decisions as to whether to
close Utica to go to Lincoln, Nebraska, then, you know, shame on us.
We're deploying the resources where we think they're
needed themost right now, and that has to be targeted. Because if you
try to do everything, you'll end up doing nothing. Do a few things and
do it right, and that's what this revitalization fund intends to do.
ASSEMBLYMAN HAYES: Please understand my
point about the fundamental discormect. The increase that the
Governor proposes in the budget for the Department of Economic
Development is a total of$8.5 million. Of that> $.1.5 million is an
increase in marketing and advertising. All of the marketing and
advertising in the world is not going to overcome what business
leaders in Western New York and upstate New York know, and that is
that New York State has one of the highest tax rates of any other state
in the nation.
And so we can try to market our way out of that sorry
fact all we want, but I'm te]Jing you the people in Western New York
are fed up with watching that kind of play happen without any real
results.
. UPSTATE CHAIRMAN GUNDERSEN: Let me--
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ASSEMBLYMAN HAYES: So I'm trying to bring
your attention to what I believe is the fundamental disconnect. All the
marketing in the world is not going to change that fact.
I would appreciate it if both of you as cochairs would
raise your level of profile in discussions with the Governor's office
and with Tax and Finance and bring to the table your opinion and
infotmation that would help turn the tide in terms of the state's tax
policy and spending policy so that we can more easily attract those
decision-makers who will create the jobs in this state. [would
appreciate your help on that.
UPSTATE CHAIRMAN GUNDERSEN:
Assemblymember, I would like to take one more pass at this. I
respectfully agree with you that the taxes for businesses are high,
they're too high, the regulatory environment is too burdensome. And
we need to continuously focus on this. And this is the Governor's
number-one objective when it comes to the ,strategy for economic
development: Reduce the costs for doing business.
And in the first budget, that was done. A step was
taken in the right direction. It's not the only step that's going to be
taken along this journey, but a step was taken to reduce the cost from
7.5 percent to 7.1 percent corporate. The workers' compensation
reform, that is a good step. This year the focus is on property taxes
and strategic investments.
We have to take it all together. But we have to
realize it's one step on a journey. We're not going to tum around the
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upstate economy in one budget cycle.
And so I agree with you in many respects. I do have
to push back on your comment about the marketing. In a
billion-dollar revitalization fund, the small amount for marketing, $3.5
million, is not for advertising. We are not talking about advertising.
We're talking about marketing that is empirically based, the research
to get in front of the investors, to know where they are around the
world so that we can make our case. And to be able to promote the
great businesses that we do have. Nobody is promoting these
businesses that are operating in our upstate communities and all
around New York.
We feel it's incumbent upon us at this time to say it's
not as bad as it may seem, there are success stories here and we're
darn proud ofthese success stories and we want the world to know
about it. We can't continue to have our competing states spend tens of
millions ofdollars trying to convince the world that we are as bad as
they think we are. We have to fight back. And if we can do that not
through TV, not through magazine ads, but by scooting around the
country and around the world to be able to say, Look, invest in XYZ
community, and here's why, then we think that's a wise investment.
ASSEMBLYMAN HAYES: So on the threshold
question of cut taxes by a billion or spend a billion, you're decidedly
on the side of spend a billion.
UPSTATE CHAIRMAN GUNDERSEN: Today I'm
on the side of using our resources strategically and targeting where
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they can have the most immediate impact.
ASSEMBLYMAN HAYES: Spend a billion. That's
what I heard you say.
UPSTATE CHAIRMAN GUNDERSEN: Invest a
billion dollars.
CHAIRMAN JOHNSON: Senator Stewart-Cousins.
SENATOR STEWART-COUSINS: Yes, good
morning. I was certainly waiting to talk to you about the Empire
Zone, because clearly there's been a lot of conversation, a lot of
discussion. And I think a lot of my questions have been answered.
I did want to thank you for the responsiveness that
you've shown since you've both been in this position. It's clearly a
difficult position. And certainly when we talk about the upstate, the
downstate, I think that the reality is is that we are moving, hopefully,
as one state. And the things that you are trying to address as upstate
and downstate are necessary and will benefit all of us.
The Hudson Valley, I know that, Pat, you came to
Westchester County to talk about the river towns and developing not
only the tourism but the opportunity to sort ofcreate a flow of
infonnation, a flow of resources for all of the cities, the towns, the
villages on the river.
And I'm wondering whether or not that is still very
much part of the focus, that there be some entity that addresses the
revitalization, the development. Because clearly the Hudson River
and all that's along that river is a source of great, I think, revenue for
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the state.
DOWNSTATE CHAIRMAN FOYE: Senator, first,
thaJ)k you for the kind words and for the question.
Let me describe some of the things in this year's
proposed Executive Budget for the mid-Hudson area and then some of
the things we're proud of talk about in terms of the current year.
In tenns ofcapital for the mid-Hudson area, the
Governor's budget has $20 miJlion dedicated to projects in the Hudson
River area. FolJowing up on that meeting that you were kind enough
to sponsor with some of the elected officials from some of the Hudson
River towns in your district and surrounding districts, of the
$20 million, $ I0 million is for Hudson River infrastructure and
waterfront development. An additional $10 million is for other
projects in the Hudson VaHey.
Beyond that, the'Executive Budget caBs for
$8 million for the Hudson Walkway, the bridge in the Poughkeepsie
area over the Hudson. And the Governor -- it's not your district,
Senator, but the Governor has also dedicated $6.5 million to the
BeJleayre state-owned ski facility.
Beyond that, the Hudson Quadricentennial has a
$3 million funding and itself has an additional million dollars to
market the 400th anniversary of Henry Hudson's voyage into the
Hudson.
In terms of things that we did for the Hudson Valley
last year, Restore New York, Senator,! think you know that over
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$7 million, about 25 percent of the downstate funding, went to eight
projects in the mid-Hudson area. ESDC last year invested, for job
retention and attraction, nearly $7 million, and that leveraged an
extraordinary $165 million of private investment.
One of the questions that was asked this morning
related to our request for additional funding for economic
development. And I think there are two points that I just want to
amplify on what Dan said.
One is in obviously potentially troubled economic
times, as those that we may be experiencing, the ability to put
economic development dollars to work and the leveraging factor in
terms of leveraging private investment.
Across our programs, and it varies from year to year
and program to program, but the amount of leverage in tenns of public
dollars leveraging private dollars can range from 10 times to 12 times
to 15 times. And I think that's extraordinarily important.
The other thing that I think is important to note,
finally, Senator, in tenns of this year's proposed Executive Budget is
that the Governor has dedicated an amount of about $30 million as
part of the transportation piece that I spoke earlier about that will'be
dedicated to mass transit and transportation fnfrastructure upgrades in
the Hudson Valley.
Again, to summarize, we're very focused on the
opportunities -- both from an investment point of view, an
environmental point of view, and a personal enjoyment point of view,
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in tenns of quality of life -- related to making investments along the
Hudson River in your district and throughout the entire state.
SENATOR STEWART-COUSINS: Thank you very
much.
Before we end this conversation, I just wanted to say
in tenus ofthe Empire Zones I personally am happy that there is some
aggressive outreach in tenus ofcommitments, whatever, however we .
want to call it. I mean, the reality is certainly in an area like mine,
which is experiencing a renaissance, there are many, many businesses
that are coming in and making claims. And there are many residents,
frankly, who have been there for quite a long time waiting to have the
claims met, waiting to have opportunities, waiting to have doors
opened.
And if we are talking about revenue or we're talking
about taxes and we're talking about strategic use of these taxes as
certainly incentives, then there's no reason to do that without actuaBy
extracting some benefits and making sure that people indeed are Jiving
up to whatever it is they've signed off on when they decided to get the
revenue benefits.
From what I understand, of the 9,000 businesses that
are in the Empire Zones, really there's about 3,000 that are meeting
60percent or less of their commitment. So presumably this 180 is the
beginning. And I see that you've said it's 90 upstate and 90 downstate.
- I hope that as you move forward there is some continued follow-up.
And I guess the question is, are the other businesses going to be
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receiving letters as well?
DOWNSTATE CHAIRMAN FOYE: Senator, Dan
and I and statTwill go through the entire list. We're going to do it on a
case-by-case basis. The 180 letters that we sent last month is the first
stage of this. We're going to consider seriously the arguments and the
issues that those 180 companies raise. And we will meet with every
one of those who's interested in a meeting before we go on to Phase 2.
We think that as custodians of this program, and as
custodians of the significant amount of tax dollars, that Dan and I
have a responsibility to do that diligen~e and to go through that
exercise. And the approach you've described is exactly the one we
have been taking and intend to take going forward.
SENATOR STEWART-COUSINS: Okay, very last.
And I know that other Senators on this side -. mycochair, certainly, in
terms ofMWBE, the Democratic task force -- we do have questions.
How are we faring with our minority- and
women-owned business enterprise development? We clearly have not
used the talent that has been available to us over the years. I know
that less than I percent ofwomen and minorities do business with
New York State. 1know that we're moving towards a disparity study.
I'm wondering how we are doing in terms of our
day-to-day certification, how we are doing in terms of making sure
that as we do our operations, whether it's ttl Love New Yorktt and
beyond, whether we are actually using women and minorities. How
are we doing as we are waiting for the disparity study to happen?
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MR. SCHICK: Senator Stewart-Cousins, I'll be glad
to address that. We're doing well. We're doing better than we were
doing previously in prior administrations, but there's more work to do.
In tenns ofcertifications, the statistics show that
we're processing about a third more applications than we did iI:1 the
comparable period in 2006 or 2007. We're at a clip of about a third
more, and we'll get better. We continue to increase staff in that
regard. And so our goal is to do this quickly and efficiently so that
any MWBE that wants to be certified wi II get that process done
quickly.
We've in the last couple of weeks added more staff.
We've undertaken in 2008 to see how we can use technology to
streamline that, to allow companies to file things online and to review
it online so that it is not a cumbersome, paper-laden process.
In terms ofagency utilization across the
administration, again, the story is good. We've gone from under
4 percent in the fiscal year 2006-2007 to almost 9.5 percent utilization
rate in the second quarter, the last quarter for which we have full
statistics, in 2007·2008.
So we're clearly doing much better, but it's something
that we focus on every day. And as I said, we've brought on senior
staff to address this.
In terms of the disparity study, again, we devoted
significant resources to cast a very wide net with the disparity study.
We took out ads in national publications, such as the Wall Street
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Journal, to attract the best firms that operate in this field. We got a
large number of responses.
It was a process that was handled by the career
professionals. A panel was put together to review all the applications
and then, after the first cut was made, to have the finalists in for
in-person interviews.
The firm that was chosen, NERA, has a long and
distinguished history of completing.such studies across the country.
We have signed a contract with them. I think it's currently just
undergoing the standard review in the Attorney General and
Comptroller's office. But we've signed it and they've signed the
contract as well.
SENATOR STEWART-COUSINS: What is the
normal period for certification now? I mean, how long does a
company usually -- from beginning to end, all things being
considered, how long does it take?
MR. SCHICK: I think we try to get it done in a
couple of months. And the reason it's taken us that long is because we
inherited ~ very large backlog. So I think the statistics that you saw
for the past year are somewhat skewed, because we came in with just
an enormous backlog. And so as folks made their way through the
backlog, it took longer than we would have desired to process the new
applications that came in.
As (said, we've made good headway into that, but
2008 is I think the year where we're really going to wipe out that
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backlog and use technology. As I said, we brought in senior staff just
a couple of weeks ago to really spearhead a technology upgrade for
this. And we'll get it down from even a couple ofmonths to
something shorter.
SENATOR STEWART-COUSINS: Thank you very
much.
CHAIRMAN FARRELL: Thank you.
Assemblyman Englebright.
ASSEMBLYMAN ENGLEBRIGHT: Thank you,
Mr. Chairman.
Good morning. It's wonderful to listen to the
accomplishments of your efforts over this past year. And most
particularly, I'm interested in learning a little bit more through this
questioning process about the "I Love New York" campaign and its
impact on tourism.
Tourism and agriculture are the two largest industries
in the state. When 9/11 occurred, it was tourism, largely, and arts
activities that largely saved New York City and the state's economy.
We're now heading toward a possible recession.
Some say we've been in it for a while. Tourism, it seems to me, is
'very promising as something to go to to once again stabilize the state's
economic vitality.
Your reference to the Legislature's investment last
year of$5 million in the "I Love New York" campaign, with a
14.5 percent increase across the entire state, was very heartening to
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hear about. And so I just wanted to ask a couple of questions.
What was the multiplier of that investment? Would
we gain more if we made a larger investment? That's relatively small
dollars, relative to some of the numbers we've been hearing this
morning, with a huge impact. So that's my first question.
DOWNSTATE CHAIRMAN FOYE: Chainnan
Englebright, I would answer that question this way. I think th~t when
we arrived here 13 or 14 months ago that New York was dramatically
behind some of our competing states from a travel and tourism
viewpoint.
And the case we made to the Legislature last year
was we're not going to ask, because we didn't think it was a reasonable
request, that the funding be doubled or tripled or quadrupled, because
we didn't think that was reasonable in light of the other demands on
the state budget. So what we asked for was a significant increase on a
percentage basis, 45 percent.
And this year we're asking for 25 percent, on the
theory that let's try to bridge this over a period ofyears, let the travel
and tourism part of ESDC be able to demonstrate that we will put that
money to good use, that we will professionalize the "I Love New
York" operation and that we'll show economic returns to the travel
and tourism sector in the State of New York.
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guarding it but also exploiting it, in a positive sense, for the economic
benefit of the State of New York.
We've hired the first chief marketing officer at ESDC
to be the custodian of the brand and have brought in one of the world's
leading international advertising and marketing agencies.
I think that the dramatic increase in online bookings,
the significant increase in hotel revenue in the state -- frankly, the
ongoing campaigns focused on the ski industry this winter and cozy
inns around the state, and I think a dramatically more effective
advertising campaign.
The travel and tourism sector in the State of New
York is a $43 billion industry that I agree with you was a significant
component in the recovery of the city and the state following 9/l I. It
is an industry, as people's incomes across the world increase, New
York City and New York State ought to be beneficiaries ofthat,
because everybody ultimately wants to come to New York City and
see it and see the other splendors, from a travel and tourism point of
view, across the entire state.
And I think, also, travel and tourism employs 700,000
people directly and indirectly across the State of New York. And
frankly, many of those jobs are entry-level jobs, they represent the first .
step on the economic ladder for many members of communities across
the state. And not only will the investments we're making benefit the
hotel and restaurant and service sectors around the state, but they
ought to also result in an increase in employment, including many of
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those entry-level jobs.
ASSEMBLYMAN ENGLEBRIGHT: Thank you.
I would like to go for a moment to the arts and
cultural capital grants program. I'm encouraged to hear of this
approach, and I'd just like to hear a little bit more about what your
thought processes are.
For example, what criteria would be used to
detennine which cultural facilities are in need of capital
improvements, and what entities would be eligible? And would the
Council on the Arts or some other state entity be involved in selecting
which projects might receive funding?
OOWNSTATE CHAIRMAN FOYE: Chairman
Englebright, we're working very closely with our colleagues at the
New York State Council of the Arts. Obviously they are experts on
the arts and cultural sector in ways that we are not. Our focus is on
economic development and really the business side of making sure
that we get an appropriate return on the tax dollars that we put into the
sector.
Our focus is going to primarily be on the economic
and investment and job creation returns that we can get. While it's
only a portion of the not-for-profit sector, I'll note that the
not-for-profit sector across the State of New York accounts for about
15 to 16 percent ofeconomic activity. That's a sizeable number given
the fact that the state gross domestic product is pretty close to a trillion
dollars. So that's $150 billion to $160 billion, and the arts and cultural
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component is a significant portion of that.
So the types of things that we're going to be funding
both upstate and downstate -- and I'll also note the inclusion in the
Governor's Executive Budget of the $140 million for arts and cultural
activities both upstate and downstate -- will be generally focused on
capital projects and on projects in which our dollars make the
difference between a project going forward or not, with a heavy
emphasis on the number of jobs being created and the investment that
will accrue, the investment that will be leveraged.
ASSEMBLYMAN ENGLEBRIGHT: I wonder if
you could also talk just a little bit about the economic and community
development program as it might affect tourism and educational
activities. And again, I'm interested in whether or not there is sort of a
profile of eligibility or an expectation of what types of projects might
receive funding and how the review process and eligibility would be
considered.
DOWNSTATE CHAIRMAN FaYE: Well, I think
our programs will be twofold. One is the travel and tourism piece, "I
Love New York," is obviously focused on driving business to existing
hotels and restaurants and attractions throughout the entire State of
New York.
I think the State of New York and the City of New
York as well have been successful in drawing millions of visitors from
the rest of the country and around the world, and we've got to continue
to grow that number. And that's the focus of "I Love New York."
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From a capital funding point ofview, we're open to
both for-profit and not-for-profit institutions. Many competitors,
many participants in the travel and tourism business will be small
businesses of various sorts across the entire state. One of the things
Dan and I are committed to _. and I expect to discuss this with
Assemblymember Weprin later in the hearing, I'm sure -- is our focus
on small businesses. And we look forward to discussing that. I think
that's a particular characteristic of companies -- not always the case,
obviously. There are some quite large companies, which is good. But
there are many small businesses. and we're focused on making capital
available and operating support available where we can.
Beyond that, Thomas Ranese, who's our chief
marketing officer, has various programs -- Explore New York. The
travel agency promotion program, we had our first-ever summit in
December, in Schenectady. And providing technical support,
operating support, making sure that travel and tourism industry
participants are briefed on ongoing trends has been a particular focus
and will continue to be going forward.
ASSEMBLYMAN ENGLEBRIGHT: I have one last
question. I want just to share with you a perspective. I had a chance
to participate in a Canadian consulatelNew York State sort of
discussion about the implications of border security along the
Canadian border back in the fall.
It is my impression that we have a really serious
problem in terms of the choke points that in some cases cause, during
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the height of the tourist season, backup and a waiting period ofup to
two hours to cross the border.
It was mentioned before about the importance of the
Buffalo Bills to Buffalo. Forty percent, I learned, of the ticketholders
are Canadians. So to come to a game in Buffalo, they have to get on
line and wait two hours, in some cases, to cross the border.
This is a problem. And I just wonder if you're aware
of that problem and if you have any thoughts as to how we might
make some investments to speed up the processing and shorten the
time that it takes for tourists or ticketholders to cross the border so that
we not be working against ourselves as we make investments just on
our side of the border without taking into account the new realities of
the border security choke points.
DOWNSTATE CHAIRMAN FOYE: I'm going to
ask my colleague Ken Schoetz to speak to that question.
MR. SCHOETZ: Thank you.
One ofthe other hats that I wear is to serve as
director of the Peace Bridge Authority, and so I'm very familiar over
the last five years of tile impact of this border-security tightening on
Western New York but also the bridges in the North Country as well.
We've been working very closely with Secretary
Balboni on coordinating with Washington. And I really think as you
look to what's the answer, what can we do either locally in Western
New York or as North Country officials, or as state officials, the
reality is that this is a problem that has been created by the
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fits-and-starts efforts of the federal government with respect to
passports, NEXUS, FAST passes, et cetera.
And I think. we have taken, the Governor and his
staff, we'veconducted a very comprehensive attack on the federal
government to try and say you have to pay attention to what you're
doing here.
The traffic numbers on the Peace Bridge and every
bridge from Detroit to the North Country are down significantly. And
I think, you know, we're reaching a critical time in the next six
months. And we are right now at a time when the Border Patrol is
now saying, well, a driver's license isn't good enough anymore, you
need a driver's license and a birth certificate. You can't just say "I'm
from the United States" anymore.
So we are aware of the problem. And we have
worked closely with Peace Bridge authorities, with federal authorities,
to try and work through this problem. But the reality of it is unless we
can get the federal government to change or at least to push back some
of its requirements, weare in a very difficult time with respect to
cross-border traffic.
ASSEMBLYMAN ENGLEBRIGHT: Something's
going to change soon in the federal government, so perhaps we'll have
a chance to dialogue with a different administration.
Thank you, Mr. Chainnan.
CHAIRMAN FARRELL: Thank. you.
CHAIRMAN JOHNSON: Next, calling up Senator
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Flanagan.
SENATOR FLANAGAN: Thank you,
Mr. Chairman.
Appreciate your patience and indulgence. I do have a
number of questions. And, Pat, I don't want to disappointyou in any
way, so I'll start off by asking the question that I've now asked last
year and at the confirmation hearings and stilJ don't have an answer to
it.
I would like to have the organizational chart, because
I listened to some of the questions from my colleagues, and we still
don't have an updated organizational chart which would delineate
who's in charge of what, who reports to whom and how the boards are
constructed or not.
So we have been waiting, frankly, way too long to get
that. And I would assume that it could be produced today for any
member who's interested in seeing what the composition of the
corporation and the department are.
DOWNSTATE CHAIRMAN FOYE: Senator, we'll
get that to you promptly.
SENATOR FLANAGAN: In relation to that, and it's
sort of on the same point, Mr. Gundersen, you referenced 41,000 jobs
secured and pledges for another 11,900 jobs. Last July right after
session -- really in June -- the Govemor traveled around the state with
a PowerPoint presentation and outlined some of the achievements to
date, at least in his mind, of what was done in tenns of economic
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development.
And at the time I had asked for that information,
assuming that it would be available in an instant, inasmuch as it had
been prepared for a statewide tour by the Governor. And it took seven
weeks to get information that should have been available in about
seven minutes.
I'm assuming that if we were to ask for the complete
breakout of all those jobs retained and secured, that that too would be
available today, because I'm sure it was compiled in preparation or in
anticipation oftoday's hearing.
UPSTATE CHAIRMAN GUNDERSEN: That's
correct. And that is for ESD-assisted retention. There may in fact be
other state departments that are also, through their efforts, helping to
create jobs. But we can produce that list for you.
SENATOR FLANAGAN: The Javits sale. I won't
focus on the money for the moment, but there's a change in the
proposed language that would allow for the proceeds of that sale to be,
quote, unquote, used for any other lawful purpose. Which in my
estimation gives complete and unfettered discretion to the corporation
to use the proceeds as they see fit.
t won't even get into the question about the viability
. or the wisdom of a sale like that. But is that accurate?
DOWNSTATE CHAIRMAN FOYE: Senator, I
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believe that the Governor's Executive Budget indicates particular uses
for the funds from the sale of the Javits assets, which include a portion •
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of the $525 million for Moynihan -- aid to New York -- capital
construction on New York subways and approximately $30 million
for the Hudson Valley. A second component would be $300 million
for the Housing Opportunity Fund for affordable supportive and
workforce housing, and approximately $45 million in the aggregate
for Hudson River Park and Governors Island.
o'
The Governor's Executive Budget indicates that sales
of excess land at Jav.its could account for up to $900 million. That
relates to the sale of two or perhaps three parcels at Javits.
And those are some of the proposed uses of the net
proceeds of the sale of excess land at Javits.
SENATOR FLANAGAN: I understand everything
you just said, but you didn't answer my question. Does it still give you
. the authority to make changes to that? .
For example, I can look at this one of two ways.
One, it would give you unfettered discretion, but that may inure to the
advantage of some regional projects. I see money in here for Hudson,
for the state park in New York City. I would love to see some
potential money coming out to that little park that I have a keen
interest in out on Long Island.
So just for cJarity, because it ties into some other
issues, is it accurate that this money could be used and moved for any
other lawful purpose? Because that's the proposed language in the
Governor's budget.
DOWNSTATE CHAIRMAN FOYE: Yeah, Senator,
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I believe that the proposed uses are not lined out in the Executive
Budget, that they're deemed to be ofT-budget. And the description of
proposed uses that I just described is available in supplemental
documents only.
And the Legislature's concern that there be specific
uses for proceeds of the Javits sale is I think is reasonable and
understandable.
SENATOR FLANAGAN: Speaking of Javits, Y0U
mentioned that a developer has been chosen, or Mr. Gundersen
mentioned it in his remarks. Who is that?
DOWNSTATE CHAIRMAN FOYE: Yeah, I think
that Dan's -- the state of play at Javits is that, as has been reported in
the papers, we have done an exhaustive review over the last 12
months a~d have detennined that the previous proposed plan, general
project plan that had been approved with respect to Javits cannot be
justified from a financial or an economic point of view or, frankly,
from the returns that would generate to the city and the state and the
hotel industry, which is the industry most directly affected.
No developer at Javits, Senator, has been chosen.
But we are at a point where the two alternatives on the table involve a
renovation or a renovation and a modest expansion, both of which we
believe can be accomplished within the existing appropriations by the
Legislature. Same with respect to the money that the city has
committed and the funds that have been obtained from the hotel tax.
SENATOR FLANAGAN: I'm just going to be
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specific, then. I'm reading on the first page of testimony, where it
says: "We've decided upon a convention center developer for the
Javits Convention Center."
I don't think it's unreasonable for me to ask, if you
have it in a prepared statement, who is the developer?
DOWNSTATE CHAIRMAN FOYE: Senator, I
think that the statement should have been amended to read that as a
o result of having gone through the Javits planning process .- no
developer has been chosen for Javits, nor' is there a search for one
underway. A development plan has been arrived at.
UPSTATE CHAIRMAN GUNDERSEN: That's my
error. I apologize for that. A development plan.
SENATOR FLANAGAN: Any there any other errors
in here that we should be aware of?
UPSTATE CHAIRMAN GUNDERSEN: I'm not
aware of any. I'm not aware of any.
SENATOR FLANAGAN: Following up on
Assemblyman Hayes's question about the $1 billion in spending
versus taxes, are there any -- in the $1 billion proposal, are there any
business tax cuts at all?
UPSTATE CHAIRMAN GUNDERSEN: There are
none.
SENATOR FLANAGAN: I would concur with the
Assemblyman, that is problematic. But just a couple ofother quick
things, if I might.
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Mr. Gundersen, you mentioned about a number of
different programs and the Legislature being involved, and you talked
about working with local municipal officials and in a reference to us
as "yourselves."
How exactly do you do that? Because in speaking
with my colleagues in the Senate majority, we don't seem to see any
involvement or any outreach of any kind in relation to local projects.
Now, in fairness, I have gotten some calls from Pat Foye about
announcements. But a lot of those things are at the back end of the
process.
I'm interested to know how exactly you interact with
our colleagues here in both houses.
UPSTATE CHAIRMAN GUNDERSEN: Sure.
Sure. My comments, I think, were in two areas. One, participation
with the regional blueprint process in which Senators and
Assemblymembers were invited to be part of the blueprint process.
And. two, for the City-by-City projects. If we're
considering a project in a particular area or a district, we did reach out
and ask for feedback. This was upstate.
SENATOR FLANAGAN: Not downstate.
UPSTATE CHAIRMAN GUNDERSEN: I'll let Pat
address downstate projects.
DOWNSTATE CHAIRMAN FOYE: Senator, [
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solicit their views and -- whether it's on things like Empire Zones or
some of our loan and grant programs or specific projects. And I
commit to continuing to do that going forward.
SENATOR FLANAGAN: In relation to the parks
armouncement, the Governor went and made a speech upstate and
referenced a $100 million plan in the State of the State, and then as he
moved around upstate -- and let me be absolutely crystal-clear. I want
to see investment in upstate New York. I come from Suffolk County,
I want to see that money spent, it's a wise investment. My colleagues
in that region of the state certainly need that.
But on the flip side of that, sometimes it's challenging
for us to go back and rationalize, as A~semblyman Schimminger said,
the alJocation. You know, we have a $100 million fund, and
$80 million goes from Albany west and north. How was that
determination made?
And please don't tell me it came from the Parks
Department, because this is economic development, as you tout it. So
I'd like to know the rationalization for making that type of split.
UPSTATE CHAIRMAN GUNDERSEN: That
was -- I'm sorry to disappoint you, that was a decision that Parks and
Rec, together with the Executive staff,determined was appropriate
given the preponderance of the number ofstate parks located upstate.
DOWNSTATE CHAIRMAN FOYE: Senator. I
think the other way to look at it is actually that the total amount of
park funding available in the Governor's budget is actually
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$155 million. Because I think it's right to include the $45 million for
Hudson River Park and Governors Island. And that looking at it on
that basis, of the $155 million, $75 million will go to downstate and
remainder to upstate.
So the split with respect to parks funding -- and
clearly our colleagues at Parks, Commissioner Ash and Commissioner
Grannis at DEC have had a great deal of input in tenns of how that
money is allocated.
SENATOR FLANAGAN: Well, Pat, since you
brought up the details, I'll just provide a couple myself. I thought the
number was 147. But let's kick it up to 155.
I know in the allocation to Long Island, which was
$28.5 million, there was an appropriation for Brentwood State Park
that Senator Johnson had worked on. And frankly, I don't consider
that new money at all, and I don't think it should be counted in the
allocation, because that's something that Governor Pataki vetoed that
we overrode, and that was existing funding.
That was a $5 million allocation for a Neptune
project that was to rectify environmental concerns that related to an
energy project. T~at has nothing to do with parks, and no one should
be misled that somehow that is adding to or enhancing the value of
our parks funding.
So the devil is in the details. And, you know, for the
Parks Department it will be interesting to see what their
rationalization is.
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But one other thing, please. And that is following a
number of the things that the Governor has talked about in a broad
sense about how he views government -. and there's been a lot of
touting of public input and disclosure and all kinds of things of that
nature .- somehow it seems incredibly convenient for the Executive to
feel that everything that the Legislature does should be lined out with
unbelievable specificity -- which frankly I have no problem with .-
everything that we contemplate, projects all across the State of New
York, somehow that should be clearly delineated for the whole world
to see.
And yet when I look at this economic development
funding, a major problem I have is that everything seems to be sort of
sweeping towards ESDC. NYSTAR is having some of its authority
taken away, and ESDC gets these beautiful lump" sums that get to be
allocated, frankly, as you see fit without any legislative input.
Why are we going to that type of scenario when it
would be more prudent, frankly, and would provide direct
involvement with the Legislature, why are we moving towards
massive lump sums"as opposed to specific projects?
DOWNSTATE CHAIRMAN FOYE: Senator, I'd
respectfully suggest that we're not. I think that when one goes through
it on a project-by-project basis -- I mean, for instance, start with the
Investment Opportunity Fund, which is $J 50 million, which will
involve the Governor and the leaders of the Legislature in a
substantive role .- a veto role, frankly -. with respect to the overall
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direction of the program.
Secondly, I'd respectfully suggest that both upstate
and downstate that the amount of detail in tenns of where monies will
be spent both upstate and downstate in this year's'budget -- and
obviously we understand that the purpose of this hearing is begin a
dialogue with the Legislature on legislative priorities and concerns
and issues. And that's why Dan and I and Ken and Avi are here and
why we're committed to answering your questions and concerns as we
go forward over the weeks and months to come -- that a significant
amount of detail has been furnished.
I think the questions that are being asked with respect
to particular programs and particular parts of the Governor's Executive
Budget are absolutely appropriate and reasonable. And I think that
having even greater clarity in the Legislature's input is an
extraordinarily important part of the process.
SENATOR FLANAGAN: Well, I'll just use the
downstate number. There's a $220 million fund. Are you suggesting
in that fund and in others that there will be legislative veto over that?
In other words, ifs got to be unanimous, the Senate, the Assembly and
the Executive, on any projects?
DOWNSTATE CHAIRMAN FOYE: Well, no,
•
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Senator, what I was suggesting in particular was the Investment
Opportunity Fund.
But obviously, for instance, the pickup on the.
$200 million Downstate Revitalization Fund that you just mentioned, .•
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that will be passed and the funds appropriated only if the Senate and
the Assembly and the Governor agree on its ultimate disposition.
And having the Legislature's input into how those
funds ought to be spent and particular priorities that are important to
leadership and members of both the Senate and the Assembly I think
is why we're here this morning and what we hoped to •• the dialogue
we hope to have with you over the next number of weeks.
SENATOR FLANAGAN: Well, let me ask it more
directly. Is it your position and the position of the administration that
those aHocations, as they are lined out, whether now or in the future,
should be subject to an MOU which includes sign:"offby the
Legislature .- Senate and Assembly .- along with the Executive on all
projects?
DOWNSTATE CHAIRMAN FOYE: No, Senator; I
think with respect to -- and the example that I'd use is last month we
announced Round 2 of Restore New York funding, $100 million of
funding up from $50 million last year. We had demands or requests
for the money ofabout $300 million, so we were oversubscribed three
times.. That was of course a legislatively created program. The
current Round 3 will be $150 million on a statewide basis.
That was, in my mind, a. comprehensive, exhaustive
staff-driven review process of that competitive process. And I think
that the municipalities around the state that were recipients of that
money were, frankly, proud of the process that was undertaken and
the decisions that were reached and happy to explain and advocate for
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it. And I believe that ESDC can demonstrate that we can take the
same approach with respect to other programs that the Governor and
the Legislature are able to agree on.
SENATOR FLANAGAN: But I would make a clear
distinction, and I'll close on this point. I listened very carefully to my
colleagues· questions and comments and in particular to
Mr. Gundersen·s responses as it relates to announcements.
Where I have a problem and I think some of my
colleagues have a.problem is when projects are announced, full well
knowing that there is no appropriation or existing authority to back
them up, the Governor goes around and makes announcements --
while they may be laudable, he then makes them without having the
imprimatur or the blessing of the Legislature through the budgetary
process.
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Mr. Chainnan.
Let's start with Empire Zones. Can we have a list of
the 180, please?
DOWNSTATE CHAIRMAN FOYE: Assemblyman
Brodsky, what we would like to do is to furnish that to the Legislature
and furnish it, frankly, to all interested parties that request it after
companies that have received the letters have been able to respond
and make any arguments they wish.
So the commitment is yes, we will furnish it. We'd
like that process, which we believe will take a matter of weeks, to .
unfold first.
ASSEMBLYMAN BRODSKY: Why should we wait
for the responses to get the list of who you sent them to? What's the
public interest in that process?
DOWNSTATE CHAIRMAN FOYE: Forgive me,
ask the question .-
ASSEMBLYMAN BRODSKY: What's the public
interest in waiting for the responses? I didn't ask for the responses.
just asked for the letter saying we have an issue. What's the public
interest in withholding that data?
DOWNSTATE CHAIRMAN FOYE: Here's the
public interest. Dan and I and Ken and Avi are focused on retaining
and attracting businesses to the State of New York. We have sent
letters to 180 companies, and we do believe that the response process
ought to unfold over the next weeks before we publ icly release that --
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ASSEMBLYMAN BRODSKY: Why? What's the
public interest in withholding the list?
DOWNSTATE CHAIRMAN FOYE: The reason is
our job is to attract and retain businesses to the State of New York.
We have done an exhaustive review of the 180 companies on that list.
But in the event that one company ought not to be on that list, we
don't think it's fair to that company or its employees that the Iist be
released ~ntil that process, which we're talking about a number of
weeks, be allowed to unfold.
ASSEMBLYMAN BRODSKY: Since the data is
public anyway, and all you did was compile what's on a public
document, I'm not persuaded. I'm asking for the list, and I'm sure
other members want it as well.
DOWNSTATE CHAIRMAN FOYE: Assemblyman
Brodsky, two points. Obviously a legislative request is different than
a Freedom of Information request. And we take very serious any
requests from the Legislature. And I hope you and your colleagues
would agree that we have been responsive to information requests.
The Freedom of Information position I'll leave to
learned counsel at ESD, having given up practicing law over ten years
ago.
•
But we do believe that with the objective ofattracting
and retaining businesses, that the right thing to do is to allow the next
couple of weeks to unfold before that list is --
ASSEMBLYMAN BRODSKY: I'm not persuaded. •
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I'm still asking for it. Let's see what happens.
DOWNSTATE CHAIRMAN FOYE: Yes, sir.
ASSEMBLYMAN BRODSKY: I think you did very
well by sending out the letters. This is the first concrete step towards
reform of a failed program. And although it's a very modest step, it's a
very important message and it shows, I think, that you are intending to
make fundamental changes of a kind that you've promised in the past,
and I think.it ought to be noted and appreciated.
DOWNSTATE CHAIRMAN FOYE: Chainnan
Brodsky, I appreciate that. And on behalf of Dan and me, I think we'd
be remiss ifwe didn't note your leadership on the issue and your
urging to look at this important program.
Having said that, I do respectfully disagree with you,
as I think I did this time last year, that the right thing to do with this
extraordinarily important program is to mend it, and not end it.
But I think the issues that you and your colleagues on
the panel and others in the Legislature have identified have been
extraordinarily important to us in looking at this program.
ASSEMBLYMAN BRODSKY: Are you familiar
with shirt-changers, the concept of shirt-changers?
DOWNSTATE CHAIRMAN FOYE: Yes, sir.·
ASSEMBLYMAN BRODSKY: Okay. Are you
going after them to see why we should be paying them for having
created no jobs?
DOWNSTATE CHAIRMAN FOYE: Assemblyman
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Brodsky, in this process we intend to be reviewing shirt-changers and
others.
ASSEMBLYMAN BRODSKY: When do you
expect to complete your review of shirt-changers?
DOWNSTATE CHAIRMAN FOYE: That process is
ongomg. And I think rather than making up a date, I will commit to
come back to you on that.
ASSEMBLYMAN BRODSKY: Months, weeks,
years?
DOWNSTATE CHAIRMAN FOYE: No, it's neither
weeks nor years.
ASSEMBLYMAN BRODSKY: Months?
DOWNSTATE CHAIRMAN FOYE: Yes, sir.
ASSEMBLYMAN BRODSKY: You underestimated
me again.
(Laughter.)
ASSEMBLYMAN BRODSKY: Faster, more.
Okay? I think you're headed in the right direction.
You're familiar with the AJ. Kearney report?
DOWNSTATE CHAIRMAN FOYE: A.T. Kearney,
yes, sIr.
ASSEMBLYMAN BRODSKY: A.T. Kearney,
excuse me.
DOWNSTATE CHAIRMAN FOYE: Yes.
ASSEMBLYMAN BRODSKY: It criticized the
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Centers for Excellence as essentially not meeting the economic
development goals of job creation and economic investment. Is that
not accurate?
DOWNSTATE CHAIRMAN FOYE: 1 think that
may be slightly overstated, but I think the sentiment is correct.
ASSEMBLYMAN BRODSKY: Why are we
continuing, then, to fund them? Are you going to apply the same
standards to them as you apply to anyone else?
DOWNSTATE CHAIRMAN FOYE: We are. One
of the things that Dan and I are focused on, and we're going to be
working with our colleagues at NYSTAR on this as well, the State of
New York has invested a significant amount ofmoney in Centers of
Excellence. I think fran,kly in any environment it behooves us to
make sure the state is getting a significant return on that money and --
ASSEMBLYMAN BRODSKY: When will that
review be completed?
DOWNSTATE CHAIRMAN FOYE: That review is
ongoing and will neither be, weeks nor years.
ASSEMBLYMAN BRODSKY: I'd like copies of
both as soon as they're available, and I'd like to know when it's
completed.
DOWNSTATE CHAIRMAN FOYE: Yes, sir. Yes,
sir.
ASSEMBLYMAN BRODSKY: If these were
programs for poor people, they'd have been shot down long ago. We
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have wasted billions ofdollars here. I believe the annual cost of
Empire Zones is approaching a billion dollars a year?
DOWNSTATE CHAIRMAN FOYE: It's
$600 million. At its current rate ofgrowth, it will be a billion dollars
in two or three years.
ASSEMBLYMAN BRODSKY: We're not creating
jobs, we're not creating investment proportionate to that. You
yourself called the program not equitable, not strategic, and not
cost-effective. That sounds to me like a reason to do something more
serious and dramatic.
But you're heading in the right direction, you've kept
your commitments of last year, and I appreciate it.
DOWNSTATE CHAIRMAN FOYE: Assemblyman
Brodsky, let me just thank you for those kind words. Let me just note
one other thing --
ASSEMBLYMAN BRODSKY: You viewed those
as kind words?
(Laughter. )
DOWNSTATE CHAIRMAN FOYE:. Relatively
speaking.
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(Laughter. )
DOWNSTATE CHAIRMAN FOYE:. The
Legislature amended the Empire Zone program in 2005 and directed
ESD to come back in 2009 with a report. I think that there are two
points worth noting. One of the things that Dan and I have done as •
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we've gone around the state, upstate and downstate, is to listen to
businesspeople') economic development professionals, people at IDAs,
but especially people whose capital is at risk, either as investors or
businesspeople. We've been very focused on doing that.
I think that the deadline, secondly, that the
Legislature set with respect to a report in 2009 underlines an
important point) which is that Empire Zone changes need a certain
amount of time to percolate through the system before investors and
businesspeople are able to respond to them.
The changes that the Legislature made in 2005 really
went into effect for the first full year in 2006. And obviously beyond
that there's a lag -- a natural lag, a legal lag -- with respect to the fiI ing
of tax returns and the ability ofTax and Finance to analyze that. And
I think we ought not to jump to momentary conclusions but ought to
allow both the Legislature's changes in 2005 and some of the things
that Dan and I have done in 2007 and 2008 to take effect.
ASSEMBLYMAN BRODSKY: Let's switch to
Moynihan. What's the total cost of the Moynihan project?
DOWNSTATE CHAIRMAN FOYE: The total cost
of the Moynihan project from the point of view of the public with
respect to the train station on the east side of 8th Avenue is -. latest
estimate, which is being refined -- is approximately $2.2 billion to
$2.3 billion.
ASSEMBLYMAN BRODSKY: How much do you
have?
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DOWNSTATE CHAIRMAN FOYE: We are
seeking --
ASSEMBLYMAN BRODSKY: How much do you
. have?
DOWNSTATE CHAIRMAN FOYE: Okay. We
have a commitment from the joint venture of$550 million. We
believe that's -- and just to be clear, that's $550 million of private
developer money· being used for the public. Often a criticism that's
made of these projects is that these projects involve public subsidy of
private interests. And exactly the opposite is happening here.
Beyond that, the Governor's Executive Budget
indicates funding for approximately $300 million of state money over
a period of years for Moynihan. We would expect that that
commitment would be matched by the City of New York--
ASSEMBLYMAN BRODSKY: How much do you
•
have? You have the 550 in a committable form, you have 300 from
the Governor. That's 850.
DOWNSTATE CHAIRMAN FOYE: Subject to
approval by the Legislature.
ASSEMBLYMAN BRODSKY: How much do you
have fi'om the city?
DOWNSTATE CHAIRMAN FOYE: We would
expect that the city would fund -- we are, from a financial point of
view, we are fifty-fifty partners with --
. ASSEMBLYMAN BRODSKY: Does the city know •
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that?
DOWNSTATE CHAIRMAN FOYE: Oh, absolutely.
Of course.
ASSEMBLYMAN BRODSKY: Have they agreed?
DOWNSTATE CHAIRMAN FOYE: Absolutely.
The city has been intimately involved on a daily basis in the project.
ASSEMBLYMAN BRODSKY: That gets you to
1.15.
DOWNSTATE CHAIRMAN FOYE: Yes, it does.
ASSEMBLYMAN BRODSKY: So you're short a
billion. Where are you going to get it?
DOWNSTATE CHAIRMAN FOYE: From three
sources, I would suggest.
One is we believe that the city and state, acting
together, can make a case for the developers that it is appropriate that
they contribute more than the 550 that has already been committed.
One.
Just a footnote to that, I think it's important to note,
and I know it's been a priority of many in the Legislature on some of
these deals, that we align the interests of the public and the private
parties. And we have done that on Moynihan, and will do it on some
of our other deals, by the state and city sharing in the success of the
ultimate project on a fifty-fifty basis.
So we have negotiated a sharing -- it's still being
negotiated -- but the concept and the numbers are being agreed. So .
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the first answer is more money from the private developers.
Second is we have been meeting and the Governor
has met with our partners in the federal government in Washington,
specifically the New York State U.S. Senators and our Congressional
delegation. And there has been great support both from Senator
Schumer, Senator Clinton, Senator Lautenberg and other senators
from around the nation, many of whom worked with the late Senator
Moynihan during his Senate career. We've also had great help from
Chairman Rangel and all the members of the congressional
delegation.
We would expect and believe that a project of this
national significance is deserving of a significant amount of federal
aid.
ASSEMBLYMAN BRODSKY: What's the third
area?
DOWNSTATE CHAIRMAN FaYE: We hope to be
able to make the case to our governmental partners in New Jersey and
New Jersey Transit that a project like this is also, because of its
regional significance and its importance to the growing number of
commuters from the great state of New Jersey into existing Penn
.f
Station, ultimately Moynihan Station --
ASSEMBLYMAN BRODSKY: When do you
expect answers from those three parties?
DOWNSTATE CHAIRMAN FaYE: Welre very
focused on answers to those questions in the next several months.
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ASSEMBLYMAN BRODSKY: Somewhere
between weeks and years?
DOWNSTATE CHAIRMAN FOYE: Yes, sir.
You've seen the theme.
ASSEMBLYMAN BRODSKY: Are you familiar
with an interest of some of the private developers in shifting prime
responsibility for Moynihan away from ESDC to the Port Authority?
DOWNSTATE CHAIRMAN FOYE: I have heard
rumors on that. I don't happen to think it's a sound idea..
ASSEMBLYMAN BRODSKY: If you hear any
more about it, I'd like to know, because I agree with you that it's not a
sound idea.
DOWNSTATE CHAIRMAN FOYE: I commit to
doing that.
ASSEMBLYMAN BRODSKY: And I do suggest
that your strategy ofgetting the public long-term economic benefits is
a substantial and important and valuable change, and I commend you
for it.
DOWNSTATE CHAIRMAN FOYE: I thank you for
those kind words.
ASSEMBLYMAN BRODSKY: Javits. You can
stop worrying about the kind words.
(Ltiughter.)
ASSEMBLYMAN BRODSKY: You've spent
$109 million, and we have, as we say in Italian, gomicht?
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DOWNSTATE CHAIRMAN FOYE: No. We
have -- most of those dollars were actually spend by the prior
administration. Part of that includes a small acquisition of a parcel of
land.
What we have been doing since last January, when
we arrived, and particularly April, when we were able to attract
Barbara Lampen -- who comes to us from the Atlantic City
Convention Center, the New Jersey Sports and Exhibition Authority,
where she was involved with the construction and other issues at the
Meadowlands redevelopment and the Port Authority -- was to do an
exhaustive comprehensive review of all the options at Javits. Those
included 15 major options and all sorts of variations on the theme, if
you will.
And the conclusion we came to was that the plan
which had been billed as $1.6 billion was actually a $5 billion plan.
Working closely with the city and with the hotel association and with
the hotel unions, the conclusion that we came to was that that was
unjustifiable from an economic point of view to the state, the city and,
frankly, the hotel industry. Both of those parties, the City of
New York and the hotel industry, agreed with that decision.
And we are, Chairman Brodsky, now pursuing, as I
think you know, a renovation which is much needed .-
••
ASSEMBLYMAN BRODSKY: We'll get to that in a
second. But you did spend $109 million?
DOWNSTATE CHAIRMAN FOYE: No, I think the •
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JOINT BUDGET HEARING - ECO. DEV./TAXES FEBRUARY 11,2008
amount that's been spent over the last 12 months or 13 months is on
the order of $20 million, more or less.
ASSEMBLYMAN BRODSKY: Over the last five
years, on the project of the Javits Convention Center expansion, how
much have .you spent?
DOWNSTATE CHAIRMAN FOYE: Over the last
five years, about a hundred million dollars has been spent.
ASSEMBLYMAN BRODSKY: Okay. And we have
nothing to show for it. Fair enough?
DOWNSTATE CHAIRMAN FOYE: Well, I think
the answer is we have now come to a point where the right economic
decision and real estate development decision and economic
development decision for the city and the state has been made, and
we're going to be proceeding --
ASSEMBLYMAN BRODSKY: I take that as a yes,
that we have nothing to show for it.
DOWNSTATE CHAIRMAN FOYE: No, I
respectfuJly --
ASSEMBLYMAN BRODSKY: Well, what do we
have?
DOWNSTATE CHAIRMAN FOYE: I respectfully
disagree. Look, the monies that were spent by the prior administration
I am not here this morning to defend. 1 think the thing that -- the
reality is this. Javits is an important economic development and
employment engine for the city, the region, and the state. We've been,
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quite properly, intensely focused on it since we arrived.
We're now at a point in time where what we believe
would have been ultimately a disastrous project that would have
involved ultimately $5 billion or more has been abandoned. That was
the right decision. And we're going forward with a much-needed
renovation; see today's New York Post.
ASSEMBLYMAN BRODSKY: That's in addition to
the 109; is that not the case? The cost of the renovation would be in
addition to the 109.
DOWNSTATE CHAIRMAN FOYE: That is correct,
yes. .
ASSEMBLYMAN BRODSKY: Look. As best as I
can see it -- I share your sense that we need a renovation and
expansion; we'll get to that in a second. But what you guys have done
with the city is put a bullet in the head of the large, fundamentally
world-class expansion, and you've made that clear by the sale of the
property.
•
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You can't go forward with the big plan ifyou sell that
piece of property; right?
DOWNSTATE CHAIRMAN FOYE: Well, I would
not adopt the Sopranos analogy, Chairman Brodsky, but I do think
that the decision that's been made to sell the southern and the northern
parcels indicates our beliet~ and I believe the city shares that belief,
that a multi-billion-dollar investment at Javits is not prudent today.
We don't believe the result would be any different •
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five or IO or 15 years from now. If anything, the cost of construction
will have increased. And ultimately the city and the state and
interested stakeholders will pursue, on a systematic basis, other
options for a convention center in the city.
ASSEMBLYMAN BRODSKY: As best as I can tell
from your earlier testimony in front of my committee, Mr. Foye, no
one is looking at, in an authoritative, across-the-board, comprehensive
way, what we need to do to get a world-class convention center built
in New York City, be it at Sunnyside, be it elsewhere in Manhattan, be
it there.
We'll deal with that in another forum. But I just want
you to know that I view the sale ofthe property as a final, irrevocable
decision to walk away from the Javits expansion at that site that would
yield a world-class convention center.
You also want to spend money on the 7 Line; right?
Is that part of the proceeds of the --
DOWNSTATE CHAIRMAN FOYE: Well, of
course, the 7 Line is part of the MTA, which is run by our colleague
Lee Sander. The Governor's Executive Budget does indicate funding
for the 7 Train.
ASSEMBLYMAN BRODSKY: That's a terrible
idea. That 7 Line is a city put -- it is not part of the MTA capital plan,
it is not a transit priority. And the decision to sell assets and put them
to that project -- that isn't coming out ofyour budget, is it?
DowNsTATE CHAIRMAN FOYE: No, sir..
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ASSEMBLYMAN BRODSKY: Well -- and Senator
Flanagan's comment that you're now able to become involved in any
area you want because you can sell property and spend it on
everything will be something I will resist quite strongly.
DOWNSTATE CHAIRMAN FOYE: I understand,
Chairman Brodsky. And just to be clear, that's not what we're
advocating for or the position that we're taking.
The Governor's Executive Budget indicates that with
respect to the excess land at Javits, first, as a matter of prudent
financial planning, those assets will -- the Javits land is a long-lived
capital asset, an extraordinarily invaluable one. Those assets will be
deployed in other long-lived capital assets in the City of New York
and downstate, first.
Second, it goes without saying that, while those
amounts are off-budget right now, that the dialogue we're having with
respect to the ultimate disposition of the net Javits proceeds will be
subject to approval of the Legislature.
ASSEMBLYMAN BRODSKY: I'm all for dialogue ..
I prefer statutes.
Now, let me conclude with the following. I'm a big
believer in 'economic growth and development and job creation, and I
will support public funds. I view you four gentlemen as the leading
socialists in the State of New York. You believe firmly in government
participation, government ownership of the means of production and
distribution.
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Life is strange that way. I understand. But when it
works. we ought to go forward with it.
The problem is if you go back and look at these
programs, I think they have fundamentally failed. I recall the
testimony of your predecessors in years past. whi~h had more
resemblance to an infomercial than it did to testimony before
committees of the Legislature. The fact of the matter is if everything
we were told in years past was anywhere near true. we wouldn't be
sitting here lamenting the state of the upstate economy. We just
haven't been able to do it. Maybe we can. I don't challenge anybody's
good faith.
But J'II give you something to think about. We have
adopted without thinking the notion that economic development is a
supply-side mechanism. that the way you do it is by gi ving
corporations and businesses money, public money, and they will yield
this public benefit. That is what's broken down in Empire Zones.
that's what's broken down in Centers for Excellence and elsewhere.
Last year Senator Young and Assemblyman Magee
came up with an idea for economic development and improvement for
the dairy industry. And what they did is they moved to a demand~side
mechanism where they gave the money essentially to the dairy
fartners, who spent it in town, and its multipliers were enormous.
If you really want to improve economic health for
working people across the state, why don't you just pay prevailing
wage on all your projects? Get money into the hands of average
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people, not corporations, let them go out and spend it in their home
communities, and see what happens. It's a big idea.
Sooner or later, Mr. Foye -- because you're capable
and your colleagues ate capable of big ideas -- I would urge you to go
back and take a very hard look at increasing wage rates as a goal, not
just increasing subsidies to corporations.
DOWNSTATE CHAIRMAN FOYE: Chairman
Brodsky, that is a broad topic. that you and J have discussed, not at the
length it deserves, and I think your colleagues probably would not
welcome alengthy response on that. I do want to say the following.
I think it important to note that the state's ultimate
economic success both upstate and downstate will be dependent on
the state's ability to attract and retain private capital. One of the things
that I think we're happy to report in terms of successes this year is that
in our programs across the board -- and the leverage varies. But we
have invested a million dollars in a particular deal or program and
been able to leverage $10 million or $11 million or $15 million of
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private investment in return.
I think that one of the most important economic
development things that has happened in the Spitzer administration,
frankly, is the bipartisan agreement .that the Governor and the
Legislature were able to reach last session to reduce workers' comp
rates, because that showed that what the Governor called a "perfect
storm of unaffordability" in last year's State of the State -- and again
used those words in this year's State of the State -- could be •
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successfully attacked .
And that bipartisan agreement of the Governor and
the Senate and the Assembly reduced a significant cost item for
businesses both upstate and downstate.
I think the comment that was made by
Assemblymember Hayes earlier and Senator Flanagan and echoed by
others, many of you on the panel, that we've got to address the cost of
doing business in this state, I think is exactly right. I think a
short-term stimulus like the stimulus package being debated and I
guess passed in Washington, and the dairy program, I think on an
emergency basis may be appropriate. But ultimately, the state's
economic development success will be driven by our ability to attract
and retain private capital.
And the thing that you ought to be asking Dan and 1
going forward is our ability to do that, which over the long term will
be reflected in increased investment and increased --
ASSEMBLYMAN BRODSKY: I will close -- I'm
sorry, Mr. Gundersen.
UPSTATE CHAIRMAN GUNDERSEN: And we
believe that the way to attract that capital is by focusing on the
fundamentals and having the infrastructure in place. If you don't have
the infrastructure in place, if you don't have the capital when the
businesses need it, then you're not going to be able to keep the fastest
growing and most competitive businesses, nor are you going to be
able to have the ability to --
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ASSEMBLYMAN BRODSKY: I point out two
things in closing.
One, respectfully, I've heard the same theoretical
argument for the last 15 years. It doesn't seem to be working.
Second of all, it just seems to me that at some point
we're going to have to confront realities. The highest-taxed areas of
our state have the highest level of economic opportunity. And if you
were to do a coordination between high-tax areas and economic
activity, they would show a pretty good correlation. The lower the tax
rate and the cost ofdoing business, the lesser the economic activity.
That's just a fact.
And it may be explainable -- and it may be not an
answer, because we need and 1support subsidies of the kind we're
talking about for the upstate economy. They're a good thing. 1 would
just suggest to you that the truisms which we repeat on an annual basis
here are not nearly the kind of economic growth, development, job
creation that we all want.
UPSTATE CHAIRMAN GUNDERSEN: And that's
because they've been treated as subsidies. We're not looking at this as
subsidies for businesses, we're looking at it as investments in
communities to establish the environment that will be conducive to
businesses.
And that, I think, has been the proble~ that the state
has had for too long, is that we've had such high costs for doing
business and we have a response to that with subsidies to somehow
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JQINT BUDGET HEARING - ECQ. DEV.rrAXES FEBRUARY 11,2008
level the playing field. That doesn't work when you're ignoring the
fundamentals of the problem. You just don't have the envirorunent in
many of these communities to keep, attract, retain the businesses.
And that's what is so different about this. It's not
subsidy whatsoever. It's targeted, focused investments in strategic
industries.
DOWNSTATE CHAIRMAN FOYE: Can'I just add
one word to my partner's comments, which I agree with and I think is
important. I think it's --
CHAIRMAN FARRELL: We're getting into the
discussion you really didn't want to get into a couple of words ago.
think Richard has gotten us into a discussion that could go on for
hours..
So I would say that, Richard, thank you very much.
We've been joined by Assemblyman Lento!.
Senator?
CHAIRMAN JOHNSON: We'll call upon, at this
time, Senator Perkins for a question.
SENATOR PERKINS: Thank you very much,
Mr. Chairman. And thanks to the panel also.
First I want to extend my appreciation to Mr. Foye for
the opportunity we had to discuss some of the concerns that I have
with regard to my own specific district, especially the economic
development taking place around Columbia University. And I know
we don't agree on some aspects of it, especially the questions around
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eminent domain and the aggressiveness that Columbia is using with
regard to taking people's property, including some of the residential
property, though not through eminent domain but through other ways
that are equally as inappropriate.
And I hope that you will follow up and intervene
when necessary to prevent that from happening with regard to those
buildings.
But again, I appreciate the opportunity to have that
discussion and hope that we don't have to use eminent domain even
for the so-called commercials. Because I think that using that is a
bully tactic that is not the role that J think government should be
playing with regard to people's private property.
But ( wanted to also talk a little bit about the tourism
initiative and the interest in seeing that we recognize that there are
tourism opportunities with regard to not simply the upstate areas,
which we very much support, and what we find in some of our
communities is what's happening upstate is also happening downstate.
And there are tourism opportunities there that could help, especially
.when we look at the idea of small entrepreneurs and small cultural
institutions.
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And I'm wondering how we're using our dollars to
sort of encourage that type of tourism, those kinds of opportunities in
New York City, for instance.
DOWNSTATE CHAIRMAN FOYE: Yeah, Senator,
we've been very focu~ed, and you and Jmet in youroffice a couple of •
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months ago, maybe three months ago, on this issue.
The increase in funding that we're asking for this
year, which is 25 percent over the prior year's funding, is available
both upstate and downstate.
And 1agree that there are .- 43 million people came
to the City of New York last year, including international visitors.
One of the things that we're committed to doing is making sure that
those people see more than Midtown Manhattan, that they see Harlem,
that they see the outer boroughs, that they see Long Island and the
Hudson Valley, Westchester and upstate.
And frankly, if we're successful in convincing these
visitors to stay, on average, an average of an extra day or to increase
their spend outside Midtown Manhattan by $25, on average -- and
obviously our goal ultimately ought to be higher. But multiply that by
, 43 million people, and the economic impact for the entire city and the
entire state will be dramatic.
I believe we've been effective custodians and have
gotten a high return on the additional funds that the Legislature
entrusted to us last year, and we're committed to doing that going
forward.
SENATOR PERKINS: So, for instance, the small
sort of like neighborhood-based cultural ins~itutions that are not just in
Harlem but, you know, throughout the city are very, very vibrant and
could use help, could use the kind of support that will enable them to
be more attractive not only to tourists but also to folks in the city in
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general. I think when there was this recent strike on Broadway, they
discovered a lot of these places.
And I'm wondering, are we focusing on trying to
develop those types of opportunities?
DOWNSTATE CHAIRMAN FaYE: Senator, we
are. And we've been working with the leaders of the arts and cultural
institutions throughout the entire state, upstate and down, to come up
with a list, to put it on our website, and to make sure that visitors':to
New York and frankly New York residents themselves are aware of
these opportunities.
I think that the Broadway theater is an incredibly
important economic engine, attracts lots of tourists. But these
community-based and grassroots arts and cultural institutions are in
many ways the future, and especially residents of the city and the
state, and with respect to people who live outside New York State,
people who are making second or third or fourth visit to New York
will want to expand their horizons and to go into communities both
upstate and downstate that they haven't had the ability to experience
before.
SENATOR PERKINS: How much have we been
putting into it up to now?
DOWNSTATE CHAIRMAN FaYE: Senator, last
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year there was a $5 million increase from $11 million and change to
$16 million and change. And this year the Executive Budget asked
for a $4 million increase to $20 million and change for all of New •
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York.
SENATOR PERKINS: So this $1 million to fund the
second round of Explore New York, what is that? Is that related to
what you're talking about now?
DOWNSTATE CHAIRMAN FOYE: That's
additional funding, Senator. Explore New York is a million dollars in
the aggregate. The Governor's Executive Budget asks for a similar
amount, a million dollars. And it is for thematic or particularly
local-based travel and tourism opportunities.
SENATOR PERKINS: And are those types of
organizations that I'm talking about a part of this?
DOWNSTATE CHAIRMAN FOYE: Yes, sir,
absolutely.
SENATOR PERKINS: Do you have a listing of the
ones that--
DOWNSTATE CHAIRMAN FOYE: I do indeed.
And I can leave a copy of that with you at the end of the hearing.
SENATOR PERKINS: One other question. Saatchi
& Saatchi, world-renowned -- I guess it's the top of the line. But there
. are others that do the same thing in a more localized way that may be
useful as well, that are not like Saatchi & Saatchi but are -- that can be
a part of the MWBE program. Are we looking at that?
DOWNSTATE CHAIRMAN FOYE: We are,
Senator.
Just to go back to your prior question, the amount for
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New York City and tourism matching funds last year I think was
about $611,000. And I'll get you a list of the Explore New York
funding, which is the million-dollar pot. And I'll either leave that with
you at the end of the hearing or send it over to your office.
SENATOR PERKINS: Six hundred thousand seems
kind of small for New York.
DOWNSTATE CHAIRMAN FOYE: Well, it's part
of a pot for the entire state of about $5 million. Thatls the tourism
matching funds. Explore New York was a million dollars in the
aggregate.
To answer your question, Saatchi & Saatchi is a large
national and intemational finn. The headquarters is based in New
York. They've also got a significant presence in London. And--
SENATOR PERKINS: They're actually based in
London, but they have an office in New York.
DOWNSTATE CHAIRMAN FOYE: I think they've
acquired a number of U.S. firms, and their headquarters is --
SENATOR PERKINS: Hudson Street.
DOWNSTATE CHAIRMAN FOYE: Yes, exactly.
And they've got a significant -- the firm began in London.
SENATOR PERKINS: But can we get more
localized efforts to help with the promotion?
DOWNSTATE CHAIRMAN FOYE: Sure, Senator.
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What we can do, and we've already had these discussions with
Saatchi, is to explore possible ways for other advertising firms to help •
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with the "I Love New York" program as we go forward this year.
SENATOR PERKINS: Thank you so much.
And I look forward to the list of what groups and
cultural institutions of the type that I'm interested in have gotten funds.
DOWNSTATE CHAIRMAN FOYE: Yes, sir.
CHAIRMAN FARRELL: Thank you, Senator.
And next to speak is Assemblyman Crouch for a
question.
ASSEMBLYMAN CROUCH: Thank you,
Mr. Chairman.
Chairman Foye, Chairman Gundersen, thanks for
your diligence today. It's getting to be rather lengthy, and I'll try to be
very brief.
It's been noted that there's about 200,000
manufacturing jobs that have left the state in the last, say, 10 years. I'd
be interested in your opinion of why we've lost the .- the biggest
reason why we've lost those 200,000 manufacturing jobs.
UPSTATE CHAIRMAN GUNDERSEN: Well, there
are multiple reasons. This is something that has been occurring over
decades, as you well know, due largely to changes in the
manufacturing process and consumer patterns and worldwide trends.
The fact that so much commodity-based
manufacturing has been under assault has been due largely to the fact
that we have other countries that are producing the product at a better
pr,ice, and of course we have markets around the world that are
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growing much faster than ours. And so manufacturing has moved into
those markets to meet those needs. That's the big reason.
But I think we will exacerbate this if we are not in a
position to help our manufacturers compete. And that is to help them
find those markets, help them innovate their products and find
efficiencies in every way possible.
We're doing this through NYSERDA in terms of
energy improvements, we're doing this through new technologies that
could be implemented within the manufacturing companies as well as
process improvements, through a program we call the MAP program,
which has been very successful here.
Can we say that the bleeding of manufacturinghas
ended statewide? No. But I do believe that we've reached a situation
where we can now take competitive advantage in niche areas. And I
believe it's going to be with the introduction of newer technologies,
and thisis where we do have a competitive edge over many of the
countries around the world.
ASSEMBLYMAN CROUCH: You commented
earlier that taxes is probably one of the bigger causes of businesses
shutting down~ And you're still with that comment, I would assume,
even though you didn't mention taxes.
UPSTATE CHAIRMAN GUNDERSEN: I don't·
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recall saying that directly. I said that the tax situation and the high
regulatory environment is a problem that we need to address.
I've said many a time that if you look at the costs for •
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doing business, in any given business the largest cost is going to be
labor, by far -- 50 percent. Followed by, oftentimes, facility costs.
Unless these are high manufacturers or industrial companies in which
the utility costs might be the next factor.
But for most businesses, it's labor, it's real estate, it is
utilities, and then taxes. But taxes are not the number-one driver for
the fact that businesses (a) do not choose New York or (b) leave New
York. It can be a contributing factor, but it's not the number-one
major factor.
ASSEMBLYMAN CROUCH: Appreciate your
opinionon that.
Recently, about three or four months ago, I attended a
forum that was well over 30 manufacturers in the same room. And
basically one of the biggest things that they talked about is they do get
hammered with some real estate tax, but one of the biggest things that
they were concerned-about is the lack of a strong energy policy for the
manufacturing community.
They've been getting some economic development
power. They'd prefer to talk about it as competitive power. They
need a five-year, six-year, seven-year plan that they can sign onto so
they can put their contracts out there and be able to reasonably be
assured that there are certain things that will not change drastically in
their cost structure of manufacturing, energy playing a very important
role in sOme of our Central New York State industries.
And they've advocated for competitive power -- they
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don't like to talk about it as cheap power, they want to talk about
competitive power -- but a good allocation of hydropower earmarked
for manufacturing.
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UPSTATE CHAIRMAN GUNDERSEN: Yes, we've
heard that as well and agree and have responded. Those subsidy
programs have a one-year extender for all the participants. During
this year we will develop new policies with NYPA and others to
determine how best to allocate the programs.
The new program, after the year period, will be for
seven years. And I believe what you were referencing the community
would reference as an "evergreen" policy, something that is
longer-term so that they have the confidence to invest, they know the
price is going to be steady. And that is exactly what is being proposed •
here, and we would hope for your support.
For those companies that during that one year, ifit's a
detennination that they ought not to continue in the program, there
would be a soft landing, if you will, a three-year phaseout.
But we 100 percent believe that we're in alignment
with the manufacturers and other businesses that say that this
year-to~year approach is not good business practice;
ASSEMBLYMAN CROUCH: Thank you for saying
that.
Your decertification process for certain companies in
Empire Zones that have not met their commitment, I've been
experienced with two or three different companies as they've chatted •
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with me. Some of the. reasons that they are not able to make their
projections is that there are certain segments of the economy that
flourish, and there are certain segments that -- sometimes there are
external factors that they can't meet their projections.
And in your decertification process you've indicated
that you will be, on a case-by-case basis, reviewing some of those
reasons. I'm glad to hear that it's not just a standard cookie-cutter
approach, because there are sometimes things beyond the company's
control that is a cause for why they couldn't make their projection in
jobs or whatever.
But given the fact that what they had to deal with,
'you know, they're lucky to stiJI have the same number of jobs there, or
within a certain bracket. So I applaud your comments about that
you're going to do it on a case-by-case basis. I think that's going to be
very, very important, this coming year especiaJIy.
Just one other thing -- well, two things, just very
quickly.
I want to make my case as a former member ofthe
agricultural community that we tried to develop accessibility for some
of the programs. For agriculture, oftentimes it doesn't quite fit the
formula, for whatever reason, and I think we need to pay attention to
that. Strong agricultural communities have been the economic engine
in a lot of rural areas in upstate New York.
The other thing is I mentioned that forum that I was
at. Basi'cally, to a person in that room they talked about the necessity
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of employee training, getting good people, being able to have access
to good people, whether a high school graduate or somebody coming
out of a two-year college program, but having training and the skills
that they need.
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And they need to have partnership with our economic
development people to develop those training programs, which are
oftentimes changing. The needs are oftentimes changing. So we need
to be constantly vigilant of that.
One of the things also that was mentioned, and I
know specifically ofone business that worked -- and it's no~ on your
watch, but they worked with Economic Development for a year and a
half to be able to access a grant for their equipment. Every time they
met with somebody, there was more questions. And had it not been
for the support of a local lending institution, they probably -- they may
not have still opened their doors at this point in time. But they've
opened, they're successful.
And I've heard that a couple of times, that Economic
Development is too slow. One business, as a matter of fact, was
expanding. I asked ifhe was utilizing some of the programs through
Economic Development. He said, "No, we don't have the luxury of
time. Because we have demand for our product, we need to go ahead
and not wait for the state to get their act together."
So I'm throwing that out for constructive criticism, if
you will. We need to pay attention to that.
And the manufacturing forum that I attended, one of •
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the biggest things they kept bringing back is "stop taxing us to death,
and get out of the way so we can do our job and grow our companies
and create jobs." So I'm going leave you with that thought.
And again, thank you for your time today.
UPSTATE CHAIRMAN GUNDERSEN: Thank
you. Just a very quick response to that. Obviously, we're listening to
the very same people.
And if there's one word to describe what you think is
needed, it's responsiveness. And that is exactly what we're doing, we
believe, with the new structures we have in place.
You mentioned agriculture. It is one of the largest if
not the largest industry upstate, and yet our programs have not been
friendly to that sector. And so we're looking at all of our programs
upside-down to see how we might be able to be of assistance.
The $50 million that's included in the billion-dollar
package for agri-bus will help with the food production and the
processing as well as the research of our agricultural assets throughout
upstate. And with energy that might be produced from agriculture
products.
But we need to have coordination, and I addressed
this in the opening remarks, that what is so different -- I think I
mentioned it was commonsensical and yet elusive -- is the fact that
we're working with other departments.
We will be hiring a director of ag-business. This is
the first time such an individual has been in place. Both
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Commissioner Hooker of Ag and Markets and myself are interviewing
candidates. That person will be within the upstate ESD organization
to help.
With regard to workforce, there too is a great need to
align what we do with the Department of Labor. And we're working
closely with Commissioner Smith, Pat Smith, to do this. But here too
it's good to have an advocate on the inside. And so for the first time,
ESD has a director of workforce development initiatives. This person
is helping the First Lady with the "I Live New York" outcomes but is
also helping businesses access training resources and better tying these
together.
On the responsiveness, in the third category you
mentioned about the overall business view of economic development
programs, we knew that on Day One, so to speak. And that's why we
set out to hire economic development professionals to lead our
regional offices. And if there is one thing that is expected of them
over anything else, it is that very principle, to be responsive.
And so we hope that you're beginning to see a change
all throughout the state in the level of service and delivery ofour
economic development programs.
Thank you.
CHAiRMAN FARRELL: Thank you.
Senator?
CHAIRMAN JOHNSON: Senator Thompson.
SENATOR THOMPSON: Thank you.
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First, let me just start by saying that I think it's very
good, the proposal, at least the concepts of the proposals that the
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Governor has put forward as relates to upstate New York, providing
economic stimulus for upstate. We are one state. We know that
upstate is losing people -- that's been clearly stated today -- and also is
losing jobs. But I think that is very important to note that it's very
good that the Governor has put a laser focus on the needs of upstate
New York.
Let me first start by asking the question of whether or
not ESD has assigned a person to work on the upcoming problem or
situation with the Buffalo Bills. Have you all looked at assigning a
person to work with the situation that's developing with the ability to
keep the Bills in Western New York? Or is that something that you
ought to look at doing as well?
UPSTATE CHAIRMAN GUNDERSEN: Both Ken
Schoetz and I have met with Ralph Wilson over the past year, and Ken
would be the point person within ESD to work with the organization
as we move forward. There is no question about our responsiveness
in that regard.
SENATOR THOMPSON: Thank you. As many of
you are aware, many of us are concerned. In the past, there was a
bipartisan effort to support efforts to renovate the stadium in the past.
And I think that this needs to be handled in a very critical and careful
way.
It would be not only an economic setback but an
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extreme psychological setback to the region to lose the Bills. And it's
something that we have to take extremely seriously. And I wanted to
emphasize that and hopefully remind you all -- Ken is the one, and
yourself, are minding that shop -- we really want to make sure that we
don't lose the Bills under any of our watch under any circumstances.
Just a couple ofother things that I think are
important. Assemblymember Schimminger earlier talked about a
board for upstate development.
I think that you should have one board throughout the
state, becau~e we are one state, and perhaps look at having an advisory
board that could impact on policy that's representative of business
interests throughout small businesses, big industry, academia for
upstate. I wanted to emphasize that. We should have one board for
all the state, but have an advisory board that can deal with downstate
issues and one that can deal with upstate issues and should be
reflective of the smaller businesses but also the bigger i"ndustries as
well.
I did also want to talk about Empire Zone reform and
IDA reform. I wanted to get some sense ofwhere you all are with that
initiative right now and will there be a program bill coming from the
Governor that deals with Empire Zone reform and also IDA reform.
UPSTATE CHAIRMAN GUNDERSEN: With
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regard to the IDA refonn, we are actively, within the administration --
ESD is part of those discussions looking at the changes that have been
proposed by both the Assembly and the Senate. We are very much in •
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support of more transparency and accountability in this whole process
and look forward to having an improved environment soon.
SENATOR THOMPSON: Do you anticipate
something coming forward the next 30 or 45 days or anything of that
nature? Or what's the -- what is the st~ategy that you all are looking at
right now?
UPSTATE CHAIRMAN GUNDERSEN: Well, this
one could be where we're talking weeks, not months, not years.
SENATOR THOMPSON: Great. Great. Many
groups are excited about that.
I also want to commend you aU on your efforts to
listen to many people upstate as relates to the brownfields
redevelopment. I'm not sure, before you put forward a final proposal
on IDA and on Empire Zones, if you would all consider having some
hearings or at least a hearing in a couple of the upstate cities on
Empire Zones and IDA reform so that at least people on both sides of
,
the issue will be able to weigh in on it. I don't think it has to be a
long, drawn-out process. But I think you could have a couple of
hearings, spend a couple of days.
I know that you've met with a number of interests, but
I think also a public process to give people a chance to come in on
both sides of the issue, weigh it on it, I think would be also something
that could be meaningful as you move during these last couple of
weeks. And ifyou all would consider that.
Just a last couple of questions for you, a couple of
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things that are important. I know that there's an amount of money
that's going to be allocated for upstate, and I hope that the whole
Legislature will get behind investing in upstate.
I didn't know if the Niagara Falls train station was
something that you all are looking at as part of the appropriations for
Western New York. That's something that's very important, the
Niagara Falls train station, in addition to the Niagara Falls airport. If
someone could get back to me on those two particular projects, that
would be extremely helpful. Unless you already have an answer for
that.
UPSTATE CHAIRMAN GUNDERSEN: Well, I
think some of the programs that we've proposed, it's conceivable that
an application could come from a municipality or an organization to
request funds that might be of assistance.
The way in which we approach this is competitive.
And if it has merit, then it might be a candidate.
SENATOR THOMPSON: Okay, two other things.
And I don't need a response now, if you could just get it back to me.
One is about the MWBE allocation, I think it's going
to be $\.5 minion in this budget proposal. l'd \ike to see that amount
increased. I don't think that is going to go far enough to assist some of
the most hard-to-serve groups and constituencies. I'd really like to see
that, as we move through this process, to get the administration's
assistance in trying to up that number. I think it's a good start, but we
really need to increase that amount.
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I wanted to get a response back on how do you all
envision accelerating the Empire Zone certification process. Many
businesspeople complain about that process taking too long. As you
all move forward with this issue, how do you all envision that process
being accelerated for businesses?
DOWNSTATE CHAIRMAN FOYE: Senator, the
certification process is actually largely done at the local level. One
thing that the leader of the Empire Zone initiative at ESDC has done
recently is training with the local Empire Zone certification and other
statT.
And we believe that greater communication, more
training .- we've had training spedfically focused on some of the
administrative and regulatory changes that we've just made. And I
think, frankly, better communication all around will ensure that there
aren't certification delays. And we're obviously very focused on doing
everything we can to make sure that doesn't occur.
SENATOR THOMPSON: I have a company, for
example, that's done some work in Buffalo, it's been waiting over II
months for a certification.
And I know that many of the local -- from fonnerly
sitting on the Empire Zone board before, you know, that the city
council approves it or the local town board approves it and then it
comes to the state. And that the businesspeople all -- you know, the
city sometimes will say it's in Albany's hands, and Albany will say it's
in the city's hands.
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The businesspeople just want to get the assistance
that they need. So if you all can work out that, come up with some
benchmarks on how long people should expect to wait so once that
time happens, then that's when people should know they can begin to
pamc.
The last thing just deals with the ability to expand
MWBE staff in some of the regional offices, like Buffalo. I wanted to
just get my last question on what's the strategy to increase that staff.
Right now there's one person i~ the Buffalo office who does like three
to four jobs beyond MWBE.
And I know that a lot of the focus is -- well, it
appears there's so much focus on New York City. But cities like
Rochester, Buffalo, Syracuse, and Albany also need resources for
MWBE initiatives. It should not stop at Westchester County. The
focus for MWBE needs to be a statewide focus, not just in Manhattan,
the Bronx, Brooklyn, Queens, Yonkers. We need resources and
projects and products committed to the upstate cities as well.
Because a lot of times you talk with state agencies
and they give you all those beautiful statistics, but 85 percent of the
goals are being met in Metro New York. And that's unfair to upstate
communities. And I get pounded at meetings when people say, "Well,
Antoine, what are you doing to make sure that these resources for
women businesses, for minority businesses, what are you doing to
make sure that happens in our part of the state, not just in Metro
New York?"
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MR. SCHICK: Senator, your point is well-taken.
And as I noted earlier, there is a plan to increase the staff during this
coming year, and I will work with Dan and Ken to make sure that we
deploy that staff most wisely in terms of covering the entire
geographic region of the state.
SENATOR THOMPSON: Thank you, sir.
CHAIRMAN FARRELL: Thank you.
Assemblyman Weprin.
ASSEMBLYMAN WEPRlN: Thank you,
Mr. Chairman. I'll try to be quick; it's been a long morning.
I want to compliment you gentleman on your
temperament and your ability not to rise to any bait today, or baiting,
as the case may be. And I really have been very impressed with that.
A couple of issues I want to bring up, one local, one
for me in particular. The 7 Train that was mentioned before, I want to
go the other direction on it and talk about Willets Point briefly. I don't
know what involvement ESDC has had on Willets Point, but for those
ofyou who don't know in the room and around the table, the Iron
Triangle, as it's called, is a rundown -- it's chop shops and other
businesses with no sewer systems underneath, and a real problem in
the area.
It's next door to another sporting location, Shea
Stadium, soon to be Citi Field, and really could become a real
economic engine for so many of the things we talked about, whether
it's tourism -- because although the World's Fair grounds people know
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as just the old World's Fair grounds, it's currently home to a lot of
huge cultural institutions in the area -. theaters, Queens Theater in the
Park, and the Hall of Science and the Queens Botanical Garden,
Queens Museum of Art and more. Underused. There's a zoo there
that's as nice as the Central Park Zoo that nobody goes to. It's really a
shame. And I think Willets Point could be a real turnkey moment to
help increase the tourism and the use of that area.
The Inner Harbor in Baltimore was a disaster area
before they really fixed that up, and now it has become a very big
tourist area, beautiful shopping area, restaurants.
What involvement has the state had in that? I know
the mayor has been pushing on it in the City of New York. I think it
could be a very big linchpin for the area and for a lot of economic
development activity in Queens.
DOWNSTATE CHAIRMAN FaYE: I agree with
your characterization. I grew up in Queens not far from Shea
Stadium, soon to be Citi Field.
Willets Point is primarily a city project. The city has
proposed to rezone the area, as you know. I agree with your
characterization that it could be an extraordinarily important both
economic development engine, given the location near Citi Field, near
the 7 Train, near the Long Island Railroad, the U.S. Open tennis
stadium, literally five minutes from LaGuardia and literally 60
seconds from the Van Wyck, the Cross Island, Grand Central
Parkway, et cetera.
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And we've been working with the city. As I said, it's
primarily a city project and could have a huge benefit on that part of
Queens.
MR. SCHICK: May I just add one thing?
ASSEMBLYMAN WEPRIN: Sure, Mr. Schick.
MR. SCHICK: With respect to Willets Point proper,
as Pat pointed out, it's largely a city-driven effort. Butwith respect to
the redevelopment of Shea, the state has invested $74 million to make
it happen.
Obviously, you're familiar with the area. You know,
the new Citi Field is going to have an entrance onto Willets Point to
get into, so they're anticipating redevelopment there. And I think the
state, with $74 million, is helping make that possible.
ASSEMBLYMAN WEPRIN: I'm aware of that, and
I wasn't being critical ofyour investment in the past. But I do think
you don't want to drop the -- you want to do whatever you can to help
bring the ball across the goal there.
And 126th Street, which divides Willets Point and
Shea Stadium -- Rob is -- we're driving him crazy with local
references. But 126th Street can really be turned into a pedestrian
thoroughfare on game days. It really could be a great area.
Currently, there's nothing to do before or after a game
or a tennis match in that area. And it really needs-- it's a long walk to
get to anywhere else, and I think it could really bring a lot of
communities together, Flushing and Corona and the whole area.
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But let me switch gears for a second, since Chairman
Foye mentioned before that I'd be raising the idea of small businesses.
All this talk about manufacturing jobs leaving is happening, and these
big businesses. And talking about keeping the Bills is a very
important part of economic development in this state.
But one thing we have to do is sow the seeds for the
future. And currently, across this state, there are small businesses
being set up, ideas, people alone, microbusinesses, less than five
people -- someone with an idea and a computer, a product or a service
that they have, and all they need is the assistance to sort of get that
business going and to grow into what the Governor used to always
talk about, where the next iPod is coming from.
And these businesses are often ignored and have been
ignored in the past by not having people specifically working on
small-business issues. And we were a little disappointed in the budget
to see the Entrepreneurial Assistance Program, EAP, was cut by
$800,000, the CDFI programs were cut. And I know last year we sat
here and you talked about EAPs and how successful you believe they
are. I think those are important financial resources and other things
for businesses.
In addition -- and I'll make it a long question, and I'll
let you answer and we'll be done -- I had a bill last year, Assembly
2766, which established a microenterprise business outreach center
network. Business outreach centers have been very successful in New
York City, especially where we have a lot ofnew immigrants, a lot of
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minority- and women-owned businesses, where people didn't know
where to go, they didn't know where to tum to get a business plan, to
get funding, to do advertising that Senator Perkins talked about before.
And local businesses, sort of working together through these
networks, are able to help build these businesses and tum them into
very successful businesses.
And the success stories are inspiring, and J think we
can continue and continue to grow businesses throughout the state by
putting some focus onto these small businesses. And.
I know you have talked a lot to me privately about
small businesses. I'd like to hear publicly what's being done.
DOWNSTATE CHAIRMAN FOYE: Small
businesses are extraordinarily important. Fully over 50 percent of the
businesses in the state are small businesses, you know, commonly
defined as 50 or fewer or 100 or fewer employees.
Let's begin with Empire Zones, which as we've noted
a number oftimes during this hearing is the largest economic
development program that we have. About.90 percent of the
participating companies in the Empire Zone program are themselves
smal1 businesses.
Looking at the downstate economic development
projects that we announced during the year, and that's about 70
projects just in the downstate area, 28 of those projects are small
businesses with 100 or fewer employees. So not quite half, but
roughly half. One.
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Two, the major initiative that Dan and I have pursued
this year that has and will continue to benefit small businesses is the
signi ficant investment in personnel and resources that we've made in
regional offices. Our regional offices, especially for small businesses,
are going to be the primary contact of small-business men and women
with ESDC and our programs and the things that we can do.
And I think by both upgrading the men and women
who run the regional offices -- and almost all of those senior staffing
changes at the regional offices have been made -- and by focusing
attention on the regional offices and small businesses, I think that
we've already made significant headway. And there's much more that
we can do as those new leaders mature in their new roles.
Beyond that, one thing that we've been doing is
making sure that small businesses thought the state, upstate and
downstate, are focused on the things that ESD and our sister agencies
in state government can do to assist small agencies. And that
educational and technical assistance process will continue. So both
Dan and I have done, in our respective regions, small business forums.
I last did one about a month ago with Senator Smith in Jamaica,
Queens. Dan has done a number of those in the upstate area. And
we're going to continue to do that.
I think one piece that we're very focused on is getting
the resources to upgrade our website, which has been upgraded in the
travel and tourism area but still needs work in the basic ESD website .
And r think that what we want to do is to be able to make contacting
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and dealing with the ESD as simple as possible for small business
people who are engaged in the struggle to make payroll and keep the
business moving forward. And that by having more robust online
resources, we'lJ be able to do that.
The other thing we've done internally is to simplify
some of our application fonns to move closer to a universal fonn that
will cover aU our programs, to streamline the application process.
And that work will continue.
Frankly, the other thing we've been doing in the
downstate region is taking advantage of the experience and success of
the New York City Small Business Service, where I think the city
does a dramatically better job than the city government did five or six
years ago. And I think we've learned much from Bob Walsh and his
colleagues and are in the process of putting that to work.
UPSTATE CHAIRMAN GUNDERSEN: Just a
footnote to that -- Pat covered all of the bases -- which is a shared
interest. Those businesses with fewer than a hundred employees
represent 98.2 percent ofalJ businesses in New York.
So clearly this is something that Pat and I are intently
focused on, as is the Governor and the billion-doHar fund for upstate.
. As he said in the State of the Upstate, his goal is to create the best
business loan program in the country. And so some of the resources
will go toward that.
And clearly, as we're developing this, this going to
have a statewide benefit, as we look to see how it can be replicated in
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all areas.
MR. SCHICK: Ifl could just expand brieflyon
something Pat mentioned with respect to the website, one of the things
that we're hoping to do going forward for small businesses is not
merely to have our website be simpler to navigate and have more
infonnation about ESDC programs but, frankly, to build what we
think small businesses need, which is one-stop shopping for their
entire relationship with the state.
Right now, if you're a small business with few
resources, you don't have the time or necessarily the ability to
navigate, you know, the Department of Labor, the Department of
Taxation and Finance, Banking, Insurance. There are probably a
dozen or more, perhaps, agencies or forums that you need. '
What we want to do is build a single portal where
•
businesses can go and find what they need, not only from ESDC but
from the entire scope of state government.
You know, the city has been very successful with
31 I, building both a website and a phone system where people can
access city government. And what we want to do is to have a 311 for
small businesses statewide so that we dramatically decrease the
burden on them of complying with the regulations and accessing the
resources and the approvals that they need.
ASSEMBLYMAN WEPRIN: That's great. We have
talked about that, and I really think that would make a lot of sense.
Let me just go back, because a couple of things I
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mentioned weren't addressed. The Entrepreneurial Assistance
Program and CDFIs, what was the thinking in those cuts? Because we
had talked last year, and I thought we were all loving each other.
MR. SCHICK: I do think that we have the ability.
EAP has been successful. Last year it served about 1200 budding or
fledgling entrepreneurs.
We do have the flexibility from our other economic
development funding to increase the funding to both EAP and CDFI.
So I think to the extent we see the demand for the program and the
cal1 to pull on the dollars we've invested, wedo have the flexibility
intemaJly to add to it through some of the other funding pots that exist
at ESDC.
So I think -- and the cuts in these programs are
relatively minor compared to the scope of the larger programs. So
should we need, you know, the additional half a million or so dollars,
whatever it is, it's available.
I mean, as both Pat and Dan noted, with respect to
our core great amountofprograms, our EDF money. probably the
largest part of that money goes in one fonn or another to small·
businesses. SoJ think we agree with your assessment, Assemblyman,
of the value of these programs, and we do have the flexibility to
increase the funding ifneeded.
ASSEMBLYMAN WEPRIN: Terrjfic. Thank you.
CHAIRMAN FARRELL: Thank you very much.
Have a good day.
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.JOINT BUDGET HEARING - ECO. DEV.lTAXES FEBRUARY 11,2008
DOWNSTATE CHAIRMAN FaYE: Thank you,
UPSTATE CHAIRMAN GUNDERSEN: Thank
you; appreciate it.
CHAIRMAN FARRELL: We are two hours and 20
minutes late, but that's no big thing for us. We will come back in 10
minutes and start again. Next to testify will be the New York State
Department of Taxation and Finance.
(Brief recess taken.)
CHAIRMAN FARRELL: Good afternoon. New
York State Department of Taxation and Finance, Robert Megna,
commissioner.
You were supposed to testify in the morning.
COMMISSlONER MEGNA: That's okay, •
Mr. Chairman. It's morning in some parts of the world.
Chairman Johnson, Chairman Farrell, and members
of the committee, I'm Bob Megna, commissioner of the State
Department of Tax and Finance. On behalf of Governor Spitzer and
the department's dedicated employees, it's an honor to appear before
you today to present the 2008-2009 tax expenditure report and discuss
other important Tax Department matters.
Joining me are members of the department's
executive staff, including Jamie Woodward, the deputy commissioner
for processing and taxpayer services; Robert Plattner, deputy
commissioner for tax policy analysis; William Comisky, deputy •
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commissioner for tax enforcement; and Daniel Smirlock, deputy
commissioner and counsel.
Let me just say I think this is one of the strongest
management teams in the state. It is a pleasure to go to work each day
because of them.
Let me just take a moment to thank someone who is
not here, fonner Acting Commissioner Barbara Billet. Barbara was a
wonderful public ~ervant who recently retired. She made a huge
contribution to state government in general and the Tax Department in
particular, and certainly made my job easier coming into the Tax
,
Department.
With respect to the tax expenditure report, I would .
like to point the members of the committee to the section on the
history and application of economic development- related tax credits.
I know that was an issue that got a lot of discussion this morning. I
think it provides useful historical context and data for understanding
the rapid growth in the use of those instruments.
Now I would like to continue by discussing two items
I know of are of interest to the members of the joint legislative
committee. The first is STAR.
As you are all aware, the department recently
completed the task of implementing the 2007 Middle-Class STAR
Rebate Program enacted as part of last year's budget, the largest real
property tax cut program in the history of the state, that resulted in the
department issuing about 3 million property tax rebate checks to
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qualified New York homeowners.
1 would again like to thank my prede~essor,
Commissioner Billet, who worked closely with the Office of Real
Property Tax Services, for the work she did deploying necessary staff
and resources needed for this program at breakneck speed.
The results are impressive. We issued close to
2.3 million basic STAR checks, representing a value of almost
$889 million in rebates to taxpayers. We issued 634,000 enhanced
STAR checks, with a total value of $207 million. On average, the
department issued basic STAR checks within 16 days of receipt of an
online application and 32 days of receipt of paper applications.
Importantly for us, and I think for members of the
joint committee, almost 75 percent of all applications have come to us
over the Internet, using our secure online application. The heavy use
of the Internet has come as a very positive development, as we plan to
build much of our future interactions with taxpayers on our web-based
technology as a means of providing the best taxpayer service possible.
We have an attachment which shows -- I think which
you can look at at your leisure -- which shows the application rates
and the amounts of STAR issued by county. And I know folks have
had a particular interest in the countywide distribution of the checks,
so that is there for folks to see.
rknow that a second item of particular interest to the
Legislature is the collection of sales and excise taxes on cigarettes and
motor fuels sold on Indian reservations. On Indian cigarette and fuels
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Petroleum industry distributors would then pay one
state tax rate, comply with one tax base, and file only one monthly tax
return for motor fuels. That's instead of three right now.
Similarly, motor-fuel retailers would file one
quarterly local tax return and report taxable gallons at one fixed rate in
each county and New York City.
This proposal is part of a broader effort to streamline
the reporting of New York State taxes, ease the compliance burden for
taxpayers and, as always, diminish opportunities for tax evasion.
Another important proposal in the Executive Budget
dealing with revenue, the Executive Budget contains legislation to
. enhance sales tax collections by out-of-state retail businesses over the
Internet. (t does not impose a new tax.
Sales tax and the compensating use tax, as everyone
here knows, have been in existence since 1965. Products sold to
New Yorkers by out-of-state retailers have always been subject to
sales tax. However, some out-of-state retailers refuse to collect the
sales tax. This gives unregistered, out-of-state retailers an unfair
competitive price advantage over in-state retailers.
This legislation proposes to close this compliance
loophole and provide a level playing field between large out-of-state
retailers and New York's own main-street retail businesses. The
proposal provides a clear standard for sellers doing business over the
Internet and their obligation to register as New York sales tax vendors
and collect state and local sales tax when they use commissioned sales
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sales tax collections, it is important to point out that we are currently
enjoined by the courts from enforcing the applicable Tax Law
provisions. As we at Tax and the Governor's special counsel assigned
to this issue proceed with ongoing negotiations, we will keep your
committees informed. The administration is working hard'to reach a
reasonable solution with Native Americans on this complex issue.
Let me move on and talk about a few budget issues,
because there was a significant amount of revenue-related material
included in the Governor's Executive Budget. The proposals are
designed to increase property tax relief for seniors, eliminate tax
loopholes, promote tax fairness, simplify the tax code and provide the
department the necessary tools to more effectively curtail fraudulent
tax practices. Let me just mention a few of the notable proposals.
One significant proposal would fundamentally reform
New York State's method oftaxing motor fuel and diesel motor fuel.
The current tax system imposes multiple taxes on a gallon of fuel and
requires taxpayers such as fuel distributors to complete multiple tax
returns.
We plan to combine the motor fuel excise tax, the
petroJeum business tax and sales tax into one per-gallon excise tax on
motor fuels. The counties and New York City would then impose a
local excise tax on motor fuels at a fixed per-gallon rate. This local
tax is intended to preserve current local sales tax revenues from the
sale of motor fuels, as the local sales tax on these fuels would be
eliminated with this legislation.
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representatives located in New York State.
On another matter which I know is important to
members of the committee, the Brownfield Cleanup Program has been
the subject of refonn discussions since it was discovered that a
majority of the benefits from the current program do not go to pay for
remediation. Rather, the majority of the payments appear to go to real
estate developers who perfonned relatively little site remediation.
Further, many of these sites are located in areas where it is likely they
would have been redeveloped in the absence of tax credits.
This year's Executive Budget contains two
alternatives for brownfield reform that would allow the state to better
control costs associated with the credits as welJ as promote better
cleanups. The first proposal places a cap on the tangible property
component of the redevelopment credit, regulates transfers of
certificates of completion, and gives the Department of Environmental
Conservation more administrative control over the program.
The second, more comprehensive proposal contains
provisions similar to the first but goes further by establishing new
separate rates for the site preparation, groundwater remediation, and
tangible property components of the redevelopment credit, and
requires an annual report of taxpayers claiming the credits.
Regardless of which alternative is enacted, the state's
Brownfield Cleanup Program will still be among the most generous
remediation pr:ograms in the nation.
Also in the Executive Budget it is proposed that New
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York follow the lead of other states with regard to the taxation of
out-of-state credit card companies. The budget provides that these
companies will be subject to New York taxation under Article 32 of
the Tax Law -- that's the bank tax -- when their operations in the state
go beyond mere presence and exceed certain receipts and/or customer
thresholds.
I think I'll skip ahead a little bit, in the effort 0 f time,
and move on to some other issues.
We're in the midst, as most of the members know, of
the perso~al income tax season. Our call center is fielding about
7,000 agent-assisted telephone calls every day. Since the beginning of
year, we have processed over 1. I million personal income tax returns.
When the tax season ends, we expect to have processed 10.3 million
personal, corporate and miscellaneous income tax returns. To date,
we have sent out over 350,000 refunds totaling close to $297 million.
Refunds should reach $1.5 billion by the close of the fiscal year.
We expect that 5.4 million of our tax returns will be
e-filed this year, or ab.out 48 percent of the total. Another attachment
on the testimony includes a chart which shows the growth ofe-filing
over time, which again some of the members might find interesting to
look at at some point.
Our e-file program for corporate tax filers was
recognized with the Rockefeller Institute of Government's Best
Practices Award. Many corporations took advantage of this new
capability and significant growth is expected in this ~ling season.
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Electronically filed returns are much less costly to process as
compared to traditional paper filings.
We continue to enhance and improve service delivery
in returns processing, taxpayer guidance, and collections. Our
e-MPlRE program is the new custom-designed integrated tax system
being developed by the department to replace all major tax processing
systems currently in use. When fully implemented, the system will
provide a single, more efficient method for capturing, storing and
retrieving taxpayer data.
A very important new project which we're very
interested in at the Tax Department is called Enterprise
Communications. This newly created office is responsible for
clear-language taxpayer communication such as correspondence, bills,
forms and publications, and simple how-to guides, as well as
overhauling the content, navigations and intuitiveness of our public
Internet site.
This initiative creates the opportunity to
communicate with individual taxpayers in a simple, straightforward
way. Obviously, one of the things people complain most about in
dealing with taxes is it's sometimes very complicated to read through
the instructions on the forms. And what we're trying to do is to
simplify that process.
We've strengthened our audit and enforcement
programs and hope to reach a record $3 billion in audit production this
fiscal year. This achievement is related in large part to meeting the
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department's strategic goal of administering the law so that all
taxpayers voluntarily pay the right amount of tax at the right time.
Again, there's a third attachment which shows the
pretty rapid increase in audit collections that have been experienced
over the past six years. And again, it's something I think you can look
at at your leisure.
The department's 2007·2009 strategic plan
established a multifaceted framework to increase taxpayer compliance
through a variety of actions, including increased and coordinated
criminal and civil enforcement activity, technological solutions, and
targeted taxpayer education initiatives.
Importantly, part of the budget that we'll talk about
very briefly now, we have submitted a multipronged proposal, the Tax
Enforcement and Compliance Initiative of2008, to generate revenues
and increase voluntary compliance now and in the future.
Speaking of compliance, the department continuously
strives to strengthen fraud-fighting capabilities, curtail evasion, deter
abuse, and instill greater confidence in our tax system. The primary
focus of this enforcement strategy is on those who attempt to cheat,
defraud or otherwise avoid paying taxes that they have a responsibility
to pay. We want taxpayers and tax practitioners to know that tax
fraud and illegal activity will not be tolerated.
Thanks for the opportunity to appear before the panel
today. I'll be happy to answer your questions and invite you to follow
up with me or my staff on any matter concerning the Tax Department.
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CHAIRMAN FARRELL: Thank you very much,
Commissioner.
Question, Assemblyman Hayes.
ASSEMBLYMAN HAYES: Thankyou very much.
Commissioner, earlier this morning -. and I think just
about everybody at the State Capitol read about the Governor's
proposed 2] -day amendments that are going to predict an enormous
drop in revenue just three weeks after his submission of the budget.
I want to ask you for your pledge this day that
personal income tax refunds will not be held up as a result of that drop
in income to the state. Can we have your pledge on that?
COMMISSIONER MEGNA: Well, you can. And
there's a good reason as well. As.
You probably are well aware, the way the financial
plan of the state is established, we have set a target to pay $1.5 billion
in refunds by March 31st. We will hit that goal. And after that, again,
the law currently states that we have to get refunds out in a timely
fashion or we will have to pay interest on those refunds. So we are
committed to getting those refunds out in as timely a fashion as we
can.
ASSEMBLYMAN HAYES: Thank you very much.
Another question involves the STAR program. I
want to say a special word of thanks to your legislative liaison and the
people in your office who did a tremendous amount ofwork over the
past several months and received lots of phone calls from my office,
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and I'm sure from other colleagues who had questions on behalf of
their constituents, trying to chase down STAR rebate checks. You did
a great job of being positive to us in that effort, and I appreciate that.
In Erie County, 93 percent ofeligible homeowners
did receive a check as part of the Middle-Class STAR Rebate
Program. But 93 percent, while thatls a good number, means
7 percent of the people did not.
And given the change in the legislation this year, with
the new system, I'm concerned about where the money that did not go
into the pockets of the property taxpayers -- what is that total amount,
is there an estimate of the total amount, and where is that going to be
spent? Does that just get transferred and swept into the Genera] 0
Fund?
COMMISSIONER MEGNA: Actually, as it turns
out, I think we ended up, on the basic STAR rebate program, actually
spendinga little bit more than what was originally estimated.
And how do those two things go together, I think.
what happened was 93 percent -- I think thafs exactly right -- of folks
that were eligible to apply, applied. I think therels always a small
expectation that some proportion ofeligible taxpayers that are eligible
for a program won't apply.
I think when the original STAR program was put in
place, foOr example, I think through the first two or three years of the
program we were significantly below a 90 percent participation rate.
So a 93 percent participation rate is actually very good.
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Then the second part of that, of how we got to
actually hitting the number and going a little bit above what was
expected, is that the average payout was actually a little bit higher
than what we anticipated.
And so in the end, I think: the number that I
mentioned in the beginning for the basic STAR payout, which was
about $889 miJJion, was pretty close to what was expected when the
budget was put together last year.
ASSEMBLYMAN HAYES: But I'm talking
.' specificaJly about the rebate check. So what happened prior to
Governor Spitzer's proposal last year to tie it to a means test, the
checks went out to everyone, there was no application process that
was necessary. If you had already applied and were receiving the
underlying basic STAR exemption, you automatically received a
rebate check.
And lots ofconstituents told us they liked that. They
didn't have to fiJI out anotherfonn, they didn't have'to go through
more bureaucracy to get that rebate check.
This year, that didn't happen. And 7 percent of the
people in my county didn't get a check. So we know what happens
when we complicate the process with an application and with more
bureaucracy. So I'm just wondering, even though the tax rates may
have been different, there's 7 percent of the people out there that didn't
get it because they couldn't fiJI out the form or they found it difficult
to fill out the form or there was bureaucratic red tape or whatever it
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was, 7 percent less homeowners received a check this year than last
year.
I would ask you to just keep an eye on that in the
future, and if there are ways for us to streamline that program to get to
100 percent participation, that should be our shared goal.
Finally, I want to ask you a question about the motor
fuel tax merger that you spoke about in your testimony. I'm a little bit
confused, so I hope you can help me straighten this out.
You know that the Legislature, back in 2006, capped
the sales tax on gasol ine at $2 per gallon, the underlying- figure _0 f $2
per gallon. Now the Governor proposes, in the name of simplifying
the taxes that are collected on motor fuel, something that will generate
$13.2 million in additional sales tax revenue to the state this year and
a whopping $55.9 million in fiscal year 2009-20 IO.
Now, in the name of simplification, you're telling me
that the state is anticipating collecting $13 million more in sales tax
revenue on gasoline this year and $55 million, almost $56 million in
the following fiscal year. How is that possible if it's not avoiding the
cap that the Legislature put on gasoline sales tax?
COMMISSIONER MEGNA: It's an excellent
question. I think I'll try to be as concise as I can in the answer.
You're absolutely correct, two years ago the
Legislature imposed a cap on the sales tax portion of tax on motor fuel
at $2, wh ich ends up beingS cents per gallon ofstate tax at the
4 percent rate. The state also imposes two other taxes on motor fuel:
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The petroleum business tax, which is over 14 cents per gallon
currently, and also an 8-cent excise tax. So there's three taxes
imposed on motorfuel, the capped sales tax portion and those other
two pieces.
The PBT piece, the 14-cent piece, is indexed in
current law. That was done many years ago. It's indexed to petroleum
prices. It can increase or decrease by no more than 5 percent in a
given year, and it's capped.
What was done in this proposal was to take all three
taxes -. the sales tax component piece, the motor fuel component
piece, and the petroleum business tax piece -- and collapse them into a
single tax under the petroleum business tax, and to keep the indexing
component.
So the indexing component, the $13 million that
you're talking about and the $45 million number or thereabouts for
next year, is based on that indexing piece. The expectation -- and it's
just that, within the budget -- the expectation based on current fuel
prices is that the index will increase next January, that extra 5 percent
will generate the $l3milJion in the last three months of2008-2009
and then the additional revenue in the year after that.
That forecast could be wrong. For example; this
January the index that is tied to PBT actually decreased, and so
actually the PBT rate actually went down.
But to answer your question, the way that that extra
revenue is generated is by applying that indexing piece that's in the
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current petroleum business tax to the combined tax.
ASSEMBLYMAN HAYES: So again, just how does
that combination of those three mechanisms not run counter to what
the Legislature did in 2006 in capping the sales tax portion of that tax
at $2 if they all will be combined now and they all will be indexed?
COMMISSIONER MEGNA: Well, again, I think the
feeling was that the indexing was an efficient -- that it already applied
to the bulk of how the tax was applied or at least to half of it, and that
the index can both go up and go down. And so that there were years
in the recent past where the index actually went down.
I think that was the logic that was applied, but I
understand your concern about the sales tax piece.
ASSEMBLYMAN HAYES: Just so we're clear, this
proposal, if enacted, will undo the 2006 cap that the Legislature put on
the sales tax portion of gasoline?
COMMISSIONER MEGNA: Well, it eliminates the
sales tax on gasoline. This proposal actually eliminates the sales tax
on gasoline and moves it into the petroleum business tax. But I
understand your point.
ASSEMBLYMAN HAYES: Right. And I'm not
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trying to be cute --
COMMISSIONER MEGNA: I'm not either.
ASSEMBLYMAN HAYES: -- I'm just trying to
make sure we understand very carefully about what's happening here.
By combining those three, that is undoing what the •
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Legislature did in tenns of capping the sales tax, the state portion of
the sales tax at $2 per gallon. That's correct?
COMMISSIONER MEGNA: Again, I'm not trying
to be cute either, Mr. Hayes. I think that technicaJly we're eliminating
the tax, combining it into a single tax that is indexed. So can that
portion of the 8 cents actually increase? Yes, it can.
ASSEMBLYMAN HAYES: Okay. And in addition,
since you're projecting a dramatic increase in the amount of tax
collected coming into the General Fund of the state --$13 million
more this year and $56 million next year -- that means people who use
petroleum products are going to pay higher taxes to the State of New
York as a result of that.
. How does that reconcile with the Governor's pledge
not to raise taxes in the budget this year?
COMMISSIONER MEGNA: Again, I would say two
things. One, while that is a lot of money, and it's an estimate that.
folks will have to pay a little bit more on those, the base of the motor
fuel tax under these three components that folks are paying now is
well over a billion dollars. And so these are very, very small marginal
increases.
And the second thing I would say -- and more
important, because I used to be in the estimating business -- is that this
is based on an estimate that petroleum taxes will go up next year.
They could actually go down, in which case taxpayers could actually
see a cut.
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ASSEMBLYMAN HAYES: Right. And I don't
think anybody expects that to happen. I don't think anybody expects
New Yorkers to be paying less at the pump, because of what the past
history of the Legislature has been in enacting these taxes.
However, one of the real concerns that I have is that
on the other side of the balance ledger we're hearing from the
Thruway Authority that the behavior ofmotorists is such, with higher
gasoline prices, that they're actually driving less. And the Thruway
Authority has made the argument that the need for higher tolls is
because of less revenue because people are driving less.
So here you are raising the tax on a consumption --
you know, raising the consumption tax or indexing it for future
increase on a commodity that people are using less of because of the
high price. Will we be looking next year at a budget hole because of
the way that you've gone about this in such a circuitous way to not
, .
only avoid the cap that the Legislature put on in 2006 but also, given-
what the economics are of families who are pinched at the gas pump
and are having to pay higher and higher taxes and so may be driving
less?
COMMISSIONER MEGNA: Again, certainly the
effort here was to refonn the structure. And folks thought that one of
the best ways to do that was to apply the index.
Again, another point that I would make -- although I
understand the points that you're making. The only other point I
would make is the 14.5-cent paT portion and the excise-tax portion, •
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all of the funds from those portions of the tax go back into the
highway system. They're dedicated to transportation funds within the·
state. Most of them are dedicated to then financing bonding for
capital improvements.
So while if the index does go up, drivers would have
to pay more, the overwhelming majority of those extra dollars would
go directly back into the transportation system.
ASSEMBLYMAN HAYES: Final question on
personal income tax, can you give me an estimate, a date specific by
which taxpayers who pay their income tax on April 15th or who file
their income tax on April 15th can expect to get their refund check,
those that are looking for a refund? How long will it take if they file
on April 15th?
COMMISSIONER MEGNA: I think if you file on
April 15th, we're pretty good. Jamie Woodward, who handles the
processing side of stuff, says by June 1st, folks who file on April 15th.
Though I think folks would even -- many would get them before that.
ASSEMBLYMAN HA YES: Thank you.
CHAIRMAN FARRELL: !hank you.
Robin Schimminger.
ASSEMBLYMAN SCHIMMINGER:
Commissioner, congratulations on your recent appointment. It's good
to see a one-time former long-ago Ways and Means staffer rising to
this high level of responsibiiity in our state. Congratulations.
COMMISSIONER MEGNA: Thank you.
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ASSEMBL¥MAN SCHIMMINGER: Mr. Hayes
asked about some broad taxes, gasoline and others -- gasoline tax paid
by a whole lot of people in upstate New York in particular.
I wanted to ask about one or two other taxes that
aren't paid by a whole of lot of people. And I guess in the eyes of one
fellow over in the Capitol, maybe that makes them not taxes if a lot of
people don't pay them.
But in particular, the aircraft tax is of concern to me,
and the proposal that this budget makes in regard to it. In 2004,
Senator Larkin and I and others worked to provide sales tax relief for
the maintenance and repair of aircraft that goes on general aviation
aircraft -- not the United or American, but smaller aircraft -- sales tax
relief for maintenance and repair services that occur on those planes
when they are in New York.
Aircraft, by their nature, can move around. And
other states have been reducing their sales taxes so as to encourage
that work be done in those states, and the work was done if those
states. New York State got smart in 2004, gave tax relief, the
servicing came back.
Coincidentally, this year is the year that Senator
Larkin and I are attempting to get sales tax relief for the purchase of
such aircraft. But then we saw the budget. And the budget proposes a
recapture of some of the benefit that we gave in 2004 for the sales and
maintenance of these aircraft.
Tell me what is the thinking behind this proposal.
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And do you not concur with me that this will drive this work back out
of New York State? Or are you one of those, as is the case with the
gentleman from Westchester who sat at the end of the table earlier,
who opined that higher taxes mean healthier economies?
COMMISSIONER MEGNA: On this specific issue,
I think the attempt was not to retrench from what was done in the past.
And, you know, ifwe've moved in that direction or aren't
understanding the implications of it correctly, we'll certainly go back
and look at it.
But the attempt here, I think, was to look at folks --
there's a commercial -- and again, counsel will correct me where I'm
wrong here -- there's a commercial sales tax exemption for aircraft
already in place in New York, and then we've put the repair piece in
place.
What we've noticed is happening, however, is that
companies are occasionally placing planes that they are purchasing for
their own corporate use in a separate subsidiary, which they are
calling a commercial aircraft company, and then purchasing the plane
tax-free and using it inNew York and largely just carrying their
employees on the plane.
I think we thought, while we don't want to go back on
the positive things that were done, I think people thought that that
was, you know, stretching the intent of what the commercial aircraft
exemption was intended to do, and that we should try to eliminate that
opportunity. I think that's all we're trying to accomplish with this.
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And again, that may be too much for what the
committee members think. But it wasn't an attempt to go back or to
remove any benefit that was in current law, it was to eliminate this
opportunity to avoid tax that we believe that tax was never intended.
ASSEMBLYMAN SCHIMMINGER: A question
about another proposed tax expansion. The Economic Development
Committee, which J chair, has oversight responsibility in regard to the
ABC law, Alcoholic Beverage Control. And we have in New York a
very nice structure, a three-tier system, and we have a segregation of
products. We have beer products, which come about as a result of
fennentation, we have liquor products, which come about as a result
of distillation.
There is a product, the FMB product, fennented malt
beverage product, which -- flavored malt beverage product, which is
also fennented. This product has no more than a 7 percent alcohol
content. It's a beer. I consider it to be a beer, a malt product.
But yet in the budget proposal, the proposal is made
to tax this as though it were a hard liquor. Can you speak to this
dramatic change in how we handle an alcoholic beverage taxwise?
COMMISSIONER MEGNA: Again, I would ask
Dan to get into the specifics of the definitions. And if you want that, I
think we can do it.
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But J think the attempt was that this was seen as
something that didn't fit nicely within the three categories. And
people, after looking at it closely over a period of time, thought that it •
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was more appropriate because of the mix of -- I'm certainly not an
expert on this, but because of the mix ofalcohol content and where
that alcohol came from, that this could be -- this product should be
taxed more like an alcohol product and less like a beer product.
We can spend time talking about the definitions and
how they work, and we're certainly open to talking to folks. And we
know that the industry has come back with issues on this, and we're
talking to them about it. So we're certainly open to continuing that
discussion.
ASSEMBLYMAN SCHIMMfNGER: And in those
conversations I'm sure you will hearthat New York would be the only
state to tax this product at this higher level, and that federal
regulations describe flavored malt beverages as not being liquor or
distilled products.
Thank you.
CHAIRMAN FARRELL: Thank you very much.
Mr. Aubry, Assemblyman Aubry.
ASSEMBLYMAN AUBRY: Good afternoon,
Commissioner.
My line of questioning follows the proposal that we
saw to levy a tax on drugs. Illegal drugs, I presume. And I wondered,
one, how you came to the conclusion that this was a policy that we
ought to follow. Would you describe that? And then we'll get into the
specifics.
COMMISSIONER MEGNA: Well, again, I think
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one of the things we have been trying to do is look at what other states
have been doing with respect to how they tax certain products. And I
think our research showed us that somewhere betwJen 25 and 29
other states impose some form of tax on illegal drug sales.
We looked specifically, lean tell you, at the North
Carolina experience, where theyseem to have raised a relatively large
amount of money from a system pretty similar to the one that we've
proposed here in New York. And I think that's more or less the
genesis of the proposal.
ASSEMBLYMAN AUBRY: Did you have
conversations with the criminal justice agencies within the state before
you proposed this?
COMMISSIONER MEGNA: I think we had some
preliminary discussions with them about this. I was not at the Tax
Department, actually, when that happened, but I think we have had
some discussions. But I can certainly check and find out specifically
if we have.
ASSEMBLYMAN AUBRY: Yeah, I'd be
particularly interested in that.
And I raise that particularly in regard to the amount
of money that we're expending to assist individuals in reentry and to
help them manage to reestablish their lives. At least my
understanding is this particular component would add another
financial hit on individuals who relatively don't have money.
I also would like to know how this is done in
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relationship to the forfeiture laws that we already use to divest
individuals who are arrested in drugs ofpropertYt houses t money.
And so how does this relate to that?
COMMISSIONER MEGNA: Now I am going to
tum to the counsel, who hopefully can answer that question, Bill
Comisky.
DEP. COMM. COMISKY: Forfeiture would attach
the proceeds or substituted proceeds or profits of the criminal
enterprise. This would be a tax on the transactiont just as there are
taxes on other products. It would be in addition to the forfeiture
dollars.
ASSEMBLYMAN AUBRY: And one assumes that
there's money available after forfeiture?
DEP. COMM. COMISKY: I think that's the concept,
yes.
ASSEMBLYMAN AUBRY: And what would lead
you to that assumption? I mean, did we do a study to determine that
somebody who gets busted in the streets of New York for holding a .
little marijuana is going to have enough resources after he gets out of
jail to burden this plus the fees that he has to pay the court?
I'm only trying to understand the impact that you're
trying to create. If you're creating another class of individuals who
can't escape the process and have to go back out and sell drugs, then
you're costing us money as opposed to saving us money.
COMMISSIONER MEGNA: Right. Well, again,
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we'll go back and certainly see if we have talked to law enforcement
folks and what they have said to us.
Again, we did the revenue estimates based largely on
the experience of states that we thought were in a similar position in
tenns of the law they put in place. Certainly it was not our intent to,
you know, burden a particular portion of the population in terms of
income strata or anything like that. But, you know, we will certainly
go back and take a look at that.
ASSEMBLYMAN AUBRY: Were any of those
states states that had the kind of decrease in the prison population that
we have had?
COMMISSIONER MEGNA: That's an excellent
question, and we'll go back and look. We looked at several states.
We looked at North Carolina, Tennessee, and some other states --
Wisconsin, I believe -- some other states that have imposed similar
kinds of taxes.
ASSEMBLYMAN AUBRY: I'm much more
concerned with the long-tenn effect, obviously, than --
COMMISSIONER MEGNA: Absolutely.
ASSEMBLYMAN AUBRY: And I believe the value
of that, as you estimated, was somewhere in the neighborhood of
$13 million, $14 million?
COMMISS10NER MEGNA: That's correct.
ASSEMBLYMAN AUBRY: Now, would you
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and I presume charged the tax as weB as fined for not paying the tax --
would be that you would be required or should have gone and got an
illegal-drug stamp?
COMMISSIONER MEGNA: That is correct.
ASSEMBLYMAN AUBRY; Who would one get
that from?
CHAIRMAN FARRELL: If you go down to
Jamaica, they'll give it to you there.
(Laughter. )
COMMISSIONER MEGNA: I believe the Tax
Department will have to come up with a stamp.
ASSEMBLYMAN AUBRY: Would have to come
up with a stamp. And that stamp would be sold where?
COMMISSIONER MEGNA: I don't know that we
have worked out all of the details.
Our assumption, of course, as you know -- not to be
flippant, but out assumption is in most of the other states that have
applied this law, that there aren't a lot ofpurchasers of the actual
stamps.
ASSEMBLYMAN AUBRY; I wonder why.
COMMISSIONER MEGNA: Exactly. And so we
would, of course, have to work out the administrative detail of how
we would produce the stamp and where we would make it available.
ASSEMBLYMAN AUBRY: Why would we not just
enhance the forfeiture processes if there was a piece of money that we
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wanted? As opposed to creating a shell game, essentially, in order to
get the dollars, if there are dollars.
And I also wonder why we would not choose to do it
only on criminal enterprises, people who have substantial resources
and are benefiting the most.
Because under the drug laws in this state, you're held
responsible for that amount of drugs you're caught with. It may have
nothing to do with whether or not they were drugs that you were going
to benefit from. Somebody could have given you $20 to take 2 and 3
kilos down the block and deliver them. And that individual, if caught,
would then be responsible for the taxes on that, which could be
astronomical, and may have no ability or would have had no ability to
gain from them.
So it seems that we might want to refine this thought
a Iittle bit more than it has been refined, if it is in fact something that
you consider pursuing.
Thank you.
COMMISSIONER MEGNA: Well, we'll certainly go
back and look at it.
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CHAIRMAN FARRELL: Thank you.
I'm going to resist the temptation. Excepting if you
can find one state where it's legal -- the concept many years ago
started with the gambling stamp back in the '40s, and all the gamblers
would run over to Nevada and get the stamp, so at least it would stop
them from getting a federal fine for not having the stamp. But unless •
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Jamaica is willing to give you a stamp, I'm not sure what you're going
to do.
Thank you very much.
COMMISSIONER MEGNA: Thanks very much.
CHAIRMAN JOHNSON: One more question.
Senator Thompson.
SENATOR THOMPSON: Just a couple of quick
questions for you.
One, I'm sure you spoke earlier about the STAR
rebate program.
COMMISSIONER MEGNA: We did.
SENATOR THOMPSON: Our office had a good
working relationship with your office in Buffalo on the rebate
program. But I wanted to ask you just two things as it relates to the
program.
One was how many people who apply -- actually,
how many people who were eligible did not actually receive a rebate
this year in terms of people who would have been eligible.
And the second thing is, with the upcoming program,
do you think that the program should be automatic? And I say that in
the context that I found that there were a lot of people who owned a
property but may not have applied .- may not have been in the STAR
program, so they didn't get a tax benefit even though they owned a
property in the city. And they may even have been a low-income
senior, or they just may have been a traditional property owner. So
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they got absolutely no tax relief this year.
What do we.do to help those individuals as well in
the state who own a property who are not a member of the STAR
program and this year they got no property tax relief?
COMMISSIONER MEGNA: On the first part of
your question, Senator, I think about 93 percent, we estimate roughly
in that area, of the folks who are eligible to apply did apply. And we
have a very, very, very small number offolks that welre still resolving
some details with before they get their check. But I think that worked
pretty smoothly.
The enhanced program, as all of you probably know,
for seniors is automatic. So as soon as we get the list from ORPS, the
Office of Real Property Services, ofwho's eligible for the elderly
benefit, we send that refund check out. And I think we sent most of
those checks out by the end of July. So I think that we were pretty
good with that.
With respect to your broader question, I think the
question ofoutreach becomes important. Last year, the year prior to
this, I think there was an effort rriadeto make sure that folks who were
eligible for STAR were getting STAR. And we set up, I think, an
extension period where folks who were not in the STAR program
could join the STAR program so that they could be eligible to get the
rebate.
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And we think that next year the process will work in
a much more efficient fashion, because we do have a lot of the •
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information now that we need to match up the person's income to their
STAR benefit and to do that calculation. So we think next year the
process will work even better.
But I think the easiest way to answer your broader
question is that, in the current system, is to increase STAR
participation and then we'll be able to reach these people with a
rebate.
SENATOR THOMPSON: SO for this coming
program, if you're not certified as a STAR program participant, you
\ .
still won't get any property tax relief from New York State?
COMMISSIONER MEGNA: You're not eligible,
unless you're a STAR beneficiary, for the existing rebate program.
SENATOR THOMPSON: So have you all thought
about any additional ways to give people property tax relief outside of
that program?
COMMISSIONER MEGNA: Well, again, not
particularly my area, but, you know, the Governor has appointed the
commission to look at the whole issue ofproperty taxes in New York
State and the whole question of the feasibility and applicability of a
property tax cap. And I know that those folks are talking about what
the right delivery mechanism is for property tax benefits throughout
the state. So, Senator, I think that conversation is being had within the
confines of the commission.
SENATOR THOMPSON: My last question deals
with another tax issue, and I know it seems weird because I'm a
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Democrat over here asking about it, but it's something that's very
important.
What do you think about a -- there's a whole lot of
discussion about a federal rebate program. Have you all even
considered, in tenns of some of the things that people are talking
about, some type of rebate program for income tax payers, particularly
working people, in New York State?
COMMISSIONER MEGNA: Well, Senator, 1 think
the federal government is in the unique position of being able to run
deficits. And so actually running a rebate program for them is a little
bit, I think, easier.
In the context of the state kind of financial plan right
now, I think -- I'm sure you're going to have conversations with the
Division of the Budget and folks like that. Within the parameters of
the budget that's being negotiated, I'm sure all sorts of proposals
would arise as to providing relief for folks.
SENATOR THOMPSON: But if somebody came up
with a concept like that, would you all be in a position to provide
some -- be able to administer a program like that?
COMMISSIONER MEGNA: Well, every time I
think that this department is overburdened by its ability to do those
kinds of administrative things, the folks around this table seem able to
pull it off.
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Again, we're an administrative agency. So if folks
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would give us the time and the resources to go out and implement it
effectively.
SENATOR THOMPSON: All right, thank you.
CHAIRMAN FARRELL: Thank you very much.
COMMISSIONER MEGNA: Thank you.
CHAIRMAN FARRELL: Edward Reinfurt,
Executive Director, New York State Foundation of Science and
Technology and Innovation, the 12 o'clock person.
MR. EDWARD RErNFURT: Chairman Farrell,
Chairman Johnson, Assemblymen -- let's see, Mr. Hayes, Mr.
Schimminger, Mr. Weprin and Senator Thompson, thank you so much
for the opportunity to appear again before the fiscal hearings. I wi))
note for the record that I testi fied two weeks ago before the fiscal
hearing on Higher Education and I will not repeat the testimony from
that date. I am joined at the table by my Executive Deputy, Ed
Hamilton, and we are pleased to report on a number of new initiatives
that we have undertaken and those that are included in the budget.
But first, let me say how appreciative we are for the
support the Legislature and the Governor has given to our agency. If
you look back over the last seven, eight years, in good times and in
bad, the Legislature and the Executive have given a commitment to
technology advancement that has positioned this State very well as we
go ahead. And the State is better off for that. And I think that is
important because the consistency of funding is very important to the
planning that is taking place.
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Today, I would like to concentrate on two areas of
the budget that involve NYSTAR and new funding. The first involves
$4 million of new aid for our efforts with a consortium of universities
that are involved in the cutting edge computational research that we.
have in this State and are very proud of. I will also comment on our
regional partnership program, and untess you have questions on the
extensive testimony that we have submitted, I will concentrate on
those two.
The first is the issue ofthe consortium for
supercomputing, and what this State can do to position itself to be a
national leader. As you are aware, the State has invested significant
tens of millions of dollars in two new supercomputers located at Stony
Brook, Brookhaven and at RPI. We have also supercomputers that
previous administrations have invested in in Buffalo and in Cornell.
In addition to that, we have a tremendous array of computational
scientists that reside at a host offacilitiesstretching from Buffalo to
New York City to Long Island.
Earlier in the fall when the State was approached
with a plan by a consortium of universities who. said that with a small
amount of dollars we can really tap the computational assets that this
State has. The computational assets being both our big machines, our
supercomputers, but equally important, our people and our programs
that we have in place. Last week, I was at RIT for instance, and most
people don't realize there are 3,000 students in the Golisano School of
Computational Science that are ready to work with experts in other
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areas of science to leverage the supercomputing capacity of this State.
I emphasize the consortium because one of the goals
of NYSTAR and the investments made over the years was to get our
universities working together to see what each other's talents are and
how they can work together. And the fact that these universities came
together on their own and then approached the State with a request for
how the State, with a small amount of investment, can leverage that. I
think they are to be applaud, and it also symbolizes the type of activity
that is going on in many, many other areas, and Jcan cite many of
those. This proposal for $4 million comes at a time when the Federal
government, just last week, announced its research budget. And you
will see a complimentary program within the National Science
Foundation for over $186 million, and in the Department of Energy
for $369 million, representing additional dollars going towards
computational science and research of supercomputers. And
certainly, the strategic plan of the National Science Foundation is
premised on the fact that the discovery in almost every area of science
will be driven by the computing capacity that we have.
I was advised by the head of the RlT School of
Computational Science that he is doing a study which suggests that
since ]952, there has not been an award to a Nobel scientist in the
sciences that did not involve computational research and the addition
that that brings to a researcher's field. And so, that is a program that
we feel very strongly about, that we look forward to discussing with
you and your staffs about how it relates to institutions in your field.
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Importantly, it is tightly involved with the research and the
development that is taking place in the private sector.
The emphasis on some previous questions,
particularly as it relates to economic development, about are we
getting enough commercialization from the technology investments
that have been made is a question we take very seriously. And one of
the charges thatwe are bringing to our partners, both in the private
and public universities is the fact that we need to do more to bring
economic growth and technology development to the forefront.
And we believe there are many areas of research and
private sector aid that this program will assist. Specifically, for the
first time we intend to be having a relationship with the financial
sector in New YorkCity. One of the primary hirers of mathematicians
using algorithms is Wall Street. And the use of the supercomputers
are being applied today to risk management, to currency exchange, to
many areas that can benefit Wall Street.
And so, the research that we have talked about in
other areas is going to be extended. We know what it can do in the
biosciences, we know what it can do in advanced material
management, we know what it can do in nano-tech and we intend to
exploit the investments that this State has made to date. '
The second area that I said I would like to emphasize
relates to a program that this Legislature imposed and had given to
NYSTAR, and that was the Regional Partnership Program. This year,
as you know, the Executive Budget did not provide continued funding
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for NYSTAR's Regional Partnership Program. Rather, it proposed the
most significant infusion of regional funds ever into the State's
regional economies and Chairman Gunderson and Chainnan Foye
discussed that earlier today. This came after extensive hearings and
regional meetings and regional blueprints that were developed. At our
NYSTAR board meeting just last month, our board decided to take no
further action on the Regional Partnership Program, pending
resolution of the budget and programatic issues that you will be
addressing..
We advised the regional applicants of this decision
that this is the deferral ofa decision. We still believe strongly in the
importance of the regional economic development program. It is our
understanding when this was first proposed, there was some
dissatisfaction with the emphasis given to regional economic
development. And we certainly understand that. We take our role for
regional economic development, through all our programs, very
seriously. And we believe the commitment that the Administration
has made in this budget is unsurpassed. And we hope that through the
next few weeks in the budget-making process to clarify our
responsibilities. But to have acted at this point with no funding would
simply add confusion to the economic development community and
we did not want to do that.
We are also pleased that this year we carried out
some new programs that were given to NYSTAR. For the first time
we had a role in community coJIeges -. a curriculum development --
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again, showing the relationship of our technology efforts to go from
community colleges all the way up to our university centers. And
speci fically, we can tell you today that we are well along the way with
two out of three of those programs, the Onondaga Community College
Sustainability Program, the Hudson Valley Community College
Program on Smart-Tech and we are about to finalize our program with
the Monroe County Community College.
We thank you for that program and that opportunity
to participate, as well as the responsibilities you gave us in the debt
restruct~ringproposals as they related to Syracuse University and RPI,
which are underway and we have two smaller programs we are
working on. But, again, in looking at the array of programs that
NYSTAR has, we thank you for the commitment that you have made
over the years in funding. We appreciate the opportunity. We do see
and we do sense a tremendous opportunity ahead ofus and we are
beginning to see the fruits of many of the investments that have taken
years to materialize.
I have the good fortune of having been asked by
Chainnan Schimminger to join his Committee tomorrow, and [ will
expand upon those efforts -- and particularly, as regards the way we
measure the new economy, in the knowledge jobs that are said by
others to be the drivers of the future economy and some thoughts we
have on how we measure ourselves and how we hold ourselves
accountable.
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But I recognize the fact that you are running late and •
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I have had the opportunity at the previous Higher Education
Committee hearing to speak and so I will stop now and answer any
questions you might have.
CHAIRMAN FARRELL: Thank you very much.
Questions?
Thank you.
MR. REINFURT: Thank you.
CHAIRMAN FARRELL: Kenneth Adams,
President, The Business Council of New York State, Inc.
MR. KENNETH ADAMS: Good afternoon. My
name is Kenneth Adams. I am president of the Business Councilof
New York State and to my right is my colleague whom you know,
Ken Pokalsky. On behalfofour more than 3,000 members,
businesses large and small all across the State, I would like to thank
both the Senate and Assembly for this opportunity to provide you with
our comments on the Executive Budget and to offer you our input.
As the State's leading business organization, we begin
our testimony this year, a~ we do every year, with a reminder that our
State's fiscal policy must achieve that delicate balance between a
healthy private sector economy and government1s need to raise
reven~e to provide services. And with a struggling national economy
and the slowdown in financial services and real estate sectors right
here in New York State, that balance is now especially precarious.
Let us remember a basic economic fact: That it is the
private sector economy that creates wealth, drives the economy and
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enables government to function in the first place. New York's
business community of553,000 private sector employers and their 7.3
million workers is undeniably the core ofour economy. The
Governor's announcement, just yesterday, that he was revising his
proposed budget in light of new forecasts that show a reduction in
revenue of about a half a billion dollars each year is one clear
reminder of this delicate balance.
The mission of the Business Council is to create
economic growth, good jobs in strong communities across New York
State. In our view, this should also be a major goal in creating the
State's budget for 2009. To promote economic development and job
creation, especially Upstate, we have to find ways to reduce obstacles
to private sector growth, especially the high cost ofhealth insurance,
energy and taxes. We need to promote new investment in existing
businesses and in the emerging industries of our innovation economy.
And we need to avoid budget actions that add to our cost structure and
further erode our attractiveness and competitiveness as a state.
With these assumptions in mind, let's take a closer
look at the Governor's proposed budget for fiscal year 2009. Even
with the recent revisions, State spending is still projected to rise by 4.8
percent. In our view, this is still too much. It is too much because this
growth in spending requires raising taxes and fees on private sector
employers by some $1.3 billion during an economic downturn.
This will increase costs for businesses large and small
at a time when they can least afford it. Add this new burden to the
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growing obstacles already faced by business owners in New York
State and consider its effect on economic development. Raising taxes
and fees at a time like this sends the wrong message to those who
might think of starting or investing in a business here.
Let's face it: The problem is spending. Per capita
government spending in New York, state and local spending
combined, was almost $12,000 per person; it was $11,836 in 2005.
That's the highest in the nation, as you all know, with the sole
exception of the State of Alaska.
Clearly, we have a spending problem. But we do not
actually have. in our view. a revenue problem. After all, State tax
revenues are not down, they are up; significantly up. The latest
projections from the Division of Budget show that total State tax
receipts are up $2.2 billion for this fiscal year, and will grow another'
$2.4 billion in 2008-09 without any changes in our tax code or
regulatory fees.
The Executive Budget would allow State spending to
grow at about the rate of long-term growth in personal income, which
is now about 5.3 percent. We don't think that is a sufficiently
aggressive spending target. We strongly prefer a limit in spending
groWth that is more closely in line with the projected rate of inflation,
which is measured by the CPI, which is now about 2.8 percent.
To achieve this limit, it is essential that we identify
and enact new controls on State spending. I will suggest some in a
moment. For now, let's focus on these new proposed taxes and fees
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and their potential impact on the economy.
New York should have a tax code that supports a
competitive economic climate, provides for fair tax administration and
stable tax revenues and that avoids significant unintended
consequences, like loopholes. However, we believe that a number of
proposed revenue measures fail to advance these objectives and
instead would damage the State's fragile economic climate by
imposing significant new liabilities on key sectors.
Let me cite several of these examples that we oppose.
Number one: Employee health insurance is the most significant cost
of doing business faced by our members~ therefore, we are very
concerned that the Executive Budget includes two significant tax
increa·ses on health care coverage. First, an increase in the HeRA
covered lives assessment, which would raise this overall levy by $190
million per year, from $850 million where it was last year, to $1.040
billion in this proposal. And also a change in the taxation of for-profit
HMOs, which would result in another $300 million in annual health
insurance taxes.
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Now, this health insurance tax increase will increase
premiums and are likely to force many small business owners to
reduce or eliminate coverage for their workers, thereby driving up the.
ranks of the State's uninsured.
The Executive Budget would eliminate the current $1
million cap on corporate franchise tax liability, based on a taxpayer's
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imposed by this change would hit sectors such as financial services
that may have significant cyclical changes in their net income but not
in their in-state capital.
The budget proposes to establish a financial nexus for
out-of-state credit card operations where no physical in-state nexus
exists. This proposal would impact several major in-state financial
sector employers that happen to have out-of-state credit card
operations -- entities that were also adversely impacted by the State's
revenue actions in last year's budget agreement. The Executive
Budget also includes several significant non-tax energy-related
revenue measures that we believe will have adverse economic effects.
For example, the Executive Budget proposes to increase the cap on
Title V air permit fees to $80 a ton and to eliminate the current 6,000
ton fee cap per containment class.
These changes could impose an additional $19
million per year in additional costs, primarily on the State's energy and
. manufacturing sectors. The budget would also impose two other fees
that target the State's energy sector: NYSERDA assessments on gas
,
and electric utilities and new charges on nuclear power plants that
together would add another $30 million to State energy costs. We are
concerned that the combined impact of the regional greenhouse gas
initiative emission allowance costs~ existing energy taxes, increased
pennit fees and now these new assessments will make already
uncompetitive energy costs even more so, further eroding our
economic competitiveness, especially in energy-intensive sectors of
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our economy.
Instead of raising taxes, we urge the Legislature to
champion tax refonns that promote capital investment, job growth and
retention. Recent experience with targeted tax credits - such as the
film production tax credit and the emerging technology company
credit - clearly illustrate their positive impact on business investment,
the creation and retention of jobs, increased economic activity and
ultimately, increased State and local tax revenues.
To continue to promote new investments, the
Business Council makes the following recommendations for your
consideration: Number one, let businesses realize their full valve of
investment tax credits, ITCs, that are nearing expiration, by using
them to offset new capital investment in the State: Under this
approach, old ITCs could be used to offset 50 percent of the cost of
new investments and 90 percent of the cost of new R&D spending in
the State.
To increase the value of this incentive, unusable
credits would be treated as refundable overpayment of taxes. This
proposal, which I am sure you are familiar with -- called ERIC, for
those fond of acronyms -- has been identified as a priority issue by our
Business Council's Innovation Committee. We appreciate that the
Senate has passed this economic resurgence, or ERIC credit, both in
2007 and 2008, and that we understand similar legislation has been
introduced in the Assembly.
Number two: Extend the investment tax credit for
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the securities industry and security-related investments in the banking
industry. The investment tax credit for security and commodity
brokers and dealers, investment advisory services, investment-related
lending activity and security exchanges, as well as the Article 32 ITC
for banking corporations, are all set to expire in October of this year.
The Business Council believes that the State needs to continue to
support new investment in the financial services sector and
recommends the extension of these important investment incentives.
Number three: Expand eligibility for and increase the
value ofthe qualified emerging technology company investment
credit.
Number four: Provide telecommunication providers
with an exemption from real property taxes for equipment inst':llled for
the purpose of distributing broadband technology.
On the subject of economic development initiatives,
more broadly, it is encouraging to see support for new significant
investments in economic development, both in the Executive Budget
and in the Senate's Upstate Now package. Both proposals would
provide a significant increase in the State's economic development
resources and would provide funding for regional investment
priorities. The Business Council continues to assess the Governor's
investment opportunity fund and omnibus economic development act,
and we will be providing both the Administration and the Legislature
with additional detailed comments in the very near future.
Today, however, I would like to provide several
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comments on economic development proposals included in the
Executive Budget itself. First, we are encouraged by a proposal for a
multi-year program to deliver economic development power to
energy-intensive businesses. The recent one-year extensions and a
diminished Power for Jobs benefit for many program participants have
significantly lessened the value of this economic development tool.
The Business Council supports a new program with longer-tenn
contracts and with broadened program eligibility that looks at both the
creation and retention of jobs, new investments and other key
measures of business commitment to New York State.
We are also concerned about the budget's
implications for our State's unique pharmaceutical sector. Efforts to
achieve savings from the pharmaceutical industry through
administrative actions undermine the State's ability to support New
York's pharmaceutical and biotech industries and to attract new
investment. Our concern here is that the more constraints we put on
these industries, such as the proposal to expand bulk purchasing
opportunities, the less likely these companies are to invest in New
York. These industries are economic and intellectual engines for New
York's future and we should work to support them as much as we can.
And although it's not a budget issue, I feel compelled.
to comment on recent legislative activities on another important
economic development tool, local industrial development agencies,
IDAs. The Business Council is concerned that recent proposals to
impose significant new costs on IDA-financed· projects, such as
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prevailing wages for construction labor and to impose new restrictions
on actual IDA activities, will limit the State's economic development
efforts.
Many significant private sector investments receive
IDA support, as you know. We urge the Legislature to move forward
with an'IDA reform package that promotes increased accountability
and transparency ofIDA activities, without significantly weakening
their economic development incentives.
Now, how to make all of this work. Let's be fair, It
would not be reasonable for me to come before you today and ask that
you join us in imposing these new taxes and fees on New York State's
businesses included in the Governor's Budget, and also support
economic development through targeted tax credits and other
incentives needed to drive our innovation economy, without
suggesting ways to make the budget math work. We know that we
have a deficit and that the money, even if spending growth is reduced,
has to come from somewhere.
To that end, we propose reforming STAR, reducing
the State workforce and further reductions in health care spending.
And there are some new revenue sources proposed, such as new
Internet sales taxes with which we have no quarrel. In the interest of
time, I just want to mention our thoughts on STAR and property taxes.
I also want to note our support for the Governor's new Commission,
chaired by Tom Suozzi, that is studying a property tax cap for New
York State.
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As I stated earlier, improving the State's economic
climate is our top objective. We can think of no area more in need of
significant reform than real property taxation. And let's remember,
the biggest tax on most businesses in New York State is, of course, the
property tax. While STAR sends tax dollars - State tax dollars - back
to lower- and middle-income New Yorkers, it imposes no controls on
the growth of school taxes. The Comptroller's office says property
taxes increased an average of 3 percent a year from 1995 to 2000, and
then an average of 7.1 percent a year from 2000 to 2005, more than
double the rate of inflation and more than double the rate of the
previous five years.
Property taxes are a major economic burden and a
major drag on our economic competitiveness. And as a reminder,
New York's local property taxes hit $37 billion in 2005, and outside of
New York City, which levies a local income tax, property taxes
averaged $2,303 per capita which is the highest in the country and
more than double the national average.
In addition, New York State's businesses, which pay
30 percent of school property taxes, get no b,enefit from STAR. The
effect of tax burden on business property is about $1 billion higher
than it would be if businesses were taxed the same as residential
property. One alternative would be to both cap STAR and local
property taxes. STAR could be capped in its 2006-2007 level, for
example, and local property taxes capped at 2.5 percent, about the rate
of inflation.
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A property tax cap would offset the impact of the
STAR cap. Freezing STAR at its 2006-07 level of $4 billion could
save the State $1 billion in FY '09 and eliminate all consideration of
these tax increases in the new budget. However, the key to a
permanent solution is to adopt real mandate relief and downsizing
reforms that will enable local governments to get by on less. The
Legislature needs to roJ! back costly State mandates on local
governments and then help them consolidate, share services, downsize
and realign their workforces to save taxpayer dollars.
These refonns could include elimination of the Wicks
Law, requiring municipal governments to issue multiple contracts for
construction projects that drive up local construction costs by as much
as 30 percent.
My comments this afternoon touchon several of the
most significant issues and recommendations we have concerning the
Executive Budget for fiscal year 2009. We look forward to continuing
this discussion with both the Administration and the members of the
State Legislature, and I look forward to responding to any questions
you have now.
Thank you very much for your time and attention this
afternoon.
CHAIRMAN FARRELL: Thank you.
Questions?
Thank you very much.
MR. ADAMS: Thank you.
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CHAIRMAN FARRELL: The Motion Picture
Association of America, the 1:30 p.m. group, and it consists of Tom
O'DonneH, President, Local 817 Teamsters; John Ford, President,
IATSE, Local 52; Van Stevenson, SVP State Legislative Affairs,
MPAA; Michael Walbrecht, Vice President, Studio and Production
Affairs, WB Entertainment, Jnc.; Brian O'Leary, SVP, Tax Counsel,
NBC Universal; Nancy Fox, National Director, Policy and Strategic
Planning, Screen Actors Guild. I used up their time calling their
names.
Now, folks, I know you all work, and a large amount
of you have to do with movies and you probably know timing. And
you know radio and you know timing, and I shouldn't mention it
knowing the Academy Awards have never made their time yet. But
not withstanding that, I really must point out to you that we have
given you 15 minutes, so that breaks down to about two and a half
minutes apiece. And I hear there are two people who did not give us
written testimony and I am going to ask them to control themselves
because 1have learned that when people speak off the top they tend to
speak much longer, okay?
Tom O'Donnell.
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MR. TOM O'DONNELL: Yes.
CHAIRMAN FARRELL: And would each of you
give your name so the Stenographer will get it, because they should.
MR. O'DONNELL: My name is Tom O'Donnell. I
am Secretary Treasurer ofTheatrical Teamsters Local 817. Our office •
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is in Lake Success, New York. We represent 700 transportation
workers and casting directors in the motion picture and TV industry.
I am here to urge you to preserve the proposed
increase in the State's film incentive. In the mid and late '90's,
lucrative film incentives from Canada and foreign countries
effectively drained production from New York and the U.S. Modest
incentives from the State enabled New York to be put back into
budget runs and help us remain a major player in the filmmaking
world. Now, U.S. states with no tradition of filmmaking have entered
the arena with extremely appealing incentives, ranging from 25 to 30.
percent of above and .below the line.
I have witnessed this effect firsthand as Teamsters
Local 817 holds film jurisdiction over the States of Connecticut and
Rhode Island. In 2007, there were five feature films shot in the State
of Rhode Island, which was a 50 percent decline from the proceeding
year because it was perceived that there were better and newer
incentives in the States of Massachusetts and Connecticut. Last year
there were 15 feature films shot in the State of Connecticut and this
spring alone, there are nine feature films proposed to be shooting in
the State of Massachusetts.
In Connecticut alone, it was not uncommon before
the last two years that there would have been no features over the
budget of$lO million that have shot there. This truly is a field of
dreams; "Build it and they. wi\) come." A 15 percent above and below
the line incentive will hardly match the other states and foreign
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countries, but will effectively bridge the gap. With such an incentive
combined with the infrastructure, studios\ talent base and the best
technical crews in the world, I believe New York would not only
recapture lost production but exponentially grow more· film and TV,
more jobs and more enterprises needed to support expanding
productions.
Furthermore, I believe neglected cities such as
Albany, Rochester and Buffalo would be discovered by the film
world. Whenever we work outs;de of the metropolitan area, we
incorporate labor from the other Teamster Locals, so we would be
growing jobs Upstate as well. Finally, I believe it would be foolish to
increase the incentive and leave the gap where it is at. Four years of
an incentive would be used in one to two years under the current plan.
The Hollywood studios will be hesitant to budget what might not be
there a year a from now.
This proposed incentive, which would be a
guaranteed success, would pay for itselfand would be a boon to the
State of New York. Thank you for this opportunity.
CHAIRMAN FARRELL: Next.
MR. JOHN FORD: Good afternoon. My name is
John Ford. I'm President and Business Manager of Motion Picture
Studio Mechanics Local 52.
CHAIRMAN FARRELL: Any relation to the other
John Ford?
MR. FORD: I wish. I wish, yes. Local 52, along
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with Teamsters Local 817, represents a majority of unionized jobs in
the motion picture and television production in New York. These are
good, solid middle-class jobs that provide medical benefits and
retirement benefits, as well. J am a third generation film worker. My
grandfather worked on silent movies in New York over 80 years ago.
I am here this afternoon to urge your cooperation in
expanding the tax incentive legislation, including the elimination of
the cap. While the current program has been successful since its
inception, other states, most notably Connecticut, Massachusetts and
Pennsylvania have passed us by. Connecticut has virtually no
infrastructure or equipment, yet saw over a dozen films shot there last
year. Many of them were scripted for New York and California. Prior
to passage of the incentives, there was no production of consequence
in Connecticut.
California has lost almost all motion picture
production to states with incentives. To date, and luckily for us,
California has refused to pass such tax incentive legislation,
essentially abandoning that segment of the business and costing its
economy thousands of good, middle-class jobs in production, as well
as all of the ancillary businesses.
I am here to beg you, please do not make the same
mistake. Whatever our personal feelings are on incentives, the facts
are that, at least for this industry, they work. States with significant
incentives are booming, including New Mexico, Louisiana•
Connecticut and Massachusetts. New York has far more
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infrastructure in terms ofqualified crew, studios and all other support
industries than any of these states. Please help us keep these good
jobs and businesses in New York. Thank you very much.
MR. HAL ROSENBLUTH: Good afternoon. My
name is Hal Rosenbluth and I am President ofKaufinan Astoria
Studios, the facility in Queens, New York. I am here to tell you that
in 2004 you gentlemen passed a tax incentive credit that not just
helped an industry grow, it saved an industry. We have seen a
continuation of -- through the use of that incentive -- the growthof
this industry continue to happen.
Unfortunately, I also sit here and tell you that as of
right now there is a line to get into the surrounding neighboring states
and it is our job to come to you and say we are looking for you to
continue the incentive program and to take the cap off in order to
bring these jobs back into New York. A model in which we had
created as a tax incentive program is working, but it is working at
different levels in other states. And it is my opinion that the tax
incentives are a necessary economic model in order to keep the film
industry here in New York.
MS. JEAN FROST: Good afternoon. My name is
Jean Frost. I am Assistant Executive Director of the Directors Guild
of America and I would like to thank you, Chainnen and members of
the Committee, for inviting me to appear before you today to discuss
the proposed improvements to the New York film production tax
credit to promote film and television production in New York. I am
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here on behalf of the Directors Guild.
Founded in 1936 by the then most prominent
directors, the Directors Guild today represents directors and members
of the directorial team who work in feature film, television,
commercials, documentaries, news and sports. The DGA's mission is
to protect the creative and economic rights of directors and the
directorial team, working to advance our artistic freedom and to
ensure fair compensation for their work.
I am here to express the Guild's enthusiastic support
for the proposed changes. While we at the Directors Guild of
America are keenly aware that film is an art fonn, we do not overlook
its value as commerce. We represent the kind of industry that every
county and every state wants, an environmentally clean industry with
union jobs that offer health and pension benefits. OUf industry has an
enormous impact on revenues, not just through production costs, but
also through the small businesses and others who gain from our
presence -. hotels, dry cleaners, restaurants and many other vendors.
In other words, this is an industry that is about jobs, well-paying jobs
which build careers and economic development. We are an engine
that drives other industries in the City and in the State.
Prior to 2004, domestic film and television
production was on a substantial decline, in large part due to incentives
offered by foreign countries, particularly Canada, to lure domestic
production. New York bore the brunt of this decline. Films that were
set in New York were routinely being shot in Canada and Eastern
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Europe where foreign governments provide substantial subsidies to
lure film and television production. Films that did shoot in New
York, moreover, Iir;nited their actual New York shooting to
establishing shots and/or exterior location shots and did the majority
of their shooting on stages outside of the United States.
In 2004, this Legislature had the foresight to pass one
of the most comprehensive tax incentives for the film and television
industry. The impact of those incentives was immediate and
astounding. New York, once again, became a dominant production
center. During the first nine months of the year after the incentives
went into effect, we witnessed a 56 percent increase in the number of
production days worked by DGA members on feature films, and a 44
percent increase in the number of days worked on television
productions. These employment figures continued to increase
throughout 2005 and 2006.
The DGA and our members in New York were and
continue to be grateful to the Legislature for passing this incentive
package and we are enthusiastic about its impact. Beginning in 2006,
however, another trend began to develop. Having witnessed the
success of New York's incentives, a number of neighboring states,
particularly Connecticut, Massachusetts and Rhode Island, enacted
their own incentives and in an effort to best New York, these
incentives offer a larger tax credit and are often uncapped. As a result
of those newly-created incentives, we have witnessed a dramatic
reduction in the number of feature films that shoot in New York and
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unprecedented activity in Connecticut and Massachusetts. This trend
translates into fewer jobs in New York and lower economic growth.
I am here today to thank you for your past support
and ask that you support the Governor's proposal to bring New York's
incentive more in line with those of the neighboring states. In
particular, we ask you to approve increasing the tax credit from I0 to
]5 percent to include production costs similar to those included by
neighboring states, and most importantly, to lift the annual cap so
New York State can be competitive in encouraging film and television
production. I thank you you very much for your time.
MR. STUART MATCH SUNA: I am Stuart Match
Suna, President of Silvercup Studios and I want to thank the Governor
and all of you for the film tax credits, because they have really grown
this industry and as manufacturing jobs have really left this State, film
and television is the new manufacturing. It's our greatest export,
certainly out of this country and New York is just behind California in
creating great entertainment and that great entertainment also bring
back great tourism.
As I was quoted in Crane's Businessweek this week,
The Bronx is Burning, about the New York Yankees, was shot in
Connecticut. If they can fake the Yankee Stadium and the Yankees in
the Bronx in Connecticut, think what else they could do to, us. Al
Pacino and Robert DeNiro, two serious New Yorkers, just finished
shooting a $60 million film about New York in Connecticut.
Confessions ofa Shopaholic, right now they are doing their shopping
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in New York and they are Hiking all of the clothes up to Connecticut
and they are shooting as if they are in New York City.
So. they are taking these jobs away from us right
now. One of our competitors from Brooklyn is actually invited by
Conneccicut to convert an old industrial complex into new studios.
Right now. the films that are going up to Connecticut are mostly
feature films. We are home to Sex in the City. The Sopranos, 30 Rock.
Cashmere Mafia, Gossip Girls, on and on; great TV shows.· Those
jobs, once they actually have the infrastructure built there, because
Connecticut not only has a 30 percent tax credit. they also have a 20
percent investment tax credit to build new studios, to buy new trucks
and to have new equipment.
So. we not only want you to support the Governor's
bill of 15 percent. but we believe the Governor's cap of only a $15
million increase won't be enough because we believe with this new
tax credit. we will have new jobs coming back. We lost $750 million
worth of new business last year because of surrounding states. Those
are good blue collar jobs. We want those jobs back and we need you
to have no cap to really allow this business to grow.
MR. VAN STEVENSON: Mr. Chairman, Van
Stevenson. Senior Vice President for Governmental Affairs to the
Motion Picture Association. We represent Disney, Fox, Sony,
Paramount, Universal, Warner Brothers; CBS is also an associate
member. We also appreciate the opportunity to be here to lend our
total support to the Governor's recommendation. We also support
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everything our colJeagueshave said about lifting the cap. We also
believe the program should be made permanent to fully-realize the
opportunity we believe the State of New York has to attract even more
film production.
I always say there are the three C's: Cost,
convenience and creativity. New York people love to come here and
shoot. Convenience, there is a tremendous infrastructure.. Cost is the
only thing that needs to be brought up to be competitive, we believe,
with other states.
Just a couple of figures real quick. There has been a
lot of talk about motion pictures going to Connecticut, Massachusetts,
Rhode Island. We understand that in the first ] 8 months that
Connecticut had their production tax credit, they realized roughly
$750 million worth of economic activity, mostly on feature films.
Now, in tenns of New York; that translates, at least according to the
figures that we've seen, roughly 5,000 lost jobs to the New York
economy.
We are convinced the proposal brings more to the
incentive. We a.lso believe, again, that the cap should be lifted and we
appreciate the opportunity to answer questions when we are all
finished.
MR. BRIAN O'LEARY: Mr. Chairman, members of
the Committee, my name is Brian O'Leary. I am tax.counsel forNBC
Universal. As Mr. Stevenson noted, NBC Universal is one of the
member companies of the Motion Picture Association. Among other
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things, we produce films and television shows. And I just wanted to
offer you some context for how that decision-making about locations
is arrived at.
For every project, with few exceptions, we look at
three different locations· perhaps even as many as four· and among
the considerations are cost. In addition to having the needs of your
script met, in addition to having the availability and the abilities of
your crews, one key consideration is cost. As part of that evaluation,
for any location, incentives playa critical role, and in two
components: One is cost savings; but equally valuable, as you look at
any incentive and apply it to your budget, is predictability.
From a cost perspective, the fact that feature films,
for example, over the last five years have almost doubled in cost in
marketing and production, approaching the $100 million figure per
average show. A meaningful incentive that has real opportunities for
cost savings is going to be a powerful inducement for any jurisdiction,
but it is irrelevant without certainty. And certainty means as you
evaluate any project and you look at the estimated savings associated
with the ~redit, knowing that credit will be there to hold your budget
together at the end of the production is critical. That is why caps can
have a chilling effect on decision-making.
I'll just talk about television for a second. Television
series look beyond just the current year. They are looking to the next
season. If you have an incentive that isn't available in the second or
the third season, what you've done for your production is you've
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positioned yourself to have to make a very difficult decision. In your
second season you could face a shutdown, you could face a relocation,
but the negatives associated with not being able to meet your budget
because the cap has limited your ability to access credits, essentially is
bad for business, but it is also bad for the State.
The New York credit - what the Governor has
proposed - is building on the success that this Legislature helped
create in 2004 that restored New York to its rightful place as one of
the leading production locations in the country. The Governor has
now built on that. The opportunity with sufficient credit funding is to
give New York a disproportionate advantage in attracting and growing
its industry.
. MR. MICHAEL WALBRECHT: Thank you,
Chairman and members of the Committee, for the opportunity to
speak to you today about the Empire State Production Tax Credit. By
name is it Michael Walbrecht. Jam Vice President of Studio and
Production Affairs at Warner Brothers Entertainment in Burbank,
California.
In 2004, a dozen states in the U.S. joined a multitude
of foreign locations in offering production tax incentives to the motion
picture and television industry. New York responded early, very
quickly, and put an incentive in place at both the State and local level.
We've already heard today the initial results were impressive; $1
billion in production expenditures in 2005 and 2006. Unfortunately,
being early to the game also sometimes means that you give your
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competition an ability to craft an incentive after you are done with
your work, an incentive that is more lucrative or more competitive
than what 'you have put in place.
And that is what happened in New York. I pulled
some information on Warner Brothers productions: In '03-04, before
the incentive, Warner Brothers had one production in New York and
spent about $30 million on our show. In '06-07, we had seven
productions spending $3 10 million, a tenfold increase. About half of
that, $150 million, was directly spent on payroll in New York with
about 6,000 people hired, 1,600 full-time equivalents. In '07-08, we
expect, at this point, projections would be three productions in New
York for about $70 million.
So you can see that the competition from the
neighboring states has clearly had an effect on New York's ability to
draw production in. Fortunately, New York is in a rather unique
position. If you pass the Current incentive as proposed, it will, in most
cases, bring the State into parity with other competing states. If you
couple that with other variables important to production, you will be
providing New York a distinctive edge. New York is blessed with an
abundance of highly-trained crews, competitive vendors and
terrific-looking locations. Most other states are lucky to have just one
of those variables going for them.
To illustrate this on a practical level, I asked our
budgeting department to take an actual film budget, medium-sized
film budget, which is in the $60 million range, give or take, and show
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the difference between the New York credit now and the proposed
New York enhancements against some of those competing states. In
my testimony, you'JI see the chart. But in brief, with the current New
York incentive, New York is about 6 to 12 percent more expensive
than Connecticut, Massachusetts and Rhode Island; somewhere in that
range, 6 to 12 percent depending on the state. Under the proposed
incentive, New York would be 3.5 percent less than Connecticut, 3
percent less than Rhode Island and within 2 percent of the cost in
Massachusetts. So, you can see that the proposed incentive would
bring you right in line with those states you compete with.
One last thought regarding the proposal, and it has
been heard already today, consider removing the impediment of an
annual cap on the program. The cap serves only to cloud the
long-tenn planning for our productions, both TV and features. As
Brian mentioned, from NBC, TV is looking two to three, sometimes
five years out. Feature films anywhere from a year to two years out,
and without being able to rely on the cap, it makes it difficult for us to
do the budgeting and puts New York at a disadvantage when there are
states that don't have a cap.
lfthere are any questions, I would be more than
happy to answer them. Thank you for your time today.
CHAIRMAN FARRELL: Thank you.
Questions?
Thank you very much and you were right on time.
Brian McMahon, New York State Economic
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Oevelopment Council.
MR. BRIAN MCMAHON: Good afternoon,
Chainnan Farrell, Chainnan Johnson, Chainnan Schimminger,
members of the Committee. I am Brian McMahon, President of the
New York State Economic Development Council. It is a pleasure to
be here and be given the opportunity to testifY.
Aristotle said, "Well begun is half done." The
Governor's budget represents a good beginning for adopting a budget
that would place New York State on improved economic footing.
There are two parts of the economic revitalization equation: Strategic
investment and improving business cost factors. Both are important,
the latter more so. We must make progress in both areas, however, or
risk becoming even more uncompetitive.
The Governor has made a significant commitment to
economic development in his budget Investment would increase
from $435 million to $951 million. We support most of these
investments. For too long, investments and economic development
have been made on a project-by-project, non-strategic basis. Most of
the new economic development investments in the Governor's budget
are targeted to priorities identified in regional blueprint development
sessions, coordinated by ESD, cooperation with business and
economic development organizations. Some of these programs will
fund projects, while others will be invested in communities to build
capacity for future growth. Both are needed.
While the Governor's budget does well on the
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property tax burden is the second highest in the country. The STAR
program has failed to reduce property taxes. In fact; the rate at which
property taxes have increased has been greater since the STAR
program was created and that is why we support the Governor's
recommendation tocreate a commission to look at the real property
tax and hopefully conclude that a meaningful cap is needed. Three:
Phase out corporate income tax for manufacturers. Eliminating the
corporate income tax on manufacturers would implement the most
important job rt:tention initiative the State has ever taken. It would
also be perceived by potential global investors as an important sign
that not only has New York not given up on manufacturing; but it is
redoubling its commitment to compete for high value; advanced
manufacturing investment and jobs.
I would like to offer some brief comments on some
specific points that are in the Governor's budget. New York State has
underfunded economic development for decades; and while we have
invested heavily in incentives for specific projects, we have invested
relatively little in building local capacity to support future economic
growth. That is why we support the $1 billion Upstate Revitalization
Fund. The investments are strategic and well targeted. Programs such
as the Upstate Regional Blueprint Fund; for example; would invest in
infrastructure; site preparation, brownfield remediation development
and would make Upstate communities more attractive for expansion
of location projects.
We support the $3.5 million in funding for business
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marketing. For more than a decade, the State has failed to invest
anything for this purpose. Consequently, we marginalize the
economic development value of technology, university and business
strengths that we do have, which are considerable. We oppose the $5
million tax on IDAs to recover costs for services provided by the
State. IDAs already have to pay the bond issuance charge, which was
instituted six years ago for exactly the same purpose. Consequently,
we think this provision would amount to an unfair form of double
taxation and simply would add more cost to businesses that want to
invest in our communities.
We are disappointed that the Governor failed to
include in his budget administrative funding for Empire Zones. The
program is incredibly complex, it's process laden and relies heavily on
local administration to implement the program. Assemblyman
. Schimminger has introduced legislation which has passeQ the
Assembly last year and would commit $8.5 million for Empire Zone
administration. We support that legislation and we urge your support
and hope that is adopted.
In respect to new initiatives, one: Tax increment
financing. New York should make changes to its tax increment
finance law so it can become a useful tool for helping municipalities
redevelop distressed areas in their urban core. The major obstacle
with New York's TIF statute is that it does not allow school district
property taxes to be included in the tax increment calculation. Since
school district taxes are usually the largest portion of the total local
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property tax, the absence of that portion significantly reduces the
amount ofTIF debt which can be leveraged. Assemblyman
Schimminger and Senator Young have introduced legislation which
would allow school taxes to be used for this purpose, with the
approval of the school district. We support that legislation.
I would just like to briefly mention the New York
Bioscience Council, which fS a consortium of Statewide and regional
bioscience businesses and economic development groups, has
developed a comprehensive legislative agenda for advancing the
biotech industry in New York State. We are a member of that council.
We urge your support of their initiatives and I won't go through those
now; we will make sure that you have copies of all of those.
And lastly, marketing New York's biotech assets.
Last year, the Senate Majority provided our subsidiary, New York
Loves Bio, with a $300,000 grant to support our efforts to market New
York's bioscience strengths and assets nationally and internationally,
and those strengths are considerable. New York is ranked number one
in drug and phannaceutical employment; third in medical device
employment; third in NIH funding; second in Science Doctorates
awarded; second in life science R&D expenditures and we are ranked
number one in biotech growth.
This grant has allowed us to make investments that
will serve the industry for years to come. The opportunities to attract
bioscience investment and jobs are considerable and I look forward to
discussing with you how we have invested these funds and how the
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Legislature can help in the future .
In closing, while New York has many obstacles it
must overcome, it also has many great assets on which to build its
future economy. For example, our workforce is 29 percent more
productive than the national average. Many studies have ranked New
York first or second in the nation for bioscience. We are first in the
nation in photonics employment; we are third in the nation in
high-tech manufacturing employment and first in the nation having
the most top 100 colleges and universities.
We must build on these strengths and mitigate our
obstacles and we look forward to working with you to do just that.
Thank you for the opportunity to testify.
CHAIRMAN FARRELL: Thank you very much.
Questions?
Thank you.
MR. MCMAHON: Thank you.
CHAIRMAN FARRELL: Partnership for New York
City, Kathryn Wylde, President.
MS. KATHRYN WYLDE: Thank you. I know it's
late. I appreciate the opportunity to testify. I have submitted written
testimony and I wanted to ask if you prefer that I summarize rather
than read it?
ASSEMBLYMAN SCHIMMfNGER: Yes. Magic
words to our Chainnan. You make a lot of points that way.
MS. WYLDE: Well, I'm into points, thankyou. The
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Partnership for New York City represents New York's major leading
companies, business executives and investment firms. We are
dedicated to working with government on policies and projects that
support the growth of our economy.
I think today I am really here to say that we are very
concerned about the economy of New York State and New York City.
We were relieved to see today The New York Times report that the
Governor is revising revenue estimates, projections down, because we
think that is a realistic assessment. I think there is great concern
among our membership which represents, really, the economic engine·
for the entire State that, in fact, the uncertainty, the volatility and the
deterioration in our economy and its impact on our anticipated tax
revenues are significant and, importantly, have an impact on our
economic development strategies, as well. We think it is important to
take this into consideration during the budget process, obviously.
The Executive Budget that the Governor has laid out
does not anticipate the same kind of steep decline that we are
concerned about, particularly in the area of the financial services
industry, which is responsible for 20 percent of the tax revenues of the
entire State. It lays out some proposals involving taxation that we
think are not well timed. Some of the proposals, in these terms the
so-called "loophole closing proposals," we think can, in fact, be know
enacted. For example, making sure that non-residents pay real estate
taxes on transactions and we would even suggest taking a further step
that non-residents should not be able to avoid estate taxes.
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On the other hand, there are a couple of proposals in
the budget that I call to your attention that we think represent a
strategy that is anti our economic development goals for the City and
the State. The first is the elimination of the $1 million ceiling that is
in place on the taxes that non~manufacturers - in other words, the
service sector - the taxes that they pay on assets. This is raising the
tax on assets over and above the taxes on corporate profits that these
businesses are already paying, would really encourage companies to
take their assets out of New York. This is at a time when the United
Kingdom, for the benefit of London's competitiveness with New York,
is reducing their corporate taxes. Their corporate taxes are being
reduced from 30 percent to 28 percent.
And so, at a time when they are competitively
reducing taxes and New York has an all-in federal tax rate on
corporate profits of 50 percent - federal, state and city - we think that
we are in a position where eliminating this ceiling on the tax on assets,
on capital, is totally inappropriate.
A second proposal would dramatically increase taxes
on New York-based financial services companies that have credit card
affiJiates~ This has been positioned as a tax on out-of-state credit
companies. The fact is, those states that have imposed this tax are not
headquarters states; they are small states that are trying to reach into
headquarters operations in other states and tax on the basis of the
credit cards that they issue in their state. In New York, we have the
reverse situation. And the effect under our Tax Law of imposing this
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tax simply adds to the tax burden of our headquarters operations, and
it means that a company that has property and large amounts of jobs in
New York State will be paying higher taxes than a company'based in
Charlotte and selling credit cards into New York, which obviously is
not in our economic development interests.
The third proposal is the proposal to force
out-of-state businesses to collect and remit the State sales tax on
purchases New Yorkers make over the Internet. This not only raises
taxes on consumers in New York but it also, because the ability to tax
depends on making a connection with New York affiliates, it would
mean that for businesses in New York, the businesses from outside
that are selling into New York would shun those affiliations. It is bad
for New York business as well an additional burden on the consumer.
Finally, the Executive Budget basically calls for using
the Investment Tax Credit that has been available to encourage '
financial services to invest and expand in New York. The companies
that have come back to lower Manhattan, for example, and been
investing around the State, it removes the investment tax credit that
the Legislature has had in place since 1998, and we believe that it is
exactly the wrong time to do that. This is an important incentive for
encouraging the expansion of facilities. As Jsaid before, financial
services is an industry that is really going to face a difficult time right
now, and this is something that, if we want to maintain New York
City and State as the financial capital of the world, we can't afford to
be sending this message.
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There are other changes in the budget where
projected revenues, again, do not justify the negative message that will
be sent to New York's most important companies and we are happy to
have our tax committee work with you to identify those and also to
find other ways to raise revenues.
I will skip to just saying something about economic
development. We worked last year on a report that A.T. Kearney, the
international consulting firm, prepared for the Empire State
Development Corporation. We engaged more than 100 companies
and economic development executives from around the State in
thinking through how New York could better capitalize on its assets,
including leveraging the business assets and corporations,
multi-national corporations in New York City to support Statewide
economic development.
We think that much more needs to be done on this
front and we don't think that the programs and the structure that New
York State currently has in place maximizes those opportunities. So,
we again would urge working together to figure out how to create
more proactive programs, how to take big bets, like the one that you
all took on the Albany NanoTech operation in partnership with IBM,
where you have seen a return to the Capital District and to the State.
That is really significant and that is because it was part of a strategic
and thoughtful effort between the Legislature and Executive to invest
alongside a company that is an international leader in its field .
We have a number of those companies in New York.
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We should be doing much more to work with them to identify where
are the opportunities and how do we invest together to realize those.
That isn't the way the budget process or the traditional programs have
worked. Programs like Empire Zones are passive. We need more
proactive, more strategic and more highly-targeted programs and we
are happy to discuss more on that later.
I think the only other thing I would like to mention is
we were concerned that in the area of trying to get control 0 four
health care costs and our Medicaid costs, that we are not being as
aggressive as we should be. The only major budget proposal really
increases impositions on the health insurance industry, and that is
going to be passed along to employers and individual consumers. We
think we have to think harder and take more daring steps in that. We
think that the other piece in the budget proposal, in the health care
area, which reduces what the State would pay for drugs, while that
sounds like an efficiency and a spending cut initiative at a time when
our economic development strategy is to try and attract
pharmaceutical investment, biotech investment into the State of New
York to encourage it, it is very definitely a mixed message.
And again, we would urge that we sit down with
industry to figure out how to maximize their overall commitment to
separate tax policy, or to have tax policy that is directly contradictory
with our economic development goals is not a good thing. And we
see that reflected in the budget. We think there is an opportunity in
New York for business and government to work togethe~to figure out •
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policies that are mutually reenforcing, that meet the revenue needs of
the State and, at the same time, encourage continued economic
growth. Thank you.
CHAIRMAN FARRELL: Thank you very much,
Kathy.
ASSEMBL¥MAN WEPRIN: I have a question,
actually.
CHAIRMAN FARRELL: Question.
ASSEMBLYMAN WEPRIN: Sorry about that.
CHAIRMAN FARRELL: Nothing you've said, but
we have a Committee meeting, so three of us are going to get up and
walk away. It is not a protest.
ASSEMBLYMAN WEPRIN: You are going to leave
me all alone.
CHAIRMAN FARRELL: Yes.
ASSEMBLYMAN SCHIMMINGER: We are going
to leave you with the gavel.
ASSEMBLYMAN WEPRIN: Ms. Wylde, I was
curious, in the past you had been very vocal about need for an
expanded convention center in New York City and you didn't mention
the Governor's proposal about selling the property north and south of
the Jacob Javits Center. I was curious if you had any opinions on that.
MS. WYLDE: Well, I think our conclusion is that
the proposal to use the budgeted $ ) .76 billion to add 100,000 square
feet of exhibition and meeting room space within the footprint of the
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existing property is the right one for this time. We do not think the
State is in a financial position to invest $5 billion in a new convention
center.
We also think the talk about moving and developing a
convention center in another borough is something that is worth
pursuing. I think that that is something that we would like to see
explored. A lot of information is coming in, in the last five years --
and you are right, historically, in the 1990's we were big proponents of
expansion of the convention center -- but there is a lot of information
coming in that suggests it may not be the highest and best use for that
property on Manhattan's West Side.
ASSEMBLYMAN WEPRfN: When you mention
other counties about a convention center, you a~e talking about
Queens or anywhere in particular?
MS. WYLDE: Queens in particular, since it has two
airports, is logical.
ASSEMBLYMAN WEPRIN: Right. Earlier when
the economic development team was here, we talked a little bit about
Willets Point and how important a piece of land that is to develop and
develop economic activity out there. Do you have opinions on Willets
Point? I know you have been speaking on that, as well.
MS. WYLDE: I have an opinion, not an official one.
r think that it is b~th a location and assemblage that could make a lot
of sense.
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ASSEMBLYMAN WEPRIN: One last question. On •
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the film tax credit, don't know if you were in the room for that, but I
assume you are supportive of their position of trying to become more
competitive with the other states on the film production tax 'credit?
MS. WYLDE: Yes. I think that the investment the
State has made in the film production tax credit is the example of the
kind of incentive, like the financial services investment tax credit, that
has proven that it builds an industry here, that it reinforces an industry
cluster and is a smart economic development investment from the
State, in contrast with some ofour passive investments where
everybody who happens to move in gets rid of their taxes.
ASSEMBLYMAN WEPRIN: Okay. Thank you.
Thank you, Senator.
CHAIRMAN JOHNSON: Thank you. We will
proceed at this time by calling up Ron Deutsch, New Yorkers for
Fiscal Fa'irness.
MR. RON DEUTSCH: Should I start otT reassuring
Ms. Wylde that the departure might have had more to do with me
being present than her coming up? No.
I want to thank the members of the Committee that
are left for allowing me to speak here today. I thank you very much.
Again, my name is Ron Deutsch. I am the Director of New Yorkers
For Fiscal Fairness and I am hear today representing the Better Choice
Budget Campaign, a coalition of organizations representing hundreds
of thousands of New Yorkers from the faith-based, non-profit and
labor areas around the State.
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I am really here today to talk about a number of
different factors within the Governor's budget. I will spare you the
reading of my testimony - since it's 18 pages in ten-point font - and
just hit the highlights for your benefit. But we are here today because
we support the creation of a fair tax system. We support strengthening
local economies and we support strengthening and supporting
assistance for working families throughout the State.
So, how do we go about doing this? One of the
things that we are proposing to do is restore revenue sharing. Another
way is for having the State to pay for a greater share of health care and
education funding. We want to refonn the STAR Program to make it
more reflective of income and restore overall tax fairness in New
York State.
So, some of the mechanisms that we proposed over
the years, some of which have been adopted last year in the budget
session, but still need some work. One of the things we want to do is
close corporate tax loopholes. Obviously, that is something that the
Governor has proposed. We are in full agreement and support with
the Governor on that issue.
Another one that is less in the public spotlight,
certainly, is stopping many of the sweetheart deals that are occurring
right now, where the State is hiring pricey, private consultants to do
the work that State workers can and should be doing. We should have
a cost benefit analysis done before we contract out much of this work
that can be done by our State workforce, since we have been hearing
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from others that the State workforce is too bloated, if you will, but yet
we are still contracting out work. It makes no sense.
Lowering prescription drug prices, the Governor took
a step with this with the preferred drug Jist. One of things we would
like to see happen is having the State use its purchasing power. New
Yorkers spend some $20 billion a year on prescription drugs, about
$4- to $5 bi1Jio~ of that in the Medicaid system. We need to use that
purchasing power to force lower prescription drug prices.
We want to see the enactment of the Bigger Better
Bottle Bill. That, we think, makes a lot of sense in increasing revenue
in New York State. We also think that we should reclaim the
unclaimed bottle deposits from the beverage bolting industry, which
keeps about $200 million in unclaimed bottle deposits every year.
That would be a good source of revenue to help a bit of our ailing
economy. And making New York's tax system more fair and
equitable, which is something I wanted to spent a lit bit of time on.
Right now, as you can see from the chart on page 2 in
my testimony, ifyou look at the inci~ents of who pays taxes and how
much in New York, you will see as a percentage of income, the richest
one percent are, in fact, paying about half of what the bottom 80
percent are in terms of a percentage of their income in overall State
taxes. That includes the sales tax, the income tax and the property tax.
One of the problems, as we see it, is that the property tax debate
seems to be occurring in a vacuum. We talk about property tax as if
there is no relationship between property taxes, sales taxes and income
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taxes.
Well, yes, we agree that the property taxes have, in
fact, been going up over the last two decades without question, but
what we have seen at the same time, is that the income tax rates at the
same time have basically been cut in half. The top marginal rates
have gone from a high of about 15 percent to now a low of 6. 85
percent for the top wage earners in New York State. So, that is to say
the top rates kick in for families earning over $40,000 a year and
singles earning over $20,000 a year. So, effectively, you have a first
year-teacher paying the same effective tax rate as Donald Trump pays
in tenns of their income. We don't think that that's fair.
In 2003, the Legislature enacted, over the veto of
Governor Pataki, a temporary increase in the top marginal rates of the
income tax. This helped get us through a bad recessionary time, a
large budget deficit. And as of2006, those increases have, in fact,
been phased out. Now, despite what the Governor said at that time,
which was that you were going to see mass exodus of millionaires
leaving New York. Quite the opposite was, in fact, true. That did not
occur and the number ofhigh-wealth earners and filers actually
increased. So, the doom and gloom scenario about increasing the top
marginal rates of the personal income tax were unwarranted.
We have to realize that the property tax is a problem
without a doubt. I have no question about that. The thing that we
have to realize, though, is that the personal income tax, as it's been cut
overtime, can be a solution to this problem. We need to relieve the
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pressure on property tax and put the pressure back on the .income tax,
because it's directly related to an individual's ability to pay.
Furthennore, I would also say that the Empire Zone
program, the Industrial Development Agency's program and the
Brownfield cleanup program all are in desperate need of reform. We
are spending billions and billions on these programs with very little
impact and very little success. The Comptroller's report found that
some 23 percent of businesses in the Empire Z()ne program were
. cutting jobs. That is not good economic development.
So, that poses a significant problem as well and it is
certainly something that needs to be addressed. The Governor has.
made some inroads on this in his emergency regulations that he
released last Wednesday around the Empire Zone program. We are in
full support of those and believe, as you can see in my testimony,
more needs to be done and we have an eight-point refonn plan that
needs to be put in place in order to make these programs more
accountable and transparent.
And finally, I want to end by talking a little bit about
something that was said a little earlier by ESDC Chairmen Foye and
Gunderson in relation to some of the questioning that Assemblyman
Weprin put on the table regarding the Entrepreneurial Assistance
Program and the Community Development Financial Institutions
Program.
The Governor has, unfortunately, chosen to eliminate
about $800,000 from the Entrepreneurial Assistance Program budget
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of$1.3 million. It's a program that helps people start and create their
own businesses, everything from the inception of that business idea,
on through getting that business financed. It is an extremely
successful program averaging about $1,600 per job created. When
you compare thatto some of our other job creation programs, you can
see that that's a really good bang for your buck. It also generates
about $2 in tax revenue for every $1 that the State is spending on it.
So, it is true win-win program.
And much the s~me can also be said about the CDFI
program. Last year, the Legislature created a stand-alone CDFI
program which I thought made a Jot of sense, but, unfortunately, didn't
attach an appropriation to that. Again, that program funding also
looks like it is going to be cut and or flat-funded. So, I would strongly
urge you to reconsider putting money back into these programs and, in
effect, increasing the funding for these programs because they have
proven to be so effective.
And while folks have been here talking about small
businesses, a business with fewer than 100 employees, not exactly
what I would classify as a small business, per se, but I think we need
to realize that businesses with fewer than ten employees make up
about 95 percent of all the businesses in this State. They have a
significant impact on the State economy and I don't think that we can
ignore them within our economic development policies. So, thank
you.
CHAIRMAN JOHNSON: Thank you very much.
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ASSEMBLYMAN WEPRIN: That was a mouthful.
MR. DEUTSCH: 1talk fast.
CHAIRMAN JOHNSON: Questions?
ASSEMBLYMAN WEPRIN: No questions.
CHAIRMAN JOHNSON: We have about 11 more
people to testifY, so we ask everyone to follow the example ofMr.
Deutsch and take three or four minutes and then present your
statement.
Daniel Murphy, President ofNe:-v York City
Hospitality and Tourism Association.
MR. DANIEL C. MURPHY: Thank you, Chairman
Johnson and members of the Committee. In the spirit of the
hospitality and tourism industry, I shall, too, keep my remarks brief.
I am the President of the New York State Hospitality
and Tourism Association. Equally as important, I also serve as the
administer for Tourism Industry Coalition, a group of 19 organizations
throughout the State that have tourism as the core product of their.
reasons for being. For instance, the Convention of Visitor Bureaus,
the Tourism Promotion Agencies, Restaurant Association, NYC &
Company and those kinds of folks that all participate in tourism at the
State level.
So, first off I'd like to thank Governor Spitzer and the
Empire State Development Team, led by Downstate Chair Pat Foye
and Chairman Dan Gunderson, for allocating an additional $4 million
for "I Love New York" tourism marketing fund in this year's
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Executive State budget. The additional funding brings a total
allocation for the "I Love New York" program to total of$20 million.
We urge the Legislature to maintain this increased funding level and
make it a final part of the 2008-09 State budget.
This increased funding is a necessary second step in
building upon the $5 million increase for "I Love New York" in last
year's budget. It will help New York to better compete with
neighboring states that have been outperforming us when it comes to
attracting that alI-important leisure traveler. For example,
Pennsylvania is currently spending more than $60 million on tourism
promotion. So, most importantly, this request for additional funding
comes with a return on investment for the State that no other industry
can offer.
This past December, the Governor announced the
results of a new study on tourism done by the Philadelphia-based
research firm Tourism Economics. This study shows just how
significant tourism is to bringing dollars, economic activity and jobs
into the state's economy. The results of the Spitzer Administration
study showed tourism was a $46.6 billion industry, which was a 7.2
percent increase over 2005, and showing such strong economic
growth for the third straight year, and accounted for 740,000 direct
and indirect jobs, and contributed $2.7 billion in taxes at both the
. State and local level. Prior to' the Governor's study in 2006 we, the
private industry sector, commissioned a research document that really
verified the same results that the Governor made comment upon. And •
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the same results is that investing in tourism leads to an immediate
increase in economic activity in all regions of the State.
In copies of my testimony here today, you'll see that
all regions benefit from tourism. New York City, Long Island and the
Hudson VaHey together compromise nearly 80 percent of the New
York State tourism sales. However, an important part ofour research
was that our study was of the "I Love New York" budget portion. The
study, which is attributed to the "I Love New York" portion, based on
2005 when "I Love New York" had a $15 million budget, that
generated $1.6 billion in incremental spending, which in turn
generated $107 million in State and local taxes.
So, for every $1 spent promoting travel to New· York,
approximately $7 is returned to the State in the form of local and State
taxes. The important part here is that all regions do benefit from rtI
Love New York" efforts. In fact, 2.1 percent of all visitors spending
in New York was driven by the "I Love New York" promotion. But
the greatest impact - and this, I think, is an important part of our study
- the greatest impact of "I Love New York" marketing is seen in the
Upstate regions of the Adirondacks and the Thousand Islands. Nearly
12 percent of their tourism market is driven by the "I Love New York"
marketing campaign.
So, the studies have shown few industries benefit
faster for consumer marketing than tourism. Fewer create more jobs
per $1 million of economic activity and produce tax revenues at a
higher rate. Therefore tourism marketing is truly a revenue generator
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for our great State and it's ultimately a consumer product. Increased
awareness of our rich and varied destinations will entice people to
come here. Advertising and marketing, however, are the critical
means.to create the awareness and demand for our destinations.
. So, the tourism industry, through the efforts of this
Administration, in cooperation with the Legislature, has gotten the
ball rolling, once again, on pumping up tourism in our great State and
restoring the heart in "I Love New York." Each county and region, we
would also recommend that the matching funds program be
reconsidered and increased so that each county and region draws
different visitors from different regions of the U.S. because of product
diversity and the matching funds program increases the opportunity to
reach those visitor segments that compliments the "I Love New York"
program.
So in closing, New York State Hospitality and
Tourism Association and the entire tourism industry is calling on the
Executive and Legislature to fully support this increased funding
re'1uest and allow the industry to grow and to better compete in the
Northeast for that all-important leisure traveler and restore New York
to its preeminent position as the number one destination in the United
States while contributing an additional $28 million to our Statels tax·
coffers this year. Thank you very much.
CHAIRMAN JOHNSON: Thank you.
We have a question at this time from Senator
Stachowski.
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SENATOR STACHOWSKI: I just wanted to ask
you if you thought the reason that program worked so well in 2005, "I
Love New York," was because Governor Pataki was in every single
commercial?
ASSEMBLYMAN WEPRIN: That was a rhetorical
question, Mr. Murphy.
MR. MURPHY: Senator, I appreciate the question;
however, I must say that with the current administration putting $5
million last year and another $4 million this year, we have almost
doubled what was out there. In the meantime, our competitors have
outspent us and they are out-hustling us. So, I again, I thank you very
much for your time today.
ASSEMBLYMAN WEPRIN: Senator, could I ask
one question?
CHAIRMAN JOHNSON: One further question.
ASSEMBLYMAN WEPRIN: I'm just curious, Mr.
Murphy, how do you think that money should be spent? Do you think
TV advertising is the key component, or is it print advertising? What
do you think is the most successful? You talked about how successful
the advertising campaign could be.
MR, MURPHY: Thank you. 1am impressed. I have
been the President of our Association now going on 13 years and I
have been actively involved in the hospitality industry here in this
State for 25 years. This is first time that I have seen professionals,
who are marketing professionals, that are running our agency that are
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responsible, and I would leave those decisions up to them. They, too,
have reached out, though, to the Industry starting back in this past
winter where they went ahead and asked for industry input. We were
there for the selection process for the new ad agency.
So, we leave the marketing and where -. whether it
be print advertising, TV, digitally, whatever, we leave that up to the
professionals now. There is no learning curve there for these people
because they have brought in, to their credit, professional marketing
people.
ASSEMBLYMAN WEPRIN: Thank you.
CHAIRMAN JOHNSON: Thank you very much.
The next person to spe~k to us is Duncan MacKenzie,
New York State Association of Relators.
ASSEMBLYMAN WEPRIN: I think they canceled,
someone said.
CHAIRMAN JOHNSON: They canceled?
SENATOR STACHOWSKI: Yes.
CHAIRMAN JOHNSON: Okay. Michael Kelly,
Director of Governmental Affairs, is he here?
No, good.
Kirsten Keefe, Empire Justice Center.
ASSEMBLYMAN WEPRIN: Yes, we have a
winner.
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MS. KIRSTEN KEEFE: Good afternoon. Thank you
for the opportunity to testify at today's hearing. My name is Kirsten •
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Keefe and I am a senior attorney with the Empire Justice Center.
Empire Justice is a non-profit legal services organization with offices
in Albany, Rochester, White Plains and on Long Island. Our lawyers
have been involved in the subprime mortgage lending crisis for over a
decade. We represent individual homeowners who are targeted in
unafTordable, overpriced and predatory loans. And we are engaged on
the nationallevel of mortgage reform initiatives, as well as on the
State level as a steering committee member of New Yorker's for
Responsible Lending, NYRL, a Statewide coalition of over 130
organizations working on economic justice issues.
Since I moved back to New York from Pennsylvania
over four years ago, I have come to believe that the real property tax
burden in New York is as much, ifnot more so, ofa hindrance on
low-income homeownership as access to fair credit. However, the
subprime lending and foreclose crisis is so severe and immediate and
has the potential ofhanning our State's economy unlike anything since
the Great Depression, that our testimony today will focus on
components of the proposed budget regarding economic development.
Investments made i"n other economic development
sectors in the next year will come to naught if with we do not
simultaneously and vigorously attack the foreclosure crisis at hand. A
preliminary analysis by Empire Justice of recently released numbers
by the Federal Reserve Bank of New York shows that as of October,
2007 more than 28,000 mortgages that were originated in a single
year, the year 2006, were more than 30 days past due in New York.
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Almost 14,000 mortgages were already in foreclosure. Worse though,
the crisis is yet to peak in New York. Between April I, 2008and a
year and a half, September 30,2009 another almost 32,000 mortgage
loans will reset into higher interest rates that could yield 20 percent
more monthly payments.
These are the very loans that are causing the national
foreclosure crisis. The impact of forecloses on individual families is
no doubt great; however, the subprime meltdown is a critical issue for
our State economy and affects aU of us, inel uding those of us not in
jeopardy of losing our homes. A report issued by the United States
Conference of Mayors in November, 2007 predicts the New York City
metropolitan area will lose almost $10.4 billion in gross metropolitan
product in 2008 as a direct result of the foreclosure crisis. The
predicted GNP loss for ten Upstate metropolitan areas is an additional
$2.4 billion, totalling a nearly $13 billion loss for New York State in
2008 as a result of the foreclosure crisis.
The bad news, however, does not end there.
Additional State and local government fiscal losses will result from
the subprime lending crisis if the State does not act quickly and
decisively. First, local property tax growth typically generated from
rising real estate values will decrease by $686 million in New York in
the year 2008 without immediate and drastic intervention. Second,
the impact on consumer spending as a result of the foreclosure crisis
will reduce New York sales tax revenue by $97 million. Finally, New
York stands to lose $47 million in 2008 in transfer tax revenue as
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housing prices and housing sales go down.
The impact of the current economic crisis on job
growth in New York has not yet been calculated, though the U.S.
Conference of Mayors reports that nationally, employers are becoming
more cautious about hiring resulting in Ii deceleration of employment
growth. Another cost to be anticipated is the financial impacton
community resources as New Yorkers move from houses to rental
units. Our State is in dire need of more affordable housing properties,
as realized by the Governor through his dedication of over $400
million in funding for the development of affordable housing
throughout the State. The foreclosure crisis will only further strain
this valuable resource and it is yet to be seen how New York will deal
with the increased demand for rental housing.
The Federal Reserve Bank of New York's numbers
indicate that this is as much of an Upstate as a Downstate problem
when one compares the foreclosure numbers. Indeed, Long Island is
in particular trouble where almost 8,500 mortgages were already 30 or
'.
more days past due as of October, 2007. However, almost 12,000
mortgages were delinquent in Upstate as of October, compared to
about 16,000 in New York City and Long Island combined.
As mentioned above, New York is not at the apex of
the problem. Almost 32,000 mortgages with adjustable rates
Statewide are set to reset into higher interest rates between Apri lIst
and September 30,2009. The impact of these numbers on New York
City neighborhoods will be huge. The impact on Upstate cities could
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be devastating. In many communities across Upstate New York with
stagnant populations and economies, there is already a widespread
vacancy problem. An epidemic of foreclosures wiJJultimately
perpetuate the cycle of disinvestment we have already observed and
will further undermine State and local efforts to revive our struggling
towns and downtowns and get properties back on the tax roles.
Even in light of this grim outlook, New York is
actually in a better position than many states to curb the devastation if
immediate investment is provided. New York, first of all, has the
benefit of learning from what is already happening in states such as
California, Colorado, Oklahoma and Ohio. The more recent waive of
adjustable rate mortgages, known as ARM's, with exploding interest
rates has not yet adjusted in New York. New York also has a
relatively lower number of ARM's than other states.
This is not to say, by any means, unfortunately, that
New York is not facing a crisis. Rather, we believe that in New York,
at least, the crisis can be contained with a relatively limited amount of
upfront investment, but it must come now. The Federal Reserve Bank
of New York data, limited in that it only studies loan originated in the
single year of2006 that are now delinquent, is very instrumental in
that it shows us real trends in New York.
For example, attached to my testimony is a map of
Long Island which illustrates the most intense pockets of subprime
loans and predicts the areas that will be hit the worst. Empire Justice
is developing Statewide maps that similarly show hot spots of bad
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loans. Ifwe target these areas with intense relief, foreclosures can
become a manageable crisis and we can prevent some of the economic
predictions expressed in the U.S. Conference of Mayor report. Ifwe
fail to deal with these hot spots now, however, New York will
inevitably experience extreme and perhaps irreversible problems in
these communities.
Our recommendations are three. First, create a
Statewide home retention loan rescue product. Attempts to engage
investors, lenders and servicers to provide voluntary modifications and
assistance to borrowers have largely failed. They are dragging their
feet and timing is too critical to wait for the private sector to act
voluntarily. Thousands of New York homeowners would be able to
afford their homes if they can be refinanced into loans with prime
rates. The only way that New York can limit the expected almost $14
billion loss from foreclosures in the next year is to create a fund to
enable homeowners to get out of the onerous loan terms trapping
them.
Empire Justice supports the Assembly's proposal to
create a $] 50 miIJion fund. While we do not yet know the details, we
urge the Governor, along with the Legislature, to create a program that
would either purchase mortgages wholesale and then modify the terms
and/or a fund that would allow homeowners to refinance out of their
existing mortgages. This measure, with increased funding, would
directly and immediately allow thousands of New Yorkers to remain
in their homes. Such investment would revitalize our Stateeconorny
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in other ways by reducing monthly mortgage payments arid giving
New Yorkers more disposable income, thus providing an economic
stimulus for our State by generating spending on our local economies.
A significant number of homeowners would also
benefit from a State-funded program that would provide small grants
or loans to allow them to negotiate better loan tenns and/or repayment
plans with their lenders. Here in the Capital Region, as part of our
home save initiative, a small grant fund of this sort has proven to be
very effective in preventing foreclosures.
Our second recommendation is to increase State
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funding for foreclosure prevention and default counseling and legal
services. Successful models across the State have proven that with
appropriate one-on-one assistance from counselors, attomeys and
other advocates, borrowers are more than likely to retain their homes
and avoid foreclosure. We support the Assembly's proposal to provide
$30 million in funding for housing counseling and legal services. The
Governor has already provided $2 million in matching funds for
housing counseling through the Banking Department. The funding
proposed by the Assembly would build upon the Governor's initial
investment as well as create legal services resources for homeowners.
Not only is money needed for agencies to hire staff, but funding must
be allocated for traini.ng, as well as for ongoing support to enable
counselors and lawyers to adequately help homeowners.
Empire Justice urges the State to increase resources
and, one, create a dedicated State funding source to provide •
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sustainable funding for high-quality pre-purchased counseling services
across New York. Secondly, to expand foreclosure prevention
services to aid troubled borrowers and, third, provide funding for
non-profit, civil legal services, including dedicated funds for civil
legal services for training and support, as well as for direct services.
Our final recommendation is to invest money to
. research and implement programs that are most effective in reaching
homeowners. The few mortgage lenders and servicers which are
making sincere efforts to reach borrowers in trouble report poor
success. Our experience similarly shows that homeowners in loans
that they cannot afford or in Joans that are about to reset are distrustful
of their lenders and reluctant for whatever reasons to reach out to
them for assistance. We recommend that the State research, whether
through focus groups, surveys or other means, ways in which to best
reach homeowners in trouble and then implement those programs
immediately.
I should note that New Yorkers for Responsible
Lending supports budget proposals such as these and will submit
written testimony. Much more is needed, including stronger
regulation of the financial services industry, so that less money is
sucked out of oor economy by lenders. However, the immediate
allocation of resources to help individuals and families that are
struggling to stay in their homes is the critical first step that must be
taken. We urge you to work with the Governor to take that step now.
Empire Justice and the over 130 members ofNYRL stand ready to do
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whatever we can to help you make it happen. Thank you.
CHAIRMAN JOHNSON: Thank you. It's very
interesting and we had a program like that going on on Long Island
right now, but that was for people in the nonnal economy who get
behind in their mortgage. But, with the situation which is evolving
now in the economy, I think it takes a lot more than counseling, you
know. It takes jobs for those people and the banks to back off a little.
The banks have enough trouble of their own. They are not going to
back offtoo much on these mortgages. So, we have got a real
problem. But thank you for coming up with some thought anyhow.
Thank you very much.
MS. KEEFE: Thank you.
CHAIRMAN JOHNSON: David Hochman, Business
Incubator Association of New York State.
We have to get back to our three or four minutes if
you don't mind, Mr. Hochman. Thank you very much. We are getting
real behind here.
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MR. DAVID HOCHMAN: Good afternoon, Mr.
Chainnan, members of the Committee. Thank you for allowing me to
testifY. My name is David Hochman. J am the founding Executive
Director of the Business Incubator Association. We were formed just
a couple of years ago and now represent 30 organizations operating or
planning 38 different business incubator programs across the State,
from Buffalo to Long Island, from the North Country to Brooklyn and
31 Assembly Districts, 23 Senate Districts and nearly every •
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Congressional District. Our member organizations are very diverse;
half are affiliated with universities, SUNY. CUNY. the independent
colleges. Many are operated by independent non-profit economic
development entities. some are affiliated with a county government,
. others with a private sector chamber. One actually union affiliated;
two governrrient affiliated and three for-profit.
I am here to applaud the use of incubator-related
vocabulary in the Executive Budget and, specifically, in the agency
narratives of Empire State and NYSTAR. But I am also asking the
Legislature to define incubator-specific programmatic funding in the
budget so these agencies have the resources and mandate to work with
us to improve the quality, sustainability and accountability of services
Statewide.
I am going to skip a section of my written testimony
for you. New York State has a significant number of business
incubators· and many are quite excellent, but State support has been
sporadic, generally for facilities construction rather than programmatic
improvements, .and often dependent on the go?dwill of individual
members of the Legislature rather than guided by programs managed
by our economic development agencies. Without programmatic
support, quality would be Jess than its full potential from the
perspective of our tenants.
Running an incubator that delivers valuable business
advice and support to its tenants is difficult and almost impossible
without some kind of subsidy. In the non-profit and educational
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worlds, incubators work best when embedded in rich sources of
business support, such as business school entrepreneurial centers or
well-staffed small business development centers.
But what ifyou are not able to borrow expertise in
this way? Where do you tum for the truly modest support that will
allow your tenants to achieve their full potential and remain satisfied
corporate citizens? To help you assess those questions, I want to
highlight for you what is known to be true about business incubators.
J am drawing from A Guide to Business Incubation for New York State
Elected Officials, prepared for us by Professor David Lewis of
UAlbany, an academic expert on incubation. He accepted no money
from us and had complete editorial independence. We are actually
looking for corporate sponsors so we can put a copy of this into the
hands of every member of the Legislature.
Here are some of his findings in highlight: In six
academic studies, he reviewed business surv.ival rates and incubators
range from 68 to 87 percent. Those of you who know small business
know that's an amazing statistic. So, business incubators seem to be
effective in improving survival rates. In the sam,e six studies, between
76 and 85 percent of graduates, incubator graduates, remained in the
same region after graduation. So, business incubators also seem
effective at making their graduates to stick to the regions where they
got started. A slightly broader set of studies showed public sector cost
per job ranging from $3,000 to $11,300. So, publically-assisted
incubators seem to be very cost effective on a per-job basis, compan~d
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with recruitment-only strategies. I am not the only witness to have
made that point.
There are still questions we don't know about, but
overall the data are very good. So, what do we want from the budget?
Now, we would never say that the State's entire economic
development strategy should rest on incubation alone. Our members
house several hundred companies employing 1,000 or 2,000 New
Yorkers at most at anyone time. But among these companies are
several young public companies, venture-capital backed startups and
many other good businesses that are all welcome contributors to their
regional economies. As they graduate, hopefully they stick and the
effects add up.
Incubation needs to be one acknowledged component
of the State's economic development strategy and to be credible, it
must be guided and held accountable by programs that are actually
funded. We have worked weJl with both NYSTAR and Empire State
across the transmission in administrations, but neither one has explicit
budgets to develop and strengthen the State's incubation system. We
believe it's essential for either or both agency to have the budget
resources to work with us to improve the system and to surround it
with the resources that improve the chances of our tenants for
successful graduation into their communities.
For exat,nple, there is demand, but not budget among
our members, to put on more pre-seed workshops to identify
promising ideas by local entrepreneurs, scientists and engineers. Or
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with funds available, our association could help by serving as an
intermediary with our national level professional society to bring in
tiger teams that can audit our incubators for best practices and to bring
in some of the really fine national workshops to New York State to
establish our deserved reputation for innovation in this sphere.
With budget available, we could work with the
agencies on making awards that acknowledge incubator company of
the year, and other ways to celebrate these successes. We would also
like to collect good data that the State can use to diagnosis problems
and progress. We want to help guide the State's evolving mechanism
for seed-stage equity financing to give special priorities to companies
based in incubators where chances of success are higher and we would
like to produce materials that can market our incubators globally for
inward investment by small and mid-size companies based overseas.
AlJ ofthis will take mandate andbudget. That's what we ask you to
consider.
Thank you, Mr. Chainnan, I would be happy to
answer any questions.
CHAIRMAN JOHNSON: Thank you very much.
No questions.
Reverend Victor Collier, New York State Thruway
Alliance. What do preachers know about roads? Let's hear from
them. Is he here?
SENATOR STACHOWSKI: No.
CHAIRMAN JOHNSON: Guess not.
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SENATOR STACHOWSKI: Next.
CHAIRMAN JOHNSON: Next. Scott Brandi, Ski
Areas of New York.
MR. SCOTT BRANDI: Good afternoon, members of
the Committee. My name is Scott Brandi. I'm the President of Ski
Areas of New York, Inc. We are the trade organization that represents
the ski industry in New York State. Like Dan Murphy who spoke
before, I'm also a member of the Tourism Industry Coalition. I
appreciate the opportunity to present some of the challenges of the ski
industry in New York State.
First, I would like to give you some facts. We are a
part of, as Dan Murphy said, a $43 billion New York Stale tourism
industry. Of this, about $4 billion generates from recreation. The ski
industry itself generates approximately $1 billion of recreation tourism
sales in Upstate New York on an annual basis. This revenue is
generated mostly during the winter months. In many regions, the ski
industry is the only garnein town when it comes to tourism. Many
communities throughout the State depend upon the tourism dollars
that we generate from December to March.
I wonder how many people know the answer to the
question: What state in this nation has the most ski areas? The
answer is New York. With the opening of the North Creek Snow
Bowl this winter, we have 44 ski areas in our great State. And it's
interesting to note that they are spread out pretty evenly throughout
the regions from the Hudson Valley to the Adirondacks, to central
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New York, the Allegany region, Buffalo; there are ski areas
everywhere surrounding every community.
Some facts about our industry. We employ over
10,000 New York State residents. Our annual payroll is over $50
million; most of it when we need it the most in the winter in Upstate
New York. We generate over 4 million skier visits per year and the
economic impact of these skiers on Upstate New York is over $1
billion spent. Every skier that goes to an Upstate community spends,
on average, per day, $100 outside of the money they spend directly to
ski. Sales taxes paid are over $4.8 million, property taxes over $4
million.
It's a fact that New York has the second highest
percentage of residents who ski, but yet we are fifth in the nation in
skier visits. We are behind California, Colorado, Vermont and Utah.
We export skiers and their cash to New England every day in the
winter. And this speaks to what Dan Murphy was talking about, about
our support of the "I Love New York" budget presented by the
Governor. I just came from a three-day event in New York City. We
had, in Union Square Park in Manhattan, over 8,000 people coming to
one of our "I Love New York" events. And in Central Park where we
tried to make snow but it was too warm, we had over 20,000 people at
an "I Love New York" event.
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So, we are getting a fair amount of support. We
would like to keep that going. We want to overtake Vermont in skier
visits. But I am also here to report that we are an industry with a lot of •
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challenges and trouble. We are faced with many unique problems.
Senator Betty Little and Assemblymember RoAnn Destito have
introduced Bill Nos. 2342 and 5392. These bill~,~eektoexempt
'j,'ij/-
energy-efficient snow-making equipment, ski lift equipment and snow
grooming equipment and energy use to make snow at ski areas from
sales and compensating use tax in our State. Other states with
significant ski resort operations have passed similar legislation:
Wisconsin, Minnesota, Utah and Colorado. This bill has a modest
impact ofabout $1 million in the State budget. We believe the
upgrades to the physical plants, the purchase and use ofmore
energy-efficient equipment will allow us to better deal with the
challenges confrontingus and help us to remain a viable part of the
New York State economy. The return on investment to the State, I
think, will be multiples basedon the improvements, based on the
additional taxes and revenues through tourism.
Some of the challenges we are facing that are
significant, the most important one right now is New York State is
unique in that we have three' publicly operated ski resorts that are in
direct competition with the private sector. These ski areas do not
incur costs such as insurance, some taxes, administrative costs and
some labor. These costs are estimated to be between $2- and $3
million per year, incurred bya like-size private resort. The private
resort would have to sell over $40,000 full-price lift tickets to
overcome this inequity. The sales and compensating use taxes
outlined in the bills J mentioned before are not paid by the public ski
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areas. We are looking to try to level the playing field for the ski areas
a little bit.
New York State ski areas, many of them opened in
the early '60s, we have aging infrastructure, old lift components, old
pumping systems and compressor systems. They need to be upgraded.
The elimination of the sales tax to purchase new energy-efficient
equipment will help our ski areas to remain competitive and viable.
We really need that. The rising cost of power and fuel, again, that
points towards the energy efficiency of the new equipment. It's
environmentally friendly. It will help us operate and keep our
profitability.
The last comment I want to make about the ski
industry is we contribute greatly to the quality oflife in our cities and
small towns throughout our State. Our learn to ski programs get our
children out of the house, away from the video games. We provide,
through my association, a Statewide learn to ski program called "Four
for Free" where all fourth graders in the State ski for free; it includes
lessons and lift tickets. Something we provide for free and it is paid
for by the ski areas.
So, I am here asking for your support of our bills, to
provide some tax relief to the ski industries like other states have
done, recognize the importance we play in the role in Upstate New
York to generating tourism revenue and the quality oflife. And also, I
just want to put in, again, my support of the Governor's budget for" I
Love New York." Thimk you very much.
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CHAIRMAN JOHNSON: Thank you very much.
CHAIRMAN FARRELL: Thank you.
Susan Wieler, Citizens' Committee for Children.
MS. SUSAN WIELER: Good afternoon.
CHAIRMAN FARRELL: Good afternoon.
MS. WIELER: My name is Susan Wieler and I am
the Senior Policy Associate for asset building andJ~community
development at the Citizens' Committee for Children of New York.
would like to thank Chainnan Johnson and the members of the
Committees for the opportunity to testify on the budget for this fiscal
year.
Citizens' Committee for Children is a 64-year-old
child advocacy organization dedicated to ensuring New York's
children are healthy, housed, educated and·safe. CCC has convened
and fonned and mobilized New Yorkers for over sixde~ades to make
New York a better place for children. Our approach to child advocacy
is fact-based and balanced, offering common-sense solutions to the
complex problems affecting children.
We applaud the Governor for developing a budget
that seeks to maintain and improve upon many essential services for
children and families. Given the deficit, the effort to avoid reducing
supports for families and children is laudable. However, CCC is
concerned that there are numerous proposals related to preschool
special ed, public assistance, youth detention, municipal aid and
education aid that will either shift costs, reduce State aid or eliminate
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State aid completely, and in so doing, negatively impact localities,
especially New York City and the children who live there. As all
localities, including the City of New York, are experiencing the
effects of an economic slowdown, we are extremely concerned that
cost shifts of this magnitude proposed will force localities to cut
essential services.
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With that said, I will tum my attention to the budget
proposals pertaining to economic development and taxes. We applaud
the Executive Budget proposal to create a housing opportunity fund;
however, we are concerned that much'ofthe revenue for the fund is
contingent on the sale of property at the Javits site, a one-time source
of revenue. The affordable housing crisis across the State requires
nothing less than a housing trust fund with a pennanent and
dependable source of funds. 'A true trust fund financing structure
would assure that housing investments by government are not
threatened by budget constraints or fiscal crisis in- the years to come.
In addition to capital programs like the Housing
Opportunity Fund, tax relief can also be us used to increase housing
security for families. Unfortunately, the families that struggle most to
maintain stable housing benefit lease from tax relief programs. In
New York State, 47 percent of all households are renters: In New
York City, 67 percent of all households are renters and nearly hal f of
all New York State renters spend more than 30 percent of their
income on rent. While these households don't pay property taxes,
their rents are directly impacted as landlords pass along the cost of •
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rising property taxes in the fonn of rent increases.
As changes to the STAR program are contemplated
in this year's budget negotiation process, tax equity for renters should
be considered.
Thank you for the opportunity to testify to the
Executive Budget for fiscal year 2008-2009. I would be happy to
answer any questions.
CHAIRMAN FARRELL: Thank you very much.
Any questions?
Thank you.
Anne Ackerson, Executive Director, Museum
Association of New York.
MS. ANNE ACKERSON: Good afternoon.
CHAIRMAN FARRELL: Good afternoon.
MS. ACKERSON: You are receiving my testimony
and statistical fact sheet that helps to put the museum community, I
think, in context regarding the kinds of contributions that it makes,
both educationally and economically to the State of New York. My
name is Anne Ackerson and I am the Director of the Museum
Association of New York, a member-based service and advocacy
organization serving the State's diverse museums and heritage
organizations.
New York's 1,900 museums and historic sites are
economic and educational resources that pump more than $1 billion
into the State's economy every year, primarily in the form of wages,
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taxes and the purchases of goods and services. While New York
State's museums and heritage organizations are critical to the State's
tourism economy and, indeed, the Museum Association of New York
is also a participant in the Tourism Irydustry Coalition, my remarks
will specifically address the New York State Arts and Cultural Capital
Grants Program.
We at the Museum Association applaud the Empire
.State Development Corporation and the Governor for recognizing
cultural institutions of all types and museums and heritage
organizations, in particular, as pivotal resources on which to build
economic revitalization efforts everywhere across the State. We were
heartened to hear ESDC testify at the Division of the Budget hearing
last October on capital funding, that they saw capital funding of arts
and cultural organizations as part of the whole solution to reviving
Upstate New York. And they specifically pointed to the fact that
historic sites are anchors in many neighborhoods in communities
across the State and that cultural amenities could serve as magnets to
revitalize downtowns.
Museums across the State were further encouraged by
Governor Spitzer last month in his Upstate revitalization speech about
his plan to connect cultural facilities, such as museums and historic
sites, to affordable housing projects, job creation, retail development
and educational and recreational opportunities. The Governor
transformed this verbal acknowledgement of the centrality of
museums and cultural institutions to the economic vitality of the State
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JOINT BUDGET HEARING - ECO.DEV./TAXES FEBRUARY 11,2008
into a concrete fiscal commitment by proposing $40 million in new
capital funding in the ESDC budget called the New York State Arts
and Cultural Capital Grants Program. This is a precedent-setting
initiative. Of the total amount, $12 million is reserved for Upstate
communities.
You should know that museums and heritage
organizations undertake their economic development missions with
very little funding from the State and without any funding from the
State Education Department, their primary incorporator and regulator.
Unlike schools an,d libraries and public broadcasting, which together
will receive in excess of $1 billion in funding next year from the State
Education Department, chartered museums and heritage organizations
are incorporated and regulated by the Department, but receive no aid
from it. The $40 million in capital funds from ESDC is the first time
in my memory that the Executive Budget included a lump sum
appropriation focused specifically on cultural institutions.
For this reason, it is very important to us that the
Legislature work with the Executive Branch and the New York State
Counsel on the Arts and the Museum Association of New York to
develop criteria and to open a transparent process for distributing the
$40 million lump sum. Thank you very much.
CHAIRMAN FARRELL: Thank you.
David Culbertson, member and President of National
Pipe and Plastic Inc. Unshackle Upstate.
Did the ankle break before the shackle or after?
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MR. DAVID CULBERTSON: I want to tell people
that was the I 50-meter ski jump, but nobody believ'es me yet.
CHAIRMAN FARRELL: Can't resist, excuse me.
MR. CULBERTSON: Chainnan Farrell, our own
Assemblyman Clifford Crouch, members of the Joint Fiscal
Committees, thank you for the opportunity to speak today. My name
is Dave Culbertson, President of National Pipe and Plastics, a
manufacturer ofPVC pipe for residential, agricultural, commercial,
municipal and export markets since 1970. We are the largest PVC
pipe producer in the Northeast quadrant of the United States and one
of the largest in North America. We have two manufacturing
facilities, one in Greensboro, North Carolina'and the other in one of
our own Southern Tier communities, Vestal, New York; 175
employees in New York.
I appear today as a member of Unshackle Upstate, a
bi-partisan coalition of over 65 business and trade organizations
representing upwards of32,000 companies and employing more than
one million people with a goal of achieving reforms in Albany that
make Upstate a stronger place to do business. I am also here as a
resident of Upstate New York, with children and grandchildren living
here, and a business owner faced with the challenges and
opportunities that go along with any business.
I am currently spending $3 million on three new
product lines that would expand our business in New York and bring
new jobs into Upstate. As we analyze the cost and benefits of
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expansion, we have to compare our two locations. Among the factors
we have to consider are an energy cost that is two-and-a-half times
higher in New York than North Carolina, a Workers' Compensation
cost here that is still more than double the cost in North Carolina, even
after the improvements made in New York last year, and a higher tax
burden in New York. Where we ultimately decide to grow these new
markets will depend on whether New York makes the necessary
changes to create a more competitive business climate in Upstate.
Overall, Unshackle Upstate has mixed feelings on the
Executive Budget. There are some great initiatives that we
enthusiastically applaud, a few negative aspects that we firmly oppose
and certain key elements that are noticeably missing, but which we
believe are essential to revitalize the Upstate economy.
Let me begin with the positive aspects of the
Executive Budget. Unshackle Upstate supports the Governor's
proposed Upstate revitalization fund, particularly the $350 million
Upstate Regional Blueprint Fund. An economic infusion of this
magnitude will go a long way toward jump-starting the Upstate
economy and creating much needed jobs all across Upstate.
Additionally, we fully support the creation of the New York State
Commission on Property Tax Relief to examine the root causes of
high property taxes, identitY ways to make the State's property tax
system fairer and develop a fair and effective school property tax cap
to hold the line on property tax growth.
Unshackle Upstate is also pleased with the new
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brownfields legislation that was introduced as part of the Executive
Budget. Developing more shovel-ready sites and an improved
brownfield clean up program is a key component of Unshackle
Upstate's economic development agenda. Over the'past few months,
we have had positive discussions with Chairman Gunderson and
Commissioner Grannis on brownfields reform and we are pleased that
many of our suggestions were included in the new legislation.
However, to be successful we still believe further amendments are
needed.
Finally, we support efforts in the Executive Budget to
reduce energy costs for Upstate businesses, including enactment ofa
new Article X siting law and offering eligible companies receiving
low-cost power the opportunity to receive contracts up to seven years
in length so that businesses will be able to count on lower electricity
costs for years to come.
Now I need to address what Unshackle believes are
the missing pieces in the Executive Budget: Tax relief and business
cost reduction. Unshackle believes that significant tax relief and
business cost reduction are essential components of the Upstate
revitalization effort. In order to generate sustained economic growth
and job creation across Upstate as a region, the State must provide real
structural reforms to the Upstate,economy in addition to capital
investment. While we welcome capital investment for Upstate
through the new revitalization fund, we must point out that there is
little, if any, tax relief for Upstate businesses in the budget proposal.
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In our view, a better balance needs to be struck
between capital investment and long-term structural tax relief for
I
Upstate. Taken together, the Upstate Revitalization Fund and
structural tax relief would provide a solid foundation for a long-term
economic growth and job creation across the region. As part of our
2008 agenda, Unshackle has proposed the elimination of corporate
franchise tax 9-A for Upstate businesses over a five-year period.
Eliminating the corporate franchise tax would be extremely helpful to
Upstate in two ways: First, it would provide substantial and
desperately needed tax relief to existing Upstate businesses and
second, it would help make Upstate a far more attractive site for new
businesses looking to relocate.
Indeed, if the State eliminated the corporate franchise
tax for Upstate, then the region would become one of only places in
America with zero State corporate tax on businesses. We can think of
no better way to put Upstate on the map again then to eliminate all
State corporate taxes in Upstate. We recognize and applaud the
efforts of the Senate's Upstate Now plan in the area 0 f structural
reforms such as eliminating business taxes on manufacturing in New
York State, providing STAR property tax rebates to small businesses
that employ fewer than 20 employees.
We also recognize that the Assembly has, likewise,
proposed eliminating business taxes on manufacturing and extending
STAR to small businesses in separate bi lis sponsored by
Assemblymembers Schimminger and Koon. Unshackle Upstate's
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2008 agenda proposed similar initiatives and we hope that in'the next
six weeks we can have an open discussion and dialogue on instituting
a compromise on much needed structural Upstate tax refonn.
In tenns of lowering the cost of doing business, last
year's Workers' Compensation reform appears to certainly be a first
step in cost reduction for Upstate businesses. However, the Executive
Budget does not contain any similar cost reduction initiatives f()r the
coming year, aside from the energy relief measures noted above. In
order to create sustained, long-term growth Upstate, the State must
continue to deliver significant cost reduction reforms for Upstate
businesses each year. such as Scaffold Law reform in 2008.
We would be remiss if we did not identify some of
the negative components in this year's Executive Budget that
Unshackle Upstate finnly opposes. The more than 5 percent increase
in total spending in the budget proposal up to $124.3 billion is
extremely alarming. The various member organizations that form
Unshackle Upstate are very concerned that New York's current rate of
spending is destined to cause serious finaricial problems for the State
in the near and long-term future.
There is also a serious concern about the various tax
loophole closers. increased health care taxes and fee and penalty
increases in the Executive Budget. We continue to examine these
revenue actions to determine their impact on Upstate businesses and
consumers. but we do object to the fact that unlike last year. none of
the savings from the loophole closers are being utilized for •
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across-the-board tax relief for businesses.
Unshackle Upstate maintains its strong opposition to
the Wicks Law reform legislation contained in the Executive Budget
because it would, one, disproportionately benefit Downstate
communities when Upstate is the region most in need of relief and
two, unfairly mandate the use of project labor agreements, PLAs, in
certain cases and require contractors, on work over $3 million, to have
apprenticeship programs for three years.
In closing, Unshackle Upstate fully recognizes the
extreme difficultly in crafting this year's enacted State budget;
however, any further delay in efforts to remediate the Upstate
economy will have dire consequences, further jeopardizing its return
to the economic prominence the area once held decades ago. It is
essential for the generations that follow us that we act now to correct
the region's fragile financial status.
I appreciate the opportunity to share Unshackle
Upstate's priorities with you this afternoon and would be happy to
respond to ahy questions you may have. Thank you.
CHAJRMAN FARRELL: Thank you very much.
Questions?
Yes, Assemblyman Crouch.
ASSEMBLYMAN CROUCH: Dave, thanks for
coming today. I appreciate your comments. I have to agree with you
100 percent, as we've talked a number of di fferent times. You are
here offering good, solid suggestions, not having a hand out for
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money. You know, I think that's very positive. So, I can't disagree
with you. You have got some good suggestions and we'll see what we
can do.
MR. CULBERTSON: Thank you, Assemblyman
Crouch, I appreciate it. Thank you all.
ASSEMBLYMAN CROUCH: Sorry about your leg.
CHAIRMAN FARRELL: Thank you, and watch
those shackles.
James Colvin, President, New York Association of
Convenience Stores. If can you stay within the five minutes it would
be appreciated.
MR. JAMES COLVIN: Chairman Johnson,
Chairman Farrell, Committee members and staff, thanks for the
opportunity to speak with you today. Our association represents more
than 7,000 neighborhood mini-marts and convenience stores from
Hamburg to Hempstead that employ 60,000 New Yorkers and serve 6
million customers a day. Many of our stores are regu.lated by the
Department ofTaxation, the Department of Environmental
. Conservation, the Liquor Authority and the Lottery Division.
We are so relieved that there aren't any tax increases
for small businesses in this budget that Governor Spitzer has
proposed. Of course, there are a few surcharges, fee increases, penalty
increases, tax reclassifications and reforms, and combined, they would
add up to at least $189 million a year in additional costs for retail
stores and their customers. But thank heaven, no new taxes.
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Some examples of these proposed not-a-taxes: $15
million from reclassifying Smimoff Ice and other flavored malt
beverages, which we sell to adult custome~s, as it would be classified
as liquor instead of beer for taxation purposes, and the result would be
a jump of2,21 0 percent in the tax rate on those products. $3.6 million
from reclassifying little cigars, like Swisher Sweets and Winchester,
which we sell to adult customers, as cigarettes instead of cigars and
that would increase the tax from 37 percent of the wholesale value to
$1.50 excise tax for packof20. In both cases, New York City could
impose its own higher surcharge on top of that.
$25 million rising to $ I00 million when fully
effective from expanding the Bottle Bill to non-carbonated beverages.
This would force additional mounds of empty containers down the
throats of small food markets that have no place to store them and no
way to prevent them from compromising sanitation. Over $1 million
from tripling or quadrupling the maximum fines for violating
Agriculture and Markets Law or regulations, including food service
inspections.
Taken together, Governor Spitzer is saying let's flood
mini-marts with unrinsed beverage containers that will pile up in their
back room, attracting bugs and bacteria, and then let's send in
Agriculture and Markets inspectors to write them up for poor
sanitation and fine them three or four times as much as we would have
last year for the same violation. And lastly, consolidate and, quote,
"reform" all State and local taxes on petroleum products to create a
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new, unified State and local excise tax on motor fuel. Consolidation,
which would eliminate costly and duplicative paperwork for us and
the Tax Department, is long overdue and we commend the
Administration for advancing the idea. Yet somehow, they found a
way to do it that would extract $13 million more in tax revenue from
the motoring public next year and $56 million the year thereafter.
In our opinion, the Legislature should reject all these
revenue enhancements. None is warranted, none is desirable. No
matter what the Governor calls them, all would have the same effect
of tax increases. Now, when you start the budget negotiations, the
Second Floor is going to tell you all of these highly-creative revenue
items are essential to the survival of the State of New York in the next
budget cycle; that no part of this $189 million may be removed
without pushing our State toward bankruptcy. And yet. last
November. Mr. Spitzer's budget office revealed that the
Administration had decided to forgo $200 million in anticipated new
revenue that they had placed in the current budget. That was
supposed to come from the lawful collection of taxes on the vast
quantities of gas and cigarettes that Native American retailers sell to
non-Native American New Yorkers.
So, $189 million in new taxes and fees and fines and
refonns and surcharges that will do nothing but suck the life out of an
industry already crippled by the State's tax policy the Spitzer
Administration considers absolutely imperative. But $200 million in
new revenue from enforcing existing Tax Law that they have blatantly
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refused to implement, they consider that optional, expendable, no big
deal. No big deal? It's an all-out, full-scale cigarette and motor fuel
tax evasion epidemic and it costs licensed tax collecting retailers $1
billion or more in gross sales every year and costs our State at least
$500 million a year in lost tax revenue. It costs the average New York
household $100 a year in taxes to subsidize other New Yorkers'
tax-free purchases of cigarettes from Native American outlets.
Compelling people to quit smoking by making it too
expensive through taxation is a wonderful idea, but it can never work
as long as it's easy for smokers to routinely buy cigarettes without
paying the tax. No big deal? The fundamental rule of law is at stake.
Since when does any Governor get to pick and chose which duly
enacted laws he will or won't enforce? Now, with all due respect to
the new Tax Commissioner, his prepared remarks on this issue earlier
this afternoon were disingenuous. He stated that the Department is
enjoined from enforcing the Tax Collection Law. In reality, the
Department has chosen to enjoin itself. It is no more enjoined from
enforcing this law than you are enjoined from walking out of this
room whenever you wish.
Last January in Buffalo, a State Supreme Court Judge
issued a preliminary injunction barring the State of New York from
enforcing the Cigarette Tax Collection Law until the Department, as
required by statute, issues tax exemption coupons to the tribes to
protect their exemption on sales to other members of the tribe. The
remedy was simple and obvious. The Department, at its will, could go
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ahead an implement the law by issuing the tax exemption coupons to
the tribes. Indeed, Governor Spitzer said as much the day after the
ruling. It is sort of like the character Otis on the old "Andy Griffith"
show; he is in the jail in the local sheriffs department, but any time he
wants to he can reach through the bars and grab the key and let
himself out. In the case of the Tax Department, they have the key but
they elect not to use it. The shackles are imaginary and they are a
convenient illusion.
But for C-store operators and their suppliers, the
shackles are painfully real. For 20 years, they have had to do business
with one hand tied behind their back by the State of New York, trying
to keep up with steadily increasing costs and more regulations from
the State, while selling less and less because more and more of their
customers desert them for tax-free outlets.
One casualty of the cumulative economic hann lies in
Hamburg, New York, in Senator Stachowski's district. On January
11 th, fast month, the 48 employees of E.P. Kirst & Sons, a
century-old, fourth-generation family business, were told the finn was
. closing permanently. Kirst was a wholesale distributor and 70 percent
of his trade had been supplying licensed, tax-collecting convenience
stores in Western New York with tobacco. Because Governor Pataki
and now Governor Spitzer refuse to enforce the law to restore a level
p·laying field between indian and non-Indian retailers and suppliers,
thousands of smokers abandoned those convenience stores to buy
cheaper, tax-free products at nearby Indian outlets. Kirst's sales
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volume plummeted, and finally, last month it reached the point of no
return.
Licensed mom-and-pop retailers and wholesalers
who dutifully collect taxes for the State of New York have a right to
expect our State to ensure a level playing field. Taxpayers have a
right to expect that taxation will be administered equitably. Citizens
have a right to expect that constitutional duties will be carried out
faithfully. Because the Governor and the Tax Department have turned
their back on these principals, small stores and their suppliers are
being forced to close or sell and this State, already $4 billion in the
hole, continues to forfeit billions more in legitimate, desperately
needed tax revenue.
Here we are, more than a year after "Day One," when
Governor Spitzer said everything would change, nothing has changed
except we have a new Tax Commissioner who offers the same old
.excuses. E.P. Kirst and Sons has drowned and who knows how many
more tax-collecting, family-run businesses are, right now, on the verge
of collapse; betrayed by those who preach Upstate economic
revitalization while serving as handmaidens to Upstate economic
armihilation.
Thank you very much. I would be glad to answer any
questions.
CHAIRMAN FARRELL: Questions?
.ASSEMBLYMAN HAYES: Mr. Calvin, just one
quick question. The $200 million that was the amount that was put in
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the budget last year by Governor Spitzer that was uncollected, is there,
in your research on the budget, is there an amount that you have been
able to identify that is in the budget this year?
MR. CALVIN: We can't find it.
ASSEMBLYMAN HAYES: And what do you make
of that?
•ASSEMBLYMAN HAYES: I would be very
interested to see that study. Thank you.
MR. COLVIN: It should be ready by the end of the
month. Thank you.
CHAIRMAN FARRELL: Amy Kramer, Vice
President of Government Affairs, Credit Union League.
MS. AMY KRAMER: Thank you. Distinguished
members of the Senate and Assembly, Chairman Johnson, Chainnan
Farrell, Assemblyman Hayes, Senator Stachowski, thank you so much
for letting me testify on'behalfthe New York State Credit Union
League. Again, I'm Amy Kramer. I represent the Credit Union
League. It is a State trade association for credit unions representing •
MR. CALVIN: We are told,secondhand, that he put
the same $200 million in there. We can't find it. It is probably in
there, but we just can can't find yet. I would add, Assemblyman, that
we are undertaking a new economic analysis to determine exactly how
much tax revenue the State of New York could collect in the next
budget cycle and beyond if the Administration were to enforce this
law.
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nearly 500 State and federally charted credit unions and their 4.2
million member owners in New York.
As you know, not-for-profit credit unions are an
important asset for New York's consumers. They employ over 11,000
and, again, they serve 4.2 million consumers. At a time when many
banks and other financial institutions are leaving areas of the State that
aren't quite profitable enough, and they are also playing a role in the
. mortgage crisis and are consistently hiking consumer fees, credit
unions continue to place serving their members as their highest
priority.
We request your action on two issues important to
credit unions and their members: Mortgage parity for State-chartered
credit unions and also funding for the newly created New York State
Community Development Financial Institutions Fund, which I know
was referenced earlier. Regarding the mortgage parity issue, as you
know, New York's 500 credit unions are not-for-profit financial
institutions owned by the members who use their services. Credit
unions may be chartered by the State of New York and supervised by
the State Banking Department, or they can be chartered by federal law
and supervised by the National Credit Union Administration in
Washington. But all credit unions in New York are federally insured.
Today, we have 22 State-chartered credit unions and
478 federally-chartered credit unions doing business in the State, and
under the current law, State-chartered credit unions are required to
pay the special additional mortgage recording tax, while
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federally-chartered credit unions do not. As not-for-profits, this tax to
record mortgages is unfair, burdensome and puts the New York State
Credit Union Charter at a disadvantage. State-chartered credit unions
pay this tax whenever they record a mortgage and they can't pass it on
to their members. This situation continues to present a significant
financial disincentive for any credit union to select a State charter.
Current federal credit unions, which might otherwise consider
conversions to the State charter, are deterred by the additional cost of
this tax.
In June of 2007, the New York State Tax Department
estimated that elimination of this tax, special additional mortgage
recording tax, for State-chartered credit unions resulted in lost revenue
to the State of about $500,000 annually. Not too much, but it is a
very, very important amount for State-chartered credit unions and the
survival of the State Charter. Depending on which county records the
mortgage, the tax is distributed to the State, SONYMA, the
Metropolitan Commuter Transport District and the Niagara Frontier
Transportation Authority, or just into the county's general fund.
This Legislature has taken great steps to make
legislative proposals to address the subprime mortgage crisis. Credit
unions, both our State and federal charters, did not playa role in
creating the mortgage crisis, but they are making significant
contributions to support families who are in trouble with affordable
financial services. Credit unions, as not-far-profits, grant responsible
mortgages always with their members' ability to repay and long-term
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financial health as a priority.
Why, then, would we want to make it more costly for
State-chartered credit unions to grant mortgages? The savings from
this tax, these credit unions will grant more great mortgages, create
jobs and expand financial services and investment in their
communities. And we do have several bills out there sponsored by
Assemblywoman Greene and Senator Farley to address the situation.
The second issue I would like to comment on today is
funding for the newly created New York State Community
Development Financial Institutions Fund, or CDFI Fund. CDFls are
financial institutions, some of which are credit unions, with a special
mission of serving underserved communities and people of modest
means. They provide a range of affordable financial services and
loans to consumers, homeowners, small and micro businesses and to
community organizations financing affordable housing and
community facilities.
CDFIs specialize in making the type of loans that
banks cannot or will not make, either. because they don't have a
presence in these Jow-income communities or because borrowers do
not conform to conventional underwriting criteria or the loans are too
small or considered risky. So, CDFI is an umbreJla tenn to include
community development credit unions - CDCUs -community loan
funds, venture capital funds, housing groups, community banks and
others. CDFIs help low-income people build assets, manage debt,
obtain financing to become productive stakeholders in the economy;
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and these are the people most often neglected by mainstream financial
institutions. 70 percent of CDFI clients are low-income; 76 percent
are minorities and 58 percent are women.
In 2007, Governor Spitzer signed legislation to create
the framework for the first ever full-fledged CDFI fund .- I know Ron
Deutsch was telling you about this as well. This fund, at the State
level, is to be administered by the Empire State Development Corp.
Enactment of this legislation empowers the ESDC, which already runs
a small CDFI program for women and minority business lending, to
begin developing a larger-scale program to attract substantial growth,
capital to CDFIs across the State. But again, funding is needed.
We urge your support for an initial appropriation of
$5 million to the New York State CDFI fund, along with a separate
combined appropriation of $1.5 million for ESDCs women- and
minority-owned business program. We know there is always
budgetary constraints, but if direct funding is not available, we urge
you to take a look at other New York State economic development
programs that might be undersubscribed and ask that you reallocate
the full $5 million requested for the New York State CDFI fund.
Members of the Senate and Assembly, New York's
credit unions applaud your leadership in holding these budget hearings
- and staying here all day to let me speak - serving your communities
and we appreciate your steadfast support of the credit union
movement. Thank you.
CHAIRMAN FARRELL: Thank you very much and
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thank you for adhering to the time limit. I appreciate it.
John Henderson, President and CEO of High Falls
Brewery.
MR. MARK SORINI: Good afternoon, Chairman
lOMson, Chainnan Farrell. This is actually Mark Sorini representing
the Flavored Malt Beverage Coalition. I am here with Mr. Henderson
from High Falls and because I need to catch a plane very soon, I took
the bold step of stepping in and speaking first.
Let me first say thank you for your long day here and
for your patience in listening to a little bit about a very technical
subject of beer this afternoon, but it is one of vital importance to the
coalition members and, particularly, to several businesses here in New
York, including High Falls Brewing Company.
The coalition, which represents about three-quarters
of the volume of flavored beer sold in the United States today, is
puzzled why any State would propose punishing its consumers, its
retailers, its wholesalers and several manufacturing businesses within
the State with what amounts to an almost 2,300 percent tax increase
on flavored beers.
So, I would like you to understand two things about
this category ofproduct. First, what is a flavored beer? And then
second of all, try to dispel a couple of myths that seem to be floating
out there aboutthe category. So, what is a flavored beer? You'll here
the term flavored malt beverage coalition, flavored malt beverage.
The nomenclature comes from federal law. A malt beverage, anything
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from Budweiser to Sam Adams to a SmirnoffIce or a Seagrams
Cooler, these are all malt beverages under Federal law. In New York,
there is no such term. The term is beer. So, if you will forgive me, I
will try to stick to the tenn appropriate for New York, flavored beer.
A flavored beer is simply that, a beer with added
flavors. It has the same alcohol content as a standard beer. It has the
packaging in 12-ounce bottles, just like a standard beer; sometimes
11.2-ounce bottles. It's packaged in six-packs. It's made at breweries.
It is distributed by beer wholesalers and beer retailers and it really
aims to serve the same drinking occasion for the adult consumer. It's
something that you wouldn't take a shot of, it is something that you
would drink at a backyard barbecue and those sorts of events.
So, a flavored beer is simply that it; it's a beer. The
major difference, of course, is that it has a different taste profile and I
donIt think the State really wants to be in the business of imposing a
taste tax on those consumers who happen to prefer, say, a lemon/lime
flavored beer beverage as opposed to something that has a hop profile
or a malt profile.
The second thing I would like you to understand
about this is some of the things that have been said that, well, in fact,
these have liquor in them. Well, they don't have liquor in them.
Nobody can take, in fact, under federal law, if I were to take a distilled
alcoholic beverage, a vodka, a gin, a whisky and pour it into a beer,
that product would be a distilled spirit. There is no question about it.
The same applies in New York law and, in fact, federal law doesn't
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even allow the bringing of a distilled alcoholic beverage onto the
premises of a brewery.
What these products do have is a majority of their
alcohol from the fermentation of grain just like any beer. They are,
however, flavored. And as most ofyou know, if you've ever looked at
the vanilla extract, the cherry flavor, any other flavor soft drink
concentrates if you are familiar with those, they almost always contain
some amount of alcohol; why? For a variety of technical reasons. It
is why the flavor industry routinely uses alcohol. . It is why New York
law recognizes that flavors aren't alcoholic beverages.
Because these products derive a tiny amount of
alcohol from the flavoring system does not make them liquor. Indeed,
if you total up, for example, a product that John makes, the Seagram
Cooler, the amount of alcohol, the maximum amount of alcohol that
can be contributed to that product from the flavoring system amounts
to 18/100 of an ounce. To try to claim then that that converts to
product into a liquor, to me, that is the loophole that is trying to be
used here to enact a 2,300 percent tax increase on this category of
products.
One other myth that we have seen, at least in the
press, is that somehow this is a tax on malt liquors like Colt 45. That's
absolutely not true. In fact, when it comes to some of those higher
alcohol beers that do not have flavors, they would be treated exactly
the same, whereas a 3.2 percent alcohol product, like John's Seagram
Cooler, would suddenly be taxed as ifit was the same thing as an
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80-proofvodka or an 80-proofwhisky. We think that is unfair. We
think that's wrong and we think it's illogical.
I would be happy to take any questions.
MR. JOHN HENDERSON: Thank you, Mark. Good
afternoon. I have written a testimony here and I am going to ad-lib it
so I am going to try to get through quickly .-
CHAIRMAN FARRELL: Thank you.
MR. HENDERSON: -- recognizing that I am the last
one here to keep you from adjourning here.
My name is John Henderson. I am one of the
founders of the High Falls Brewing Company, which was fanned in
2000 to purchase the assets of the Genesee Brewing Company. I'm a
Rochester native and like many other Rochester natives, we were very
concerned about the economic health of the community and Upstate
New York, and frankly, we did not want to see the Genesee Brewing
Company close, which was a very real possibility back in the late
1990's and 2000. So, we were very concemedabout keeping the jobs
in place.
I presently serve as Executive VP and CFO of the
company and my main purpose for being here today is to let you know
what the devastated impact of this 23 fold increase in the New York
State excise tax on flavored malt beverages would have on our
financial viability and the security of the jobs of the 400 people we
employ in Rochester, New York at the brewery.
Just to give you a little background. We are in
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multiple businesses. You probably know us primarily as the Genesee
Brewing Company. We produce Genesee Beer, Genny Light, Cream
Ale, Honey Brown, but those products have been declining since the
early 1980's. And as a way ofdiversifying and expanding our
business, we have gotten into different lines of business. We produce,
first off, products for other people on a contract basis; beer, as well as
flavored malt beverages. Secondly, we sell and distribute third-party
products, and the third way was to enter into a license and direction
agreement with Pemod Ricard to sell, market and distribute and
produce the Seagram Cooler brand, which we entered into in 2007.
This is a major transformational event for the .
brewery. We are very excited about it. It represents a 50 percent
increase in our sales. Ten percent of this product that we now have
responsibility for will be produced in Rochester. We expect to add 90
new jobs over the next three to four years. We are making a $5
million investment in the brewery in order to make this product
capable of being produced in Rochester.
It is a high margin product and it has a significant
impact on our cash flow and profitability, so much so that the
economic folks and development people at New York State, through
the Empire State Development Corporation, approved a $1.5 million
grant to the High Falls Brewing Company in 2007 to help with the
integration of the Seagram Cooler business. It's helping with the $5
million expansion that we have in the facility. It is helping us to retain
the jobs and it's a very important part of our future, as is the JDA.
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mortgage that was provided to us back in 2002 to help us acquire the
business from the Genesee Brewing Corporation back in 2000.
So, the economic impact of this business is quite
significant to us. And I want to now give you some sense for what
this really is going to mean to us because it is rather significant. The
current tax now on flavored malt beverages and beers is $0.11 a
gallon. It is proposed to go to $2.54 a gallon and if you converted that
into a six-pack price at retail, which is now about $5;99 for a six-pack
of Seagram Coolers, the price will go up about $2.40 to $8.40 a
six-pack. These products compete in the beer category. Beer is very
price sensitive and in our opinion, that sort of an increase will
essentially kill this category of product within New York State. The
consumers will not pay that increase. They will find alternative
products, be it beers or wines or spirits or other non-alcoholic
products.
CHAIRMAN FARRELL: I'm sorry, what size is the
bottle?
MR. HENDERSON: Seagram Cooler is a 12-ounce
bottle.
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So, in our opinion, the intent of raising $15 million of
additional excise tax really is a hollow one in regards to the fact that
the sales of the product are essentially going evaporate due to that
higher tax. Now, what does that mean for us? Flavored malt
beverages are a significant piece of our business. We have been able
to expand our production because of these products. 40 percent of our •
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sales are the result of flavored malt beverages that we sell or produce.
35 percent ofwhat we do produce is flavored malt beverages.
So, if the category .is essentially killed within New
York State, and if our neighboring states take a lead from what
happens in New York State, it can have a devastating impact on High
Falls Brewing Company in the fonn of significant loss of sales,
production, direct loss of jobs that are related to flavored malt
beverages directly, but also for the brewery in total. Taking that sort
ofa volume and putting it in jeopardy puts our whole facility, which
has been in Rochester since ]878, at jeopardy and we are very
concerned about that.
But it is not only us, it's our suppliers as well. We
will have $65 million of materials, just materials, that go into our.
product that we will consume in 2008. 40 percent of that comes from
,
two suppliers in New York State: Ball Metal Packaging in Saratoga
that we get our aluminium cans from and the Anchor Elmira glass
plant that we get our glass from. So, that's $25 million worth of
product that is coming from two suppliers in New York. We
obviously buy other materials that go into the product from New York
suppliers. We have a whole series of services: Marketing, printing,
consumables that are provided by people in New York State as well.
So, we have a very large concern, as you might
imagine, about the impact of this. We don't feel that there is going to
be any additional tax revenue for New York State. We, unfortunately,
personally feel that it's counterproductive to the other incentives that
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New York State has provided to us, which, by the way, we are
extremely appreciative of, and we think it will have a very big
negative impact on us, our suppliers, our employees and our
customers.
CHAIRMAN FARRELL: Questions?
Thank you very much.
MR. HENDERSON: Thank you for the time.
CHAIRMAN FARRELL: Are you getting
exemptions from the -- are you in any ofthe programs we were talking
about earlier today?
MR. HENDERSON: We are an Empire Zone, so that
is another way that New York State is helping us.
CHAIRMAN FARRELL: Very good. So, on one
hand ,they are giving and the other hand they are snatching back.
MR. HENDERSON: That is the way it looks like to
us, yes.
CHAIRMAN FARRELL: Thank you.
MR. HENDERSON: Thank you.
CHAIRMAN FARRELL: Have a good day.
MR. HENDERSON: Thank you.
CHAIRMAN FARRELL: Thank you. Time? It's
5:00. We are exactly 45 minutes late, not bad. We will adjourn until
tomorrow at 9: 15 a.m. Thank you very much.
(Whereupon, the Budget Hearing was concluded.)
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