Gov. Andrew M. Cuomo’s proposed $136.5 billion executive budget for 2013-2014 drew an initial mixed response from leaders of business groups in New York, who oppose his planned $1.50 hike in the minimum hourly wage while applauding major reforms to the state’s workers’ compensation and unemployment insurance systems.
The proposed spending plan for the fiscal year that starts April 1 includes approximately $90.8 billion in state operating funds, a 1.6 percent increase from the current budget. Total proposed state spending of approximately $136.5 billion, which includes federal operating funds and capital project funds, is up 1.9 percent from the current fiscal year.
The executive budget eliminates a $1.3 billion gap between state general fund revenue and spending in 2013-2014 but includes no new taxes and fees, according to state budget director Robert L. Megna. When Cuomo took office two years ago, the budget gap in this coming year was projected to be $17.4 billion, he noted.
Here are some key initiatives in the governor’s proposed budget that directly affect businesses in the state:
Minimum wage increase – Cuomo wants to raise the minimum wage from $7.25 to $8.75 an hour as of July 1 to bring it more in line with the cost of living.
Nineteen states now have a higher minimum wage than New York, state budget officials noted. The $7.25 wage represents a little more than one-fourth of the average New York hourly wage of $28.
“Since low-income individuals spend a larger percentage of their income than higher-income earners, salary increases in low-wage occupations lead to increased demand for goods and services and help spur economic growth,” Megna noted in his budget summary.
Some leading business advocates in Albany disagree.
Heather Briccetti, president and CEO of The Business Council of New York State Inc., said the increased minimum wage was one of several Cuomo initiatives that concern the state’s largest business group because they “will impose new costs or new barriers on business.”
The governor’s proposed energy program also has raised concern at the state Business Council, particularly an energy tax that Briccetti said would cost New Yorkers $472 million annually, new energy initiatives partly funded through increased rates or assessments and tighter regional carbon emission limits that will increase energy costs for businesses and consumers.
At the Albany office of the National Federation of Independent Business, state director Mike Durant said he was “deeply disappointed” that the governor’s fiscal plan includes a minimum wage increase. “As proposed, this minimum wage hike has the potential to offset the projected immediate savings incorporated within his regulatory reform proposals. We strongly urge the governor and legislative leaders to focus on additional areas of regulatory reform and cost reduction for small business,” he said in a statement.
Workers’ compensation reform – The budget includes a series of reform that will reduce employers’ costs of purchasing workers’ compensation insurance, according to state budget officials. The measures will bring $900 million in savings to employers by reducing assessments and streamlining the system. A new bonding program will assist 10,000 businesses in defaulted workers’ compensation insurance trusts settle their liabilities.
The reforms will significantly benefit businesses without affecting the rights of workers, officials said.
Unemployment insurance reform – Cuomo’s budget proposes reforms to an “insolvent” unemployment insurance system with “unpredictable” costs to employers and “insufficient” benefits paid to workers. The changes will allow the state to pay off its federal debt for borrowed unemployment funds by 2016 rather than 2018 and so end interest payments that burden employers.
The measures would produce an “appropriately financed” unemployment trust fund and increase both minimum and maximum weekly benefit rates for laid-off workers. At the same time, budget officials said total costs for employers will be lower, with cost savings of $400 million over 10 years.
Cuomo also proposed measures to better prevent and detect unemployment insurance fraud and abuse.
Marsha Gordon, president and CEO of The Business Council of Westchester, said reforming the workers’ compensation and unemployment insurance programs has been a key element of the county business group’s legislative agenda in Albany for two years. “Reforms in these two areas are steps that will directly improve the bottom lines of our businesses,” she said in a statement.
John Ravitz, Business Council of Westchester executive vice president and chief operating officer, said mismanagement of the unemployment insurance trust fund led the state to borrow federal funds, and businesses have paid the price. “Our members are being hit with bills in excess of $100,000,” he said.
Royalty income – Looking to close tax loopholes for businesses, the executive budget requires New York companies to pay income taxes on royalty earnings that are now exempt unless they show on their tax return that the company’s non-New York parent company included the royalty income in its tax liability.
IDA sales tax exemptions – Cuomo want to put stricter controls and restrictions on industrial development agencies that now can independently approve state sales tax and use tax exemptions for development projects by companies that create or retain jobs in New York. IDAs will be limited to granting tax exemptions only to key industry sectors eligible for New York’s Excelsior tax credits. Those are scientific research and development, software development, agriculture, back office operations centers, distribution centers, financial services, data centers and manufacturing.
For the first time, IDA-backed projects that receive state sales tax exemptions will require approval from one of the governor’s 10 regional economic development councils – in this area, the Mid-Hudson Regional Economic Development Council.
The IDA and royalty income reform measures are not expected to reap a bounty of additional revenue for the state – $7 million in 2013-2014.
Film production – Starting in 2015, the Empire State film production tax credit, totaling $420 million a year, will be extended for five years. Restrictions on claiming the postproduction portion of the credit will be reduced, while companies will be required to do additional reporting to document the effectiveness of the credit in creating jobs.
Historic commercial properties – The tax credit for developers who rehabilitate historic commercial properties will be extended for five years, from 2015 through 2019, at the current rate of $5 million per project. A new incentive for developers, the credit will be refundable starting in 2015.