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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Most news coverage of yesterday’s budget vote reflected the approach of today’s New York Times headline: “Albany Lawmakers Pass Big Cuts in Health Care.” In fact, net of those cuts, the state-funded share of Medicaid spending will increase this year year by more than 8 percent, based on data in the governor’s original 2010-11 Executive Budget documents.

Interested in finding an authoritative, plain-language summary of the health care actions in yesterday’s budget extender bill?   You’re out of luck: neither Paterson’s office nor the Legislature has posted so much as a news release on their websites.  As New York’s state budget deficit gets larger, hard budget data from official sources is becoming even more scarce than usual.

Think of it: including yesterday’s $50 billion Medicaid appropriation, the Legislature has now adopted roughly 40 percent of the entire state budget for 2010-11, without producing a scrap of supporting documentation to explain the financial plan impact.  Amazing, even by Albany standards.

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Governor David Paterson began his tenure in the spring of 2008 on a promising note by embracing a broad, no-exceptions cap on school property taxes, almost exactly as proposed by the Suozzi Commission on Real Property Tax Relief.  But when the Senate actually passed his bill a few months later, he backed off and dropped the issue.

Last year, Paterson quietly reintroduced the cap — but added a massive exception that would destroy its effectiveness.  A few months later, he switched gears and began advocating a property tax circuit breaker–i.e., no limit on property tax levies, but subsidized tax credits for some homeowners.  The circuit breaker would begin flowing if the state budget ended a year in surplus under a separately proposed statutory spending cap.  This byzantine proposal has attracted no interest in the Legislature.

Today, the governor backed even further away from the property tax cap recommended by the Suozzi Commission.  His latest tax cap proposal would extend to all local governments, but adds a further carve-out that makes the exercise virtually pointless.

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Lt. Gov. Richard Ravitch still hasn’t publicly released his long-term plan to restore structural balance to New York’s state budget, including a rumored proposal to bond out a portion of the state’s budget shortfall.   But the details emerging so far from officials with some knowledge of the plan make this sound like a dubious proposition, to say the least.

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State Comptroller Thomas DiNapoli today issued a “Strategy for Fiscal Reform” that focuses on the budget process, but his most significant and potentially valuable recommendation deals with debt.

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“Changes in the timing and structure of financial services sector compensation, which have resulted in lower than expected personal income tax [PIT] revenues” led to a $1 billion state PIT shortfall in January, which in turn has helped add $750 million to the projected state budget gap for fiscal 2010-11, Governor David Paterson announced today.

In other words, Wall Street has not come to Albany’s rescue.

Opponents of Governor Paterson’s proposed mid-year budget cuts last fall were buoyed by hopes that financial sector bonuses would prop up the state’s finances for at least a while longer.  They were wrong.  Firms like Goldman Sachs decided to award some bonuses this year in the form of stock options, which won’t be fully exercised (and thus taxed by Albany) for years.

Paterson was already planning to push $500 million of the current year deficit into next year, contributing to a $7.4 billion budget gap that his 2010-11 Executive Budget was designed to close with a mix of spending restraint and tax increases.  Now that gap has grown to $8.2 billion.  Paterson said his 21-day budget amendments, to be released next Tursday, will include proposals for closing the additional hole.

The net added 2010-11 shortfall of $750 million consists of these elements:

• A revenue drop of $550 million through the end of 2010-11, including the recurring elements of a $1 billion shortfall in PIT collections in January, which was expected to be the biggest bonus payment month.
• Additional Medicaid expenditures of $400 million due to higher-than-expected Medicaid enrollments.
• Offsetting savings of $200 million in “areas outside Medicaid.”

Last week, an item was posted here about Governor Paterson’s somewhat puzzling announcement implying (seemingly) that his 2011-12 budget would result in a $1 billion surplus that he would use to finance a property tax circuit breaker.  “If the governor is saying that the four-year financial plan to be issued with his 2010-11 Executive Budget next week will make up for lost stimulus money, wipe out the entire projected gap and hold recurring spending a full $1 billion below recurring revenues in 2011-12, that’s really something to celebrate,” I wrote.

I should have read the fine print: Paterson’s original release said the surplus would be a product of his proposed tax cut “if enacted.”  Of course, the spending cap has not been enacted (not that it would make a difference).  And sure enough, the governor’s newly released 2010-11 Executive Budget does not, in fact, point to a surplus as soon as the year after next.  Quite the contrary: if enacted in its entirety, Paterson’s budget will leave the next governor facing a 2012-13 budget gap of $6.3 billion, which will grow to $10.5 billion in 2012-13 and $12.3 billion in 2013-14.

But the next governor, like the current one, will have the power to enforce a spending cap through use of the constitutional line-item veto.  Just in case Paterson is really interested in the concept.

Governor Paterson’s 2010-11 Executive Budget carries a hidden New York City personal income tax (PIT) increase for the city’s wealthiest households.

The increase would result from adoption of Paterson’s proposed changes to the state School Tax Relief program, or STAR.   Eighty percent of the $3.1 billion state STAR allocation underwrites property tax breaks, with the lion’s share going to homeowners outside New York City.  The remaining 20 percent pays for New York City income tax breaks–principally, a six percent across-the-board reduction in the city’s PIT rates, which now reach 3.65 percent on taxable incomes over $90,000.

Paterson’s budget would disallow the use of STAR money to finance a city PIT rate reduction for taxable incomes above $250,000.  In effect, this would create a new 3.88 3.85 percent city PIT bracket starting at $250,000. The result: a $143 million budget savings for the state.  Of course, unless the city makes up the difference out of its own funds, that also translates into a $143 million tax increase for high-income New York City residents.

The governor also has proposed eliminating the STAR homestead exemption for residences worth $1.5 million or more. The total state budget savings from Paterson’s STAR changes would come to $213 million, with two-thirds of that amount coming from the New York City PIT adjustment.

A more detailed description of Governor Paterson’s STAR proposals begins on page 33 of the Executive Budget Briefing Book. The legislative language begins on page 221 of the Education, Labor and Family Assistance Article VII Bill.

Producers of films made principally in New York will receive another $420 million a year in state tax subsidies under Gov. Paterson’s 2010-11 Executive Budget.  The proposed allocation of $2.1 billion for the film production credit over the next five years would come on top of more than $1 billion that the state has funnelled through the tax credit program over the last five years.

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A news release from Governor David Paterson claims he is proposing “significant spending reductions” in the 2010-11 Executive Budget he is releasing today.   If only it were true.

The net budget “reductions” sought by the governor consist largely of cuts in projected baseline growth–with the significant exception of school aid, which would decrease $1.1 billion (5 percent) below the actual level projected for 2009-10 school year.  Including local funds, assuming no local tax hikes, the cut effectively asks schools to get by on 2 percent less next year.

Yet, as a starting point for negotiations with a Legislature that will be bent on raising spending, Paterson hasn’t gone nearly far enough to curb spending in many areas.  In fact, the Executive Budget is similar in many respects to the 2009-10 plan he rolled out just over a year ago—which led, four months and billions in federal stimulus aid later, to a disastrous final product that made the state’s long-term structural budget imbalance even worse.

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