Governor Paterson has sent the Legislature a chapter amendment that would delete a proposed new hedge fund tax from the state’s pending 2010-11 revenue bill.   By approving the chapter amendment, which is expected to happen today, the state Assembly can erase the tax without voting all over again on the revenue measure it passed July 1.  The state Senate would have to approve the entire bill and the amendment before the revenue package could go to Paterson for his signature.

A new tax on the carried interest income of hedge fund partners who live in other states was approved as part of the revenue bill passed in the Assembly last month.   In addition to removing the hedge fund tax, the chapter amendment would clarify a tax on the incomes of non-resident partners in New York Subchapter S firms, and make a technical change to a provision allocating the state film credit.

The submission of the amendment deleting the hedge fund tax comes a day after Connecticut Gov. Jodi Rell hosted a dinner for leaders of the New York Hedge Fund Roundtable, and a week after Speaker Sheldon Silver first indicated he would rethink the tax.

** P.S. — The hedge fund tax was supposed to raise $50 million in the coming year.   There was no immediate indication of whether the Governor or Legislature have an alternative spending cut or revenue raiser in mind to cover that amount.  But when you’re talking about a $134 billion budget that’s probably way out of balance even assuming passage of the entire revenue bill, what’s another $50 million?

Governor Paterson has dropped a proposal to impose New York State’s personal income tax on the interest income of non-resident hedge fund managers from his latest preferred list of revenue-raisers to help pay for the 2010-11 budget appropriations the Legislature finished enacting two weeks ago.

The governor’s move is only symbolic, however. A package of tax and fee hikes including the hedge fund tax was passed by the state Assembly on July 1 and is the only live revenue bill pending in the state Senate. Moreover, the Assembly and Senate have refused to accept delivery of the program bill he sent up to them today.

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Governor David Paterson and the Democratic leaders of the New York State Legislature have agreed to impose $50 million in new taxes on non-resident partners in New York-based hedge funds.

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New York State once again topped all states in K-12 education spending in 2007-08, according to U.S. Census data released today.  The Empire State’s school spending of $17,173 per pupil was 67 percent above the national average of $10,259.

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Despite growing signs that Congress is finding it harder to spend with reckless abandon, New York State budget negotiators were counting on getting $1 billion in added Federal Medicaid Reimbursement Percentage (FMAP) aid under the so-called “jobs bill” expected to move through the U.S. Senate today.  Thursday.  Except … the bill didn’t move.  It was withdrawn, by Majority Leader Harry Reid (D-Nevada) before coming to a vote, once it became apparent that it wouldn’t garner enough votes to pass on its third try.

From Politico:

In stepping back now and pulling the bill, Reid made clear that he isn’t expecting a quick return.

The Senate will go home at the end of next week for the July Fourth recess and then return to what many expect will be a debate on energy policy. The long August recess follows, and, absent some breakthrough, Reid seems prepared to wait until after Labor Day before trying again.

By the way, the latest version of the bill the one Reid withdrew called for less FMAP money than the original.  In an effort to attract support from Republican moderates like Sen. Susan Collins of Maine, “$24 billion in new state assistance to pay Medicaid bills was scaled back to $16 billion and then phased out, as Collins had suggested, and fully paid for with offsets,” Politico noted.

In other words, the $1 billion originally expected by New York was really going to be more like $660 million.  And now, it may be three months before it’s clear that any of the dough will ever materialize.   Chalk it up as another example of why the entire Obama-era approach of providing temporary aid to states (on the Keynesian grounds that austerity measures will strangle the recovery) has actually tended to make a bad situation worse in places like Albany, where avoiding tough budget decisions is an art form.

Someone might want to convey this news to Governor Paterson and Democratic legislative leaders, who claim they are within striking distance of a budget deal to beat Paterson’s Monday deadline.

By the way, the newly agreed-upon New York City budget also assumes an increase in FMAP from the same federal legislation.  But the city budgeted its share much more conservatively, spreading a projected $600 million in added FMAP over three years, with $279 million included in the notional 2011 fiscal plan.  Mayor Bloomberg still has billions in reserve; for the city, unlike the state, a reduction in federal aid won’t spell the difference between red ink and redder ink.

Albany tops the list of “America’s Most Recession-Proof Cities” in this CNNMoney.com report, based on a recent Brookings Institute paper.  So, does this mean New York’s Capital Region is a magnet for entrepreneurs and all-round private-sector dynamism?  Uh, not exactly.  It is, however, the home base of the only major state that has yet to significantly cut its budget, and its largest employer has increased base pay by more than 11 percent since March 2008.   Even Albany’s main private-sector growth engine, the semi-conductor industry, has been goosed with billions in state subsidies.

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While the Legislature struggles to reach final agreement on yet another budget that is sure to spend more than the state can afford, a bit of good news for New York taxpayers can be found on the last page of today’s report from Governors David Paterson’s Task Force on Public Retiree Health Insurance.

The task force said it was “unable to reach consensus” on whether to support legislation that would make it much more difficult for counties and municipalities to change health care benefits for their retired employees.  In other words, public employee unions were unable to turn the 16 - 13-member panel into a vehicle for gaining gubernatorial support of a bill that would effectively lock in tens of billions of dollars in unfunded retiree health care liabilities across the state.  The report also recommends creation of a “standing” (i.e., permanent) task force to continue studying the issue.

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New York has the second most progressive distribution of federal income taxes among the 50 states, according to a new analysis from the Tax Foundation.

From the Tax Foundation’s Fiscal Fact:

Taxpayers earning more than $200,000 earned 40 percent of [New York] state’s AGI but paid 63 percent of the state’s federal income taxes. Indeed, they paid three times as much in federal income taxes as every taxpayer earning under $100,000 paid combined.

Connecticut had the most progressive federal tax distribution, with filers in the above-$200,000 bracket paying 66 percent while earning 44 percent of adjuste dgross income (AGI).

The Tax Foundation analysis is based on IRS data for federal individual income taxes paid in 2008.  But New York State’s own personal income tax is similarly progressive, according to figures in the “Economic and Revenue Outlook” volume of the 2010-11 Executive Budget.

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The Greek debt crisis has inspired economist Michael Boskin to lay out some fundamental lessons that are equally applicable to our own federal and state governments.

Quoting directly from this article by Boskin, the lessons are:

1. elected officials systematically ignore long-run costs to achieve short-run benefits;
2. they wait to act until they are forced;
3. government policies cannot circumvent the laws of economics;
4. governments cannot revoke the laws of arithmetic; and
5. budget policy is not merely accounting.

The challenge is to devise fiscal reforms that limit these tendencies.  That’s why, for example, it’s so important to replace the traditional defined-benefit (DB) pension plan in the public sector with defined-contribution (DC) plans.   Because DB plans are based on complex actuarial calculations, they are inherently opaque and have proven to be easy to manipulate.   By contrast, any change in a DC plan has an immediate and visible budgetary impact.

Lesson #5 is especially relevant to debate over Lt. Gov. Richard Ravitch’s long-term financial reform proposal for New York State, which is designed to promote budgetary balance (an accounting concept) rather than spending control (a meaningful policy goal).

The broad outlines of Andrew Cuomo’s gubernatorial campaign platform are beginning to dribble out as the formal announcement of the attorney general’s candidacy approaches.  By the time the state Democratic Party Convention opens next Tuesday, the leaks may have turned into torrent.

Meanwhile, what little we know about Cuomo’s proposals tends to raise more question than it answers.  (more…)