Governor May Backtrack on Tax Cuts

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The New York Sun

Citing a softening economy and slowdown in state tax revenue, the Spitzer administration may be backpedaling on the governor’s promises to increase education spending and cut property taxes.

Governor Spitzer’s budget director, Paul Francis, began laying the groundwork yesterday for a spending rollback, saying that lower-than-expected revenues mean the administration will have to make painful decisions to fill a deficit in a budget that for the past several years has been flush with cash from a surging Wall Street.

Mr. Francis said that no spending priority of the governor’s could be assured of protection. “Given the current economic situation, we expect the choices this year to be especially difficult,” he said in a speech to a budget watchdog group in Albany.

The governor’s office is warning that the growing deficit could translate into smaller-than-promised education increases, the closing of business tax loopholes (which many view as tantamount to tax hikes), lower-than-anticipated property tax cuts, and another battle with the state health care industry over Medicaid and hospital spending.

“We are going to make every effort to ensure the numerical goals remain the same,” Mr. Francis told The New York Sun in a telephone interview. “Until we go through a budget process, it’s impossible to say whether this category of spending or that will be held sacrosanct.”

Mr. Francis estimated the budget gap for next year to be $3.6 billion, $500 million more than had been projected.

He told the Citizens Budget Commission yesterday that, with the exception of the two years following the September 11, 2001, terrorist attacks, the state has been “bailed out” of looming budget gaps for the last 12 years by revenue windfalls.

“It’s no wonder that many in Albany have come to think of the Division of the Budget as a kind of Chicken Little, saying the sky is falling,” he said, according to the text of his speech posted on the department’s Web site.

“The windfall of added revenues has largely absolved the Legislature from having to make hard decisions when it comes to the budget. But all indications are that next year will be different,” he said.

Last year, Mr. Spitzer proposed eliminating 13 corporate tax loopholes but, after negotiations with Mayor Bloomberg’s office and the Republican-led Senate, which charged that the changes to the tax law would hurt banks and other businesses, the number eliminated in the enacted budget was reduced to four.

The governor may try to push for the others this year, although he insists he won’t raise taxes.

If Mr. Spitzer attempts to balance the budget by scaling back planned education increases or slashing a state property tax relief program, he is likely to run into aggressive opposition from both the Democrat-led Assembly and the Senate, according to lawmakers.

As a candidate, Mr. Spitzer said he would enlarge a Pataki-era program known as School Tax Relief, under which state funds go to local school districts to offset property taxes through partial exemptions and rebates.

The governor’s original goal was to keep spending for the basic STAR program at about $2 billion more than the 2006–07 level for three consecutive years.

Total spending on the program rose by $700 million for this fiscal year, 2007–08. It is projected to increase another $500 million in the 2008–09 fiscal year and to go up by $500 million the following year.

Spending on STAR for the 2008–09 and 2009–10 years could change, Mr. Francis said. That means homeowners, who had seen double-digit property tax increases in recent years, could get less property tax relief than Mr. Spitzer had planned to give.

The mere possibility of slashing the property tax relief is already inciting a backlash.

“If they try to reduce the property tax rebate or benefit next year, they are going to have a hell of a fight because we will resist that and fight that,” John McArdle, a spokesman for the Senate majority leader, Joseph Bruno, said.

Meanwhile, in the aftermath of a 14-year education lawsuit, Mr. Spitzer committed to increasing state education spending $7 billion over four years.

This year’s budget includes $1.8 billion of that funding but, with the shortfall the state is now predicting, spending levels could be in jeopardy.

The deputy director of the group that filed the lawsuit, the Campaign for Fiscal Equity, Helaine Doran, said budget officials have not indicated that they are planning to scale back their spending commitment.

She said she is not expecting the governor to reduce education spending. Still, advocates would be prepared to mobilize if need be, she said.

“I see us all as players that don’t just roll over,” Ms. Doran said. “You’re not going to say, ‘Oh, shucks, it was a tough year.’ It’s legislation that was written, we don’t want to see the legislation undone.”

Mr. Spitzer has already been criticized by fiscal groups for signing off on a 7% spending increase in the last budget after pledging to tamp down spending growth.

Mr. Francis said he wanted to hold spending growth to 5.3%, which he said is the rate of personal income growth.


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