February 05, 2003 News & Opinion » Featured story

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Pataki's choice 

Among the half-truths, distortions, and misleading politic-speak Governor George Pataki spewed forth in his January 29 address announcing his 2003-2004 state budget was this whopper: "The last thing I want to do is reduce spending on education. However, the crisis is that bad. We have no choice."

            If the guv had been hooked up to a polygraph, he'd have had no choice but to add funding for another lie detector, as that last remark would surely have short-circuited the machine.

            Of course, there is an obvious alternative to cutting nearly one-and-a-quarter billion dollars in state education aid, even in a budget proposed to cover a projected $11.5 billion deficit. The Republican guv could ask the state legislature to do what school districts and municipalities may very well ask voters to do, if the funding cuts are enacted: raise taxes.

            But true to his earlier pledge to avoid raising "job-killing taxes," Pataki is holding his ground against any broad-based income or corporate tax hike. In fact, previous tax cuts are still on schedule.

            "Obviously, we do have choices," says Mark Dunlea, associate director of the Hunger Action Network of New York (and a lead organizer with the state's Green Party).

            Dunlea echoed the protests aired in Rochester on January 30 by a coalition that includes the Working Families Party, the Greater Rochester Community of Churches, Metro Justice, and others. The coalition decried Pataki's proposed cuts in state funding for education and health care, his endorsement of a $1,200 annual tuition increase at state colleges and universities, and his plan to withhold a third of the money students get through the state's Tuition Assistance Program, until they actually graduate --- assuming, of course, those low-income students can afford to stay in school that long.

            The tax increase Dunlea and the coalition are advocating would be a .7-percent increase in the personal income tax rate for individuals making over $100,000. Combined with an additional .7-percent tax-rate hike for those making over $200,000, the increases would generate an estimated $3 billion in additional revenue.

            The rate hike would be temporary, its proponents say, a hold-over measure to boost tax revenue until the economy recovers and tax collections return to pre-recession levels. It's also designed to coincide with federal tax cuts, thus softening the blow.

            "If you make $300,000 in New York State at the present time, you're going to get about a $5,000 federal tax cut this year," Dunlea says. A person making 300 grand "would still end up with a net tax cut of about $3,500," he says, "so if we gain a little surcharge on the high-end taxpayers in New York, we'd basically be recapturing part of that federal tax windfall. They're still gonna get a huge tax cut anyway, but at least it would give us some temporary ability to deal with this sort of crisis that we're in."

            In addition to that temporary tax increase, the coalition is also calling for a variety of corporate tax loopholes to be closed.

            Among these is a scheme Dunlea says is illustrated by the case of Toys "R" Usand its Delaware-based subsidiary, Geoffery Inc.

            Toys "R" Us stores in New York and other states pay large licensing fees to Geoffery Inc. for the right to use the Toys "R" Us name (and the likeness of the company's mascot, Geoffrey the Giraffe). Delaware does not tax such fees. As a result, multi-state companies like Toys "R" Us can funnel profits, in the form of licensing fees, out of New York, effectively avoiding state taxes on that income.

            According to the coalition, closing this and other loopholes would realize an additional $1.5 billion.

            Also among the counter-proposals is a call for state leaders to request more federal aid, and for the state to collect the nickel deposits on unclaimed bottles and cans --- deposits which are currently kept by the beverage industry. Advocates of that measure, who'd also like to see the law expanded to include non-carbonated beverages, say it could add up to $177 million to state coffers annually. Dunlea, for one, proposes going even farther.

            "If the governor really wanted to do one of his famous one-shots," he says, "he could go back and try to reclaim [deposits on unclaimed returnables] from the time the bottle bill was enacted, which would probably be over $1 billion.

            "In fact," Dunlea adds, "in the state of Delaware, tax haven that it is, they are trying to do that right now. So it's not like it's unprecedented."

            Rounding out the proposals put forth by Dunlea and other critics of Pataki's plan are long-term solutions to the state's financial woes, such as instituting a universal health care system and reforming the Rockefeller Drug Laws.

Democratic Assemblyman Joe Morelle says it's too early in the legislative process to talk about broad-based tax increases. The first step in the process, he says, is for legislators to conduct their own assessment of Pataki's budget, particularly the governor's revenue estimates.

            "In the past 10 years, the governor has underestimated revenues in the billions and billions of dollars," Morelle says. "It's not that I think there's anything untoward about that, I simply think that it bears looking at, in terms of an independent assessment. My guess is, as is usually the case, that the governor has depressed the revenue estimates."

            If such an assessment finds another billion dollars or so in previously unanticipated tax revenue, the first priority would likely be to restore education funding, Morelle says. His Democratic colleague in the Assembly, David Koon, identifies the restoration of state funding for pre-kindergarten programs as a more specific, educational priority.

            One thing it's safe to predict, however, is that this year's budget battles between the Governor, the state Senate, and the Assembly will be the most contentious New York's experienced in years.

            The sheer magnitude of the state's financial crisis is one factor. Fallout from last fall's election is another.

            As Dunlea observes, the governor garnered the endorsement of some traditionally Democratic unions and interest groups in his most recent reelection bid. So if union leaders representing teachers and health care workers approach Democratic Assembly Speaker Sheldon Silver with their concerns about the governor's proposed cuts, they may find a less-than-receptive audience.

            And speaking of the speaker, Silver has already expressed opposition to the governor's plan to borrow $4 billion this year against future income from the state's share of the national tobacco settlement. Such a quick fix would force the state to give up $6.5 billion or more in future tobacco settlement revenue. The Assembly is welcome to reject that scheme, provided it has some bright ideas as to how the state can make up that $4 billion.

            That's a lot of unclaimed cans and bottles to count.

Morelle suspects the governor is concerned, above all, with upholding his fundamental theory: It's a choice between raising taxes or losing jobs. (Never mind the fact that, despite years of tax cuts amounting to over $13 billion in unrealized revenue this year alone --- according to a Working Families press release citing the guv's own budget numbers --- unemployment is at historically high levels.)

            "Even at the end of the day, if [Pataki] needs to agree to a tax increase, he's going to do it in such a way that he calls it something else and still maintains that he's been successful in preserving his basic thesis," Morelle says.

            "I've observed that this governor is very flexible," he adds.

            That's one way to put it.

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