Gov. David Paterson faced two important challenges when he submitted his Executive Budget for 2010-2011 last month. Not only was it important to bring the state”™s fiscal house into order and close a $7.4 (now $8.2) billion budget gap, but at the same time it was critical to improve New York”™s economic climate and promote new private sector investment and the creation and retention of good-paying private sector jobs.
Although the governor submitted essentially a no-growth budget, the spending cuts proposed were frankly not as aggressive as many in the private sector had wanted, nor as aggressive as needed to solve New York state”™s longer term needs. In fact, the governor”™s spending plan established a floor that the Legislature will certainly pile on to curry favor with the voters in an election year.
The state”™s spending excesses ”“ and the new taxes necessary to support them ”“ were damaging enough when the economy was growing. They are unrealistic given expectations of continued economic weakness in New York state, and the nation overall. The Division of Budget projects that unemployment in New York will stay above 8 percent through 2012, personal income will not recover to 2007 levels until 2013, and that capital gains in 2020 will be one-half of 2007 levels.
Tax proposals totaling nearly $1 billion in the Executive Budget have the effect of increasing the cost of doing business in New York, imposing increased costs on New York state residents ”“ or both. These ill effects are even more damaging with an economy just now showing the signs of recovery.
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The largest tax Paterson has proposed is a tax on sugary beverages that will yield $450 million in revenue in fiscal 2011 and a whopping $1 billion per year once fully implemented. It is very questionable whether yet another New York state tax will solve a complex problem like obesity. Even if this proposal achieved its intended reduction in soda consumption, this is a huge burden to place on a narrow sector of the economy, and ultimately, a regressive tax on consumers. This is both bad tax policy and an ineffective public health policy.
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Closer to home, the sugary beverage tax is one more tax that comes on top of the expanded bottle bill that recently went into effect and adversely impacts major employers such as the Pepsi Bottling Group, headquartered in Somers, and Purchase-based PepsiCo. It adds to the already high cost of doing business in New York. Is this the way to treat these excellent corporate citizens who employ thousands of workers in our state?
It”™s not surprising that job growth in New York state has significantly lagged behind national trends for the past two decades. Because of our weak competitive position, New York has also lagged behind national trends in recovering from the last two recessions.
The most effective economic development program would be a more competitive business climate that controls state-imposed mandates on employers and reduces major cost drivers such as energy, real property taxes and health care costs.
Above all, it would avoid new and increased taxes to fuel unsustainable spending. In addressing this challenge, the governor clearly missed an opportunity.Â
Paul J. Vitale is vice president of government and community relations at The Business Council of Westchester in White Plains. Reach him at pvitale@westchesterny.org.
