December 13, 2007 Page 1 December 13, 2007 Female Speaker: -- Deputy Director of the Division of Budget and know many of the folks in the room and this is part of the series of events we have been holding as part of a more open and transparent budget process that the Governor promised this year. And what that process has consisted of, is us listening to commissioners as the first part, about their priorities, secondly going out in around the state to hear about the priorities of New Yorkers and where they think the state budget should be headed and now, hearing from groups that we have talked to and consult with an awful lot throughout the year, but in a more public and open way. And what -- our event today is being webcast and after today's event, all the testimony that's been submitted will be posted on the Division of Budget website and we look forward to hearing from all of you. I think you all have a list of who is going to testify in what order. And I just invite you to one after the other, come up and offer your testimony. We did ask everybody to keep to a 10-minute time limit today and we do have a timer who will give you a signal if we start to go overtime. And then, I would like to ask my colleagues up here with me to introduce themselves. Ed Ingoldsby: Ed Ingoldsby with the Division of the Budget. I am head of the intergovernmental group in the division. December 13, 2007 Page 2 Bob Megna: Yeah, my name is Bob Megna and I am with the Division of the Budget on the economic and revenue group. Lora Lefebvre: My name is Lora -- can you hear me? Bob Megna: Turn it on. Lora Lefebvre: -- turn it on, that would help, yeah, hello. My name is Lora Lefebvre and I am the Deputy Secretary for Public Finance and Local Governments with the Governor's Office. Female Speaker: And our first speaker is (unintelligible) with (NYSAC). Male Speaker: Good afternoon. Rather dangerous to give a microphone here to me, public setting. I would ask the timekeeper to please keep an eye on me, clock for me. It's a pleasure to be here. Thank you Kim, Ed, Bob and Lora, congratulations coming to state government and Mr. Megna, congratulations to you on your recent nomination. I would like to start off my remarks by acknowledging the Governor, Division of the Budget for the difference in the way the state budget is being constructed. The transparency is welcome news for both the taxpayers in the state, but certainly for the governmental units and governmental partners, it is a welcome process and as you know, we have been involved with the Division December 13, 2007 Page 3 of the Budget for some time now, really never stops the communication between the counties and the state as an administrative arm. I just left a meeting with sheriffs and made a presentation down there and one of the comments is why can't we get more revenue to do more road patrol? Why can't we give more revenue to staff our jails? And I had to sit and explain to them, new elected, why that is. And why the property taxes are being used to finance the state mandated programs at the county level. It's not something that you have created here in your new capacity in this administration, but it is a fact that the overwhelming majority of a county's budget is state mandated and I had to explain to them why property taxes are used to pay for those mandated programs and which programs they are meaning that there is very little discretion that a county had to use with property taxes or other sales taxes for discretionary programs. Sheriff patrol is discretionary, that is -- and road and bridge is discretionary. So, it was an interesting conversation. At the January meeting, the Governor -- I am only going to be able to make a few points in light of the time constraints. So, I will try to get through it briefly and I have got my time clock there who give me the heads up. At our recent conference, Governor Spitzer gave counties a clear message that the days of balancing the state budget on the backs of counties are over. And thankfully, his first budget resisted the temptation to unwind some of the things that we have all collectively December 13, 2007 Page 4 worked for, many of you on the dais and certainly, all of us in this room on the county and local government side resisted the temptation to shift the burdens from the state to the counties. And we applaud the state leadership for their apparent focus on property taxes. We want to make one thing clear that the road to any substantial property tax relief -- and this is a property tax form, certainly runs through a county. Counties are unlike the other units of government, the administrative arm of state government locally delivering your services locally and it is our hope that the Governor's second budget will adhere to his same commitment that he made to us. If your goal is to reduce the burden of property taxes on the residents, don't balance your budget on local governments. Critiques of local spending as I mentioned a minute ago, often don't realize that most of what we do, as high as 80 percent in many counties is mandated in fixed costs and while state policy makers try to address the problem by providing property tax relief through rebates and various exemptions to home owners. Counties just spend years working to lower their property tax levies. When we can control the cost of a service our program, then we have been very successful. However, all of that effort no matter how cutting edge we are effective means little because we have no control over the largest cost drivers. It is the Governor and the state legislature who has direct control over the growth of counties real property taxes through the many and December 13, 2007 Page 5 numerous state mandated programs and services. To the credit of the Governor, in his first budget, he advanced several initiatives designed to address the real property tax burden across that state. Middle Class STAR was rebate checks was certainly one and Wicks reform was the other. Middle Class STAR may help 90 percent of New York's homeowners who receive a rebate, but does not address the core growth of property taxes. Even with the modest check send to state's residents, their ongoing school tax liability which is over 60 percent in many cases of our property tax, counties typically being 15 percent or 20 percent of a property tax bill. If the Governor seeks to continue the Middle Class STAR rebate approach, NYSAC would suggest that we ensure that rebate checks go only to those who have paid their property taxes. There is a loophole in the law right now, where a delinquency exists by way of property tax payment, the rebate check is still mailed. That's outrageous. We would ask that an interstate mechanism be implemented to capture this deficiency in the current law. Building on this concept, we could follow the lead of other states who have developed cutting edge partnerships with local governments to match computer -- certainly for the commissioner designee, to match computer records of taxes and fees both at the local level and simply intercept income tax payments and other refunds on behalf of the locality. Concept would provide state tax department with offsetting revenues for their services and put the onus on resolving disputes at December 13, 2007 Page 6 the local level. Last North Carolina's version of this program collected over $10 million to local governments to help offset unpaid local taxes and fees. With regard to the Wicks Law, a significant statute has been on the books for many years. The Governor worked hard to his credit to advance a legislative proposal. It is an important first step. His bill is an important first step. However, his bill is deficient in that it does not significantly affect the county projects. Our recent survey, our analysis of this program is county projects range between two and $5 million and certainly not an acceptable proposal for the counties, the current Wicks proposal. We have asked that you reconsider that legislation to address county projects based on something a little bit more meaningful for the membership of our organization. The state and county partnership that was established to cap on the local share of Medicaid provide immediate relief to county property taxpayers. We view this as a model for additional reform. You know what they are, we have presented these concepts to you. The reason why we believe that Medicaid cap work is, it allow the state to get its arms around and improve the service delivery of Medicaid, arguably one of the most important programs that the state provides to its residents. By having skin in the game or able to get your arms around reforming this program, and improving this program while capping the county's cost, everybody want, the taxpayer, the counties want, the state December 13, 2007 Page 7 want because it achieves significant reforms in the program. We ask that that same model be used in the pre-school special education program which the counties unlike every other state in the union are administering in the State of New York. It simply makes no sense. We have no education departments at the county level, we have assumed this obligation for decades and if you want to reform property taxes, we strongly, strongly believe this must be a top priority from the county's perspective. I will stop there. Any questions or --? Female Speaker: No. We will move on to our next speakers. Male Speaker: Thank you very much for the opportunity. Female Speaker: And thank you for all the help you provide us throughout the year. Male Speaker: Thank you. Female Speaker: Peter Baines and Barbara (unintelligible) from the conference of Mayors. John McDonald: Good afternoon, I'm Joe McDonald Mayor of the City of the Cohoes I'm filling in PRBs our Executive Director is out of town. I'm also the first vice- president of the congress of Mayors. I want to thank you for the opportunity for the conference to speak on some of the important concerns that we have as you know, everybody can present problems, we December 13, 2007 Page 8 hopefully are going to present some solutions as well. As you know the property tax is the single most important revenue source for local governments. In 2005 property taxes accounted for over 43 percent of local revenue, totaling $565 billion -- oh $56 billion. Giving the rising cost of providing essential municipal services in terms of limited revenue to fund them along with continued unfounded mandates, there has been an increasingly reliance placed up on the property tax. Well, the most fundamental changes facing our upstate communities is diminishing tax basis, much of this is due to population decline, and decreases in property values, particularly in our urban centers, whatever the tax basis also compromise by the imposition of property tax exemptions, exempting properties from taxes does don't diminish the need for those revenues, it simply shifts the burden of generating those revenues to remaining tax payers in the community. For example, according to 2005 data, approximately 62 percent of the 5.5 billion houses in New York State are wholly or partially exempt from taxes, this reflects $678 billion and exempt full value or 32 percent of the value of our property in the state, if you just apply the standard 2.5 percent full value tax rate, these exemptions result nearly $17 billion in taxes shifted to other non exempted property taxpayers, this proliferation the tax base is a concern and (NYCOM) will continue its efforts to prevent attempt to create new exemptions that would further eat away December 13, 2007 Page 9 at the already diminished tax rate base. Well the tax base continues to diminish local expenditures are on the rise, the cost associated with pensions, health insurance benefits, and infrastructure in particular continue to present significant fiscal challenges for local governments. There are no easy answers to this property tax dilemma we all know that, I can rest assure you that no one more group is interested in finding a solution for the local government, we are on the ground every day face to face with our constituents. We get the cost when things are not going right, we understand they do not now want their services diminished, in Cohoes annually, I have city finance 101 programs to demonstrate what the budget is all about and for those of you who show up, they go away a little bit more informed. At the same time there is always the question asked in these forms, and day-to-day what services do you want removed to lower your taxes, the hands don't go up, so therefore we local officials are left trying to find other a solutions and other revenues. Fortunately we have had some help in the past, specifically in New York State due to AIM, the increases of AIM are appreciated, and are clearly a step in the right direction, (NYCOMs) annual City budget survey, has shown that the recent AIM increases have helped us slow the growth in property taxes. In fact according (NYCOM) survey results the average property tax increase in 2007 was 4.6 percent, which although significant reflects a decrease of 20 percent compared to 2006. Clearly December 13, 2007 Page 10 these additional funds are being used in the way they were intended to reduce the local property tax burden. Despite this however, there needs more to be done to make up for the queen of reductions and revenue sharing, that our local governments have enforced to absorb for nearly two decades, when adjusted for inflation approximately 80 percent of our cities and a 100 percent of our villages are receiving less aid than in 1989. I always say that to our resident saying, where does anybody work for less money than they couldn’t make 20 years ago, it just doesn’t happen and we need that additional support. We do recognize that the state is facing a very significant financial crisis of its own, and that additionally it is going to be difficult to combine, we hope at least that the state will uphold its commitment to the additional $50 million in aid for the next three years. And we can assure you that that commitment if met will meet your expectations and pay great dividends. In regards to some solutions mandate relief, nothing new here, we have long argued that state mandates are equivalent to hire property taxes, and that the most onerous mandates are both our (unintelligible) and provide no public benefit at the end of the day. Unfortunately, efforts by local governments to limit those mandates are continually obstructed by special interest groups, relief from the constrains imposed by statues like the Wicks law and binding arbitration is essential to more efficient and effective local government operations. That we December 13, 2007 Page 11 appreciate the support of the Governor to put the step forward in regards to which reform and (NYCOM) has been on board in support of this, and hopefully we will see that day coming sooner or rather than later. In regards to binding arbitration as one who personally negotiates all of their unions contracts it's very difficult to negotiate with one arm tied behind your back. And therefore it puts communities into very difficult situation. In regards to managing the workforce costs, in addition to mandate relief there are some areas in which a state can provide assistance, workforce cost are the single largest component of local budgets. One sure way to achieve significant property tax relief is by giving local officials the ability to control those costs. We appreciate the governor’s help in this regard through his vetoes of several labor mandates passed by the state legislature, that if they were enacted would have greatly increased employer cost and undermined the collective bargaining process. We expect the legislature to follow suit and continue to push these bills in the 2008 session, and we hope and I will thank the governor ahead of time for continuing to veto all these costly endowers. In regards to pensions, with respect to the issues of local pension costs, although pension rates have started to decline slowly in the last couple of years, the ten-fold increase in pension cost that villages and cities outside of New York City experience between 2003 and 2005 continue to plague our budgets, the Cohoes example going from $40,000 December 13, 2007 Page 12 to a million dollars in one year, and we are still at a million dollars. In fact at many cases the AIM increases and this happened in Cohoes have been used solely to pay the retirement endowment. Although current rates are in the same rate as they were in the 80s, the base up on which that pension is calculated has increased greatly, for several years (NYCOM) has argued that the state should undertake a through analysis of the benefits, the funding methodology, the governance and the oversight structures of our public pension system, and we support legislation that creates a new retirement here with more affordable retirement benefits for new hirers and both the ERS and the police and fire system. In addition, immediate relief might be obtained by amending the systems evaluation and funding methodologies. To ensure that local governments are not paying anymore than it's absolutely necessary, these initiatives will go a long way in controlling and reducing their local tax burden. And we recognize this as an issues that is for the most part under the guidance of the state comptroller and (NYCOM) will be also instituting meetings with the comptroller to address these matters, regards to health insurance the cost of providing the health insurance to municipal employees also continues to cripple local budgets. According to the state’s comptroller’s data between 1999 and 2005 the cost provided medical benefits to employees and retirees increased by 77 percent, in cities and 75 percent in villages. Although local December 13, 2007 Page 13 officials are trying to take steps to manage these expenses by various negotiations the fact of the matter is the Triboro amendment to the Taylor law essentially discourage unions from offering concessions or give backs by assuring the continuation of a current contract provisions even after the contract expires. Currently, health benefits municipal employees often vary by local government, a class of workers within those local governments even by the units within the these classes. The state maybe able to assist by creating one defined municipal health benefit plan. I have a little quote that I say that all employees are created equal when it comes to health insurance, when they have diabetes, hypertension, obesity, we are all the same. And therefore the concept one define benefit plan may prove to be a great cost savings. Other, initiatives to consider and I will go over these briefly is the gross receipts tax, cities and villages are authorized to impose it, GRT and the sale of utility services is equal to one percent of gross income as currently written the statue governing in position, exclude sell your telephone services. We here at (NYCOM) feel that that really needs to be reviewed and looked at, competitively bidding limits, now that's an example of our cake, the state had the privilege of having their limits increased couple of years ago, unfortunately local governments were left behind and we feel that they should be raised as well. In conclusion, I'm sorry one more quick item, before December 13, 2007 Page 14 the bouncer gets to me. Property tax exemption for municipally owned property many of our communities do own property on other communities which there is a double taxation in the standard. Our members feel very strongly about this that they should be in this one situation exempt from property tax since that property is being used for municipal use, municipal purposes. That would provide a significant amount of savings to our communities. In conclusion, and as an executive I know what it's like to hear about all the problems where are the solutions, I can pledge to you that, we know Governor Spitzer is very much focused on reform has been and will be, we the mayors the people on the ground running are also very much focused on reform and are very excited for the opportunity to work, to help reduce our taxes. Thank you very much. Female Speaker: Thank you Mayor, Jeff Haber. Jeff Haber: Thank you very much for the opportunity to be here. This July will mark my 23rd year as Executive Director of the Association, and I was a young guy like Steve Quarrio and Peter Baines back in those days, but the interesting thing about it is that those 23 years ago, I was talking about the same issues that I'm going to talk about today. And I think we all know the problems, and it boils down to whether we have the -- excuse me, the political will to solve these problems. Basically from the association town’s perspective, it breaks down into December 13, 2007 Page 15 three areas, restoring revenue sharing and infrastructure aid, fully funding mandates and reforming the real property tax system, you know, and prior to 1988, there was a fairly decent revenue sharing program in effect although, even at that time I don't believe it lived up to what the law had originally said it should, but we got -- we got cut down at that period of time, I think we went from 5.62 percent of total -- our total revenues to 0.7 percent. And I never had anything to -- to make up for that, and it should be a stable and fair across all classes of local government. In terms of infrastructure aid, CHIPS another program that is under funded the amount never changes, find different ways to fund it, and the cost of maintaining our local roads and bridges increases, increases and the funding doesn’t. And it covers only 25 percent of the cost of local roads and bridges leaving 75 percent to be funded from the real property tax base. And I think if memory serves me that -- that's I don't have it written here, but I think in previous testimony I recall that being the second highest percentage in the country that maybe the state of Wisconsin has to quit the towns and Wisconsin had to pick up more money than we do locally. We would like to see CHIPS, not only made permanent and fully funded, but there are reform proposals such as, the Reform Act that was introduced by Senator (unintelligible) would face out non capital expenditures from the dedicated highway bridge trust fund over a five year December 13, 2007 Page 16 period. There is no question when we look at it, we think of the cost, and we say it ourselves well, that's a lot of -- that's a lot of money, but I think we have to look at it as an investment. Experts have found that for every dollars spend on street improvements it results in $5.40 in economic benefits. And we are already spending $3.2 billion or $285 per motorist and vehicle repair and operating cost resulting from deficient roads. Water and sewers in other area, the America Society of Civil Engineers 2005 infrastructure report card found that New York’s drinking water infrastructure needs $13.15 billion over the next 20 years and 20.42 billion the same period of time the fund our waste water treatments infrastructure needs. In the MS4 program municipal separates storm water. The US EPA has estimated that MS4 to spends three dollars to $60 per capita to comply with the storm water regulations, and last year the State provided $16 million in a competitive grant program, which was designed to serve that program. All this just adds on to the property tax crisis that we have, and you know, getting over to the mandate area, I mean, you are all familiar with them, I don't have to lay them out for you, but prevailing wage and the Wicks Laws as I mentioned before, these wages are -- prevailing wage can drive up a public works contract 20 to 30 percent. Which law is an equally onerous you know, you have to question, I mean I -- what is the -- if private industry doesn’t have to comply with the Wicks Law why does a municipality have to comply December 13, 2007 Page 17 with the Wicks Law, again it goes back to political will, somebody has to look everybody in the eye and say this is not good, it's not good for the residents not only not good for local governments, it's not good for residents who pay for local government. So, you know, and that's the pension reform I think Mayor McDonald mentioned the Association of Towns we need pension reform in that area, there is you know, a new tier for new employees is an option, perhaps some choices that could be offered to employees such as a defined contribution plans or defined benefit plans, there is the -- an issue that's been on the association’s resolution list for probably almost 10 years now as the 207 C Disabilities benefits. That not only would help out the property it will helps out the property tax system because what happens as a result of it now as we often funding an extra police position that we wouldn’t have to if the person was allowed to do the retirement. And code enforcement that is a fairly you know, insignificant number I think, state wide, the state raises revenue by collecting two percent surcharge in all commercial player, and we received this revenue, it was a trade off at the time, and all of you are probably too young to have been around for that trade off, but the certain things we are agreed to in the building code area and the commitment was at that surcharge would be given to local governments to offset that, and then 1991 it was diverted to the general fund. It's a $10 to $20 million bill and it could easily December 13, 2007 Page 18 be transferred back to where it should go maintenance, low maintenance for -- maintenance for low volume roads, is another area that would save taxpayers money, there are roads in some of the towns in New York State that are barely used and yet legally are required to be kept to ASTO standards and it would take billions of dollars to upgrade New York's 90,000 miles of county and town roads to those standards and years ago or a decade ago the New York State local road classification tax force made recommendations to allow the road standards to be set based upon customer usage but they were never codified. So, we are asking let's codify them and they will not only save your property taxes but it will help those communities who want to preserve their road character. The real property tax system and this is everything right I mean this is what's driving every single thing we talk about today, whether it's the local Government efficiency commission or this and we rely heavily, towns rely heavily upon real property taxes. More than 50 percent of our town revenue is derived from that. We also derive revenue from sales tax from mortgage recording tax as user fees pyramids grants and state in their revenue sharing. More than one third of the real property in New York State is tax exempt. It was referred to either by (unintelligible) or Mayor MacDonald but these tax brakes of the tax exemptions they just shift the burden and they shift the burden to the people that are already overburdened and the association forever has had a December 13, 2007 Page 19 policy that, that in our legislator resolutions that we are not opposed to them, we don't argue the merits of many -- of any of these tax exemptions but they should be financed through some type of income tax break or something that applies to everyone in a broader based tax based in the real property tax system and you know, there are incentives being given for let's say if a volunteer is -- well not everybody whose a volunteer is a real property tax you know, payer. So, those things should be -- should somehow or another be allocated through the State income tax and not through the real property tax and most everything that's exempt on a property tax base now should be restored to the rolls and you know, if you added a third that would be a considerable amount. As I said before I want to touch on one another thing and it is a real property tax issue but it hasn't occurred yet. So, we have an opportunity, there is no bigger crisis looming out there for the real property tax based tax payers in New York State than the disappearance of volunteer emergency services. It's harder and harder to recruit people to serve in volunteer ambulances or volunteer fire companies and we partnered with (unintelligible) on a study a couple of years ago and I believe that the number was $7 billion that if all of the -- now volunteer fire companies and ambulances were to go paid the cost on the real property tax system back in 2004-'05 was $7 billion a year added to the real property tax. Now, as I said I have been around a while and I think -- December 13, 2007 Page 20 I know how we all have looked for economic growth and development in the New York State as the key to our regeneration to the number one state in the nation. And there's probably no bigger detriment to that to than you have to pay real property taxes and I just returned from a national board meeting of my association and I listened to my fellow executive directors complaining about high property taxes in their States and I'm saying to myself I wish that's all I had to pay here you know. And if we want to remain competitive or become more competitive we have to be careful of the real property tax we have to do something about it and this is something coming down the road it's going to be here every year the number of paid personnel and what was previously volunteer emergency services increases and when that day happens to us in New York State there aren't any of us that are going to want to live here and that's the sad fact of it so, this is the time in which we have to seriously address that. And I would like to say in conclusion that the Association has always enjoyed participating in any of the philosophical discussions or any commissions or anything that were around studying the next thing and we have some very good people on our staff they are very expert in many areas and as this goes forward and as we talk about things and we study things as we inevitably do, we would ask to be included and tap into our strengths as you do that and I will go back to what I said and open with and that is these problems have been a long -- around December 13, 2007 Page 21 for a long while. I think that the Governor is a person who is willing to take on challenges and in order to solve these problems and go after curing the ills of the real property tax system, it takes a lot of political will non-partition by partition and we want to say a political will on all sides to say what's good for New York State. Let's face it and go after it, thank you. Female Speaker: Thank you, Mr. (unintelligible) Frank (Morrow). Frank (Morrow): Good afternoon, thank you for doing this. So, you have been all around the State getting worn out. Female Speaker: Yes we have. Frank (Morrow): Okay, I'm going to focus on the property tax from a different perspective from the -- the broad view of how services are paid for and my most important point is that New York State divides responsibility for the financing of important public services between itself and it's local governments in ways that places great pressure on the property tax and sales tax basis because it doesn't take differences in ability to pay into consideration except in school aid. This is particularly problematical for those localities that have relatively weak tax basis compared to their needs. For example, to cover the local share of Medicaid December 13, 2007 Page 22 cost in 2003, it took the equivalent of almost $6 per thousand of taxable full value in Montgomery and Fulton counties but only $1 per thousand of taxable full value in Nassau and Putnam counties to do that. That's because New York State divides the responsibility for the financing of the non-federal share of Medicaid cost between itself and it's local governments on the basis of a one size fits all basis, rather than taking the relative ability to pay at various localities into consideration. The result is that most of the counties for which local Medicaid costs are high relative to the tax base are also the counties that are very close to their constitutional tax limits and they are the counties in which the county government tax levy accounts for a much larger percentage of the total real property tax bill for all purposes than it does in other places. Most of the place -- of the -- well heavily populated places in the State and well represented places in the State, you will always hear that school taxes are 50-60 percent of the property tax bill. But in Montgomery County the county tax is 50 percent of the tax bill. So I -- you know, that sort of fits in with a policy proposal, I will come to it later but I think that a property tax relief mechanism that just focuses on one kind of property taxes like the star which faces just on school taxes is by definition not fair to places with relatively high concentrations of poor people relative to their ability to pay. In the short run the Governor and the legislature can and should provide more December 13, 2007 Page 23 effective and efficient property tax relief by replacing the Middle Class STAR Program with a real property tax circuit breaker that targets aid to those who are the most overburdened by their property tax bills and both the current circuit breaker in New York, which is increasingly irrelevant because the $18,000 income limit and the property tax circuit breaker bills that are getting a lot of discussion now are based on all your property taxes and not just your school property taxes. So, I think in the short run my recommendation is to replace the Middle Class STAR Program with a Middle Class Circuit Breaker. In the long run, however, more systematic changes are needed in the fiscal policies that place pressure on the local property and sales tax basis in the first instance. So, in the long run I think that the things that New York has to do and I think this has to be programmed to take effect over 10 or 15 years gradually. It is restoring New York State's commitment to revenue sharing where its sole performance is to do a transparent needs based formula that's added over time and this past year the legislature adopted the Governor's proposal to base the increase in revenue sharing on a fairly transparent formula but not the base. So, I think over time the base has to be related to a formula also and I think that the commitment is to -- the important thing is to honor the commitment over time not to have these big ups and downs -- ups and downs. Second, fully implementing the State wide December 13, 2007 Page 24 solution to the campaign for fiscal equity lawsuits that was proposed by Governor Spitzer at the beginning of the year and which was a enacted by the State legislature as part of it's adoption of the 2007-2008 budget. That is going to be phased in or I think it's for four or five years and I think that the way that's structured where it's based on determining a foundation amount and then dividing the foundation amount before State and local creates the -- a very good framework for gradually over time increasing the State share because the way it works is the State share varies with both your property tax base because it's a dollar per thousand requirement, $16 per thousand but that varies up and down based on income so I think that that once the phase in of the adequacy level is achieved, I think that over time then on an annual basis the legislature and the Governor should put in place a plan to increase the local share each year and to gradually reduce the pressure on the property tax. Third, gradually increasing the State share of Medicaid cost in a way that basis each county's share of Medicaid cost on objected measures of it's relative ability to pay. And we have a table at the end, which shows how it -- what the current situation is and the very last page shows the differences that exist in New York State. It says local Medicaid expenditures in -- you know, in Montgomery County it's $5 and 91 dents per thousand in 2003, and you know, they happen to be at 98 percent of their constitutional tax limit that's not December 13, 2007 Page 25 on this table but, you know, it's just a one size fits all approach. So, we think that the federal government in dividing responsibility for Medicaid between State and local takes the ability to pay into consideration in a formula that we in New York do not think is sufficient, it's based just on per capita income and there should be other variables in it as well. So, you know, we would suggest per capita income in poverty but at least the federal government does something to take into consideration about their differences and ability to pay. And you know, I think it still should be a priority of New York to work on that because on a per capita income basis we are very close to our neighbors, New Jersey and Connecticut but our poverty rate is twice New Jersey's. So, it's not sufficient just to be looking at per capita income but I think we should divide responsibilities between State and local in a better formula but still taking that in to consideration. Fourth, eliminating this -- the disparities in the STAR tax exemption program. The disadvantage school districts with high percentage of renter occupied dwellings and high concentrations of needy children. SO, STAR is -- the basic STAR exemption I'm talking about now, provides aid to school districts to write down the property taxes on owner occupied dwellings only and it pays it based on the number of owner occupied dwellings not the number of pupils and how expensive those owner occupied dwellings are on average compared to the State average. And one of the things I say in the December 13, 2007 Page 26 details in the testimony, which I'm going to -- skip over the details for each of those four proposals, one of the things that say in the details is that we think that there needs to be greater integration of how we think about the basic STAR exemption aid money and school aid. My conclusion of that section was the Governor and the legislature should undertake a comprehensive reevaluation of all the State's real property tax relief programs and work towards integrated circuit breaker like variation of STAR that is consistent with the principles of horizontal and vertical equity. In addition, since STAR is both a property tax relief mechanism and a way to deliver State revenue to school districts, it should also be integrated with the State wide solution to the CFE decision that is currently being implemented to ensure that STAR is made fair to the upstate cities. In the short run, while we can say that an integrated approach of the kind that we just discussed is necessary to rationalize the current hodge-podge of property tax relief mechanisms, the Governor and legislature can and should provide more effective and efficient property tax relief by providing the Middle Class STAR Program with a real property tax circuit breaker that targets aid to those who are the most overburdened by their property tax bill. It is important to acknowledge that the Middle Class STAR Rebate Program is better targeted than the original STAR exemption and that it takes (unintelligible) into consideration but it is still not adequately targeted to be an effective December 13, 2007 Page 27 and efficient property tax relief mechanism since it does not take the size of a home ownership property tax bill into consideration, it's almost like an income tax relief mechanism. And it should not be and it is still based on county and school district averages rather than on your situation. So, while there might be more people with incomes of a $100,000 property taxes of $10,000 in West (unintelligible) there are still people in (unintelligible) with that mix and what we have done is we have created a system where depending on how you -- where you live you get treated differently. I don't understand how that can be morally sustained over time to be giving out money based on a formula that doesn't treat people equally based on their circumstances, which treats them based on the averages of where they happen to live. A circuit breaker like the one proposed by Assemblywoman Sandra Galef and Senator Elizabeth Little would address both of these shortcomings. The way that their bill works is it applies to homeowners who have lived in their current homes for 10 years, which in my testimony I look at I don't think it makes sense to do that to have a 1o year residency requirement. In the -- I should mentioned that when the senior citizen -- the optional senior citizen property tax exemption was enacted in 1967 it had a residency requirement of five years. And very shortly thereafter there was all kinds of changes in fact one of the changes was when it was cut to three years, it was then changed to three years either in December 13, 2007 Page 28 your own house or another house in the same taxing jurisdiction. So, we came sort of silly, I think people should be treated based on their circumstances. What we have in here is we have a bunch of stimulations of the cause of varying the various parameters of the Galef-Little Bill and think that by limiting the home value that's covered it wouldn't be a cliff but it would say that this applies only to the first $500,000 of your home value. So, if your home value was $600, you would not be completely ineligible and you wouldn't go from being completely eligible to completely ineligible, it would be on the first 500,000 but I think for the most part the other parameters of their program work I think the 70 percent is better than the current 50 percent and I think the thresholds could be a little higher if we want to save cost but if we did the $500,000 limit our estimate is that we cost just about as much as the Governor's Middle Class STAR was originally proposed at Boston. Thank you. Female Speaker: I don't see Betsy (unintelligible) from CBC. Is somebody else here representing CBC? Laurence Quinn and Tom Fray -- representatives of the Retail Council. Ted Potrikus: Good afternoon. My name is Ted Potrikus I'm the Executive Vice President and Director of Government Relations for the Retail Council of New York State. We represent some 5000-member stores of all sizes December 13, 2007 Page 29 through out the State and we applaud Governor Spitzer in the division of the budget for bringing to the table the stakeholders in this important pubic policy discussion regarding property taxes. Thank you for including the retail industry in these talks. Obviously property taxes affect retailers small and large, ultimately have an impact on the prices our customers pay in the goods and services resale. The margins in today’s retail economy don’t give much room for absorbing increases in bottom line expenses, so when property taxes increase, it's very hard to hide that hit from the shopper. It's not the most favorable situation but more often than not, it can't be avoided. But we also recognize that outside of metropolitan New York, the property tax is one of the two fundamental revenue streams for the funding of essential services provided by local governments. The other of course is the local sales and use tax which New York’s property tax paying store front merchants are required by law to collect from consumers and remit to the state. It's a formidable and costly burden for the retailer, particularly when state government tolerates neither error nor delay in sales tax filings. Retailers are caught right in the middle of the rapids formed by the confluence of these two turbulent revenue streams. Winning an argument against an increase in the property tax means that a retailer might just have lost the argument against increasing the sales tax that he or she must collect from the valued consumer. Either way, the burdens fall ultimately December 13, 2007 Page 30 on the storefront merchant. These are the same stores upon which state and local governments rely, not just to generate collecting sales tax dollars, but retailers are the linchpin to every community. They provide good jobs to hundreds of thousands of New Yorkers, contribute to and support community organizations and schools, attract other businesses and set a standard for downtowns, neighborhoods and suburbs throughout the state. And everyday storefront merchants are called upon to do more, to pick up more of the work that once was provided through the services paid for by those ever increasing property taxes, whether it's simple sidewalk maintenance or new proposals under consideration, that would force storefront retailers to act as plastic bag, bottle and (unintelligible) reclamation centers, storefront merchants are losing the time and the resources they need to do the things they do best sell stuff, that’s why it is distressing to the industry as a whole to be (unintelligible) left out of the picture. When the conversation turns to property tax credits, this was illustrated all too clearly earlier this year, when the city of New York sought to renew its industrial and commercial incentive program, but wanted to save money by removing most retailers from eligibility for this important credit. Let me interrupt my own testimony for a moment to thank Governor Spitzer and the state legislature for recognizing that The hasty effort by the city narrated greater study you rejected the initial renewal appeal and instead December 13, 2007 Page 31 approved the one year extension of ICIP, comprising its decades old retail inclusive rules, that extension terminates June 30th 2008, so this matter certainly will be among our industries legislature priorities for the upcoming session. And despite this one year extension we are smart enough to know that our industries collective neck is squarely on the ICIP chopping block, the problem in this seems to extend to any time the conversation turns to property tax credits is the pervading and short sighted notion the retailers large and small have to be where the people are. The retailers will build regardless of property tax incentives or abatements. A retailer today can be wherever there is a computer with internet access, no property necessary, no jobs for New Yorkers, no bricks or mortar, no presence in the community and at this time no requirements to charge collect or remit sales taxes. In the specific case of the ICIP, retailers can show the importance of the abatement in corporate decisions to locate, build, redevelop and invest in various parts of New York City. The impact and importance is dramatic and as the city continues to grow and transform more and more people will demand more and more retail close by. The ICIP remains a vital ingredient to make that happen. As you and your colleagues look at property tax incentives over the years ahead, we urge you to remember the important role that retailers play in the composition of the communities of the state. A favorable property tax climate means jobs for New Yorkers, a greater December 13, 2007 Page 32 contribution to the tax base, a better fulfillment of all the other roles I had mentioned so far today. This of course stands in start contrast to the internet based merchants who provide no jobs for New Yorkers, and frankly in many cases advocate their lawful responsibility to collect and remit state and local sales taxes do and owing. I mentioned a moment ago the two fundamental revenue streams for local government, the property tax and the sales of use tax, the second of these well not the topic of today’s discussion, narrates special mention thanks in part to a proposal floated a few weeks ago by the States Department of Tax And Finance. I am referring of course to the shortly (unintelligible) to interpret certain business relationships to establish an excess in New State, for certain merchants today located only on the internet or otherwise outside of New York State. Well, the timing of this plan may have been a lot out of skew the underlying concept is worthy of further investigation. Well, this may sound rather contrary coming from a representative of the retail industry during the busier shopping time of the year. We believe it is inevitable that New York State will one day successfully require that these merchants collect from shoppers the sales and used tax on item shipped into New York. That inevitability may require strict regulation and a dedicated effort to enforce the same, but we think it absolutely essential and supported. I could be here all afternoon explaining the what’s, when’s, how’s, and December 13, 2007 Page 33 why’s of the collection of sales and used tax on purchases made over the Internet. That it's not a new tax it's simple and proper application of an existing one. The failure to collect the tax on such purchases puts our brick and mortar property tax paying retailers in enormous competitive disadvantage, all over a levy that those brick and mortar stores would rather not be required to collect in the first place, that our personal income tax return now seeks to collect from New Yorkers a quasi voluntary estimate of the sales and used tax is due and payable as a result of purchases made either on the internet or from other merchants located out of New York. The state law already requires these merchants outside of New York to collect and remit the sales and used tax and the technology available to every Internet user lasts easily through thousands of requirements across the country on sales tax and defeats the barriers to (unintelligible) cited by the supreme court, in it's 1992 Qill versus North Dakota decision, if a (unintelligible) like me can use a search engine to determine the sales tax rate for a product sold and shipped to Albany, to Grand Rapids, Michigan, to Yuma Arizona or to North port on any state, and surely the high tech wizards developing and guiding the business operations of these sophisticated internet merchants can do the same. But we are not here to talk about sales tax and I do hope that in the busy weeks ahead as you grapple with budget numbers and solutions that we can return to a full December 13, 2007 Page 34 and robust discussion about the sales and used taxes and the importance of leveling the proverbial excuse me, playing field not just for retailers but for the localities facing the similar pressures as they have sales tax collections dwindle and Bob (unintelligible) say every word of this for the past five years in a row. Again, on behalf of the member stores of the retail counselor, thanks to you for the outreach we really do genuinely appreciate it, and we are available at any time if you have any questions or would like us to discuss property sales or any other taxes. Thank you very much. Female Speaker: Thank you our next speaker is E.J. McMahon. E.J. McMahon: Thank you, and good afternoon. Thank you for this opportunity and I also want to offer congratulations to my former colleague Bob Megna whose appointment and I wish you the best of luck. I have given you testimony I won't read the testimony. I will summarize just my own angle on this -- this is a whole lot of areas where we could touch on obviously, that other witnesses have. I would certainly endorse much of what has been said on the issue of mandate relief in particular, the necessity for pension reform and reform of Taylor Law provisions that affect municipal cause and ultimately effect the tax base. I'm going to chose to focus today on -- on the property tax outside New York City and on the largest and -- and perineally fastest growing portion of that tax which is the December 13, 2007 Page 35 school property tax, which ultimately brings us to a large discussion of STAR, which is the aspect of the property tax that has the most direct, nexus a word that will soon become even more favorite of Bob’s with the state budget. STAR I just note parenthetically to begin with is -- is really something remarkable on the fiscal history of New York, we have gone from zero to $4 billion in the space of 10 years. I did nothing other than Medicaid in the beginnings has ever done anything like that. It's on page left alone to grow to over $6 billion in the next four years it now soaks up well over 10 percent of our personal income tax receipts which is a dedicated source of funding for it, and after all that spending and with all that projected growth nobody is happy. Nobody feels that you have gotten permanent lasting relief, the criticism of STAR I think have been pretty well documented and discussed widely around -- around (unintelligible) I go besides some of them in my testimony. Generally, STAR approved the old maxim that when you subsidize something you get more of it and you subsidize it in a big way, and what you got was -- was a large underlying increase in school tax levies that people began to feel one STAR had been fully faced in, as it happens coincidentally right at the moment when real estate values and assessments were beginning to sky rocket again. And when pension contributions required of school districts were moving up five, six, seven and eight fold in a space of a couple of years, all of which December 13, 2007 Page 36 has led to the situation where we now have renewed pressure, lots of frustrated people. Some of them were so frustrated they began to seriously advocate the complete evolution of the property tax on schools and to advocate in its place an income tax. And again I have made some arguments against that I think their frustration is understandable, but that their preferred solution is both administratively unworkable and would be economically destructive and you -- you certainly know the math as well as anyone in terms of what types of rates would be required on accounting regional or even statewide basis just to begin completely replacing the residential property tax. It's not a wise maneuver so the question is if -- if STAR isn’t the answer what is and two other things I would like to note parenthetically, it's interesting that New York city actually got the short end of the stake on STAR the New York city got disproportionally little from STAR however, the only residents of New York state who have gotten permanent lasting tax relief from STAR are residents of New York city because they all gotten across the board cut in their income tax rate which has saved them literally billions of dollars over the last ten years and operating a different way than the property tax. A second point is, and I might depart from the majority you speakers on this is that I think the means testing element of the middle class STAR program has not made the program better but worse, because it has introduced developments of complexity and new inequities albeit unintended December 13, 2007 Page 37 inequities towards already a -- a very flawed program. So the question is, what do we do now, what is the -- what's the solution well, I think first of all it's important to note and I think to - - to promote the point that a well administered and reasonably limited property tax is a good thing and indeed a necessity. And that it has three virtues that would be widely recognized in a tax policy sphere, it's stable, it avoids economic distortions, it's economically neutral and it's visible. And it's visibility is what causes the political pressure but it also is -- is among its chief virtues. And so the question becomes what do we do about it. Well, we know the administration -- that the administration of the property tax in New York has its own problems, our system has a lot of inequities and we don’t have a good assessment standard, we are unique among states and failing to have a uniform assessment standard of market value. There is a lot of basic reforms that need to be undertaken to professionalize, to rationalize property tax administration. But what do we do in terms of truly limiting taxes well, what I advocate is a cap on property tax levies, and I would like to stress again something I believe the budget division is particularly familiar with from having worked on the original STAR proposal. But I want to stress the difference between capping property tax levies as opposed to capping spending, capping assessments or capping property tax rates all of which I think are -- are problematic and are not something I would December 13, 2007 Page 38 -- I would recommend or that I think others would recommend based on what's happened elsewhere. The capping levies is the best approach to limiting taxes across the board it's by no means perfect but it has the fewest unintended consequences and it's to brought us on the simplest to administer. And that we would benefit from following the example generally the Massachusetts proposition 2½ program. Basically, following up some of the original language in Governor Pataki’s original STAR bill we should cap property taxes that are either 4 percent or -- cap tax levies rated 4 percent of the rate of inflation whichever is lower with allowance for growth in the property tax base, and with allowance for overrides on specific spending items by residents of the school district. This basically follows the basic guidelines of mass prop 2½ albeit mass prop 2½ is a general municipal property tax, the schools or the principal element that they are spending also. What's happened in Massachusetts is also -- almost is remarkable in its own way as STAR is in New York budget. Massachusetts is one of two states in the nation over the last thirty years to have gone from the top ten on the list of state and local taxes relative to income to the bottom half of all those states. It's fact it's gone from the top three regularly in the 70s to the bottom half in recent decades. The other state to accomplish that was California, which did an extremely ugly inequitable way through proposition 13, which is not a program to emulate. And I think that -- that the December 13, 2007 Page 39 experience with prop 2½ again is worth emulating here, because it also anticipates some of the criticisms that we sometimes hear property tax caps for instance, one common criticism is that a property tax cap would be undemocratic somehow, but again the override position has been exercised hundreds of time in Massachusetts even thousands I believe over the past 25 years. So, I think that gets around the -- the antidemocratic angle. It also is I think the only proven way to bring about a shift in the share of school expenses from the local level to the state level which seems to be the universal goal of everybody who talks about this. If a property tax caps such as the one I have just described had been enacted in 1998 around the time Governor Pataki had proposed it. By 2005 with the rest of the STAR program intact New Yorkers would have saved about $2.9 billion in property taxes. Now the state would have had to absorb that amount of money or more or likely might have done something to lessen the impact of that amount of money on the state budget, which again the chief -- brings about the chief virtue of this idea. It improves accountability by making the Governor and the legislature fully conscious of the physical impact of those statutory mandates of having affect on the cost of operating school districts. Therefore and - - one other piece of this, I would like to mention is that, as you may know New Jersey has now capped its school property taxes and New Jersey is the only state that can seriously rival the level of property December 13, 2007 Page 40 taxes in New York, and that’s after many years of trial and error in New Jersey which got Started a little earlier than we did with various state level financial dodges like STAR that in the long run didn’t workout for New Jersey. In closing relative to the executive budget that you are putting together now I would suggest two things -- two steps one as part of as on Article 7 bill obviously impose an immediate cap on school property tax levies under the terms I described. Two, repeal the STAR rebate redirecting a portion of the amount spend on the rebate to the sort of circuit breaker that was discussed by some Frank Morrow particularly earlier although not as much I would suggest using the rest of the money for broad-based tax relief. I would want to add that I do actually, I think this addresses some of the concern Frank raised about equity, especially among upstate counties which I think is well founded and I find -- I sympathize with you look at Montgomery County in particular, most of the counties particularly in Montgomery that have the problem he cited are literally dying economically and demographically and are in severe distress. And I think though you could design a circuit breaker program that would benefit those types of situations. In closing, I think the rest of the details of what I have to offer are cited here and now I will happy to address any followup questions at any time you choose, thank you. Female Speaker: Thank you. Charles Storrow. December 13, 2007 Page 41 Duncan McKenzie: Hello, Charles Storrow is not available today so I am filling him for him and coming at the last bit of this proceeding today is kind of good, I won't take up the full time so you can relax a little bit you want to hold your sighs. Well, good afternoon and thank you for this opportunity to speak, in the years that I have been with the Realtors this is the first time we have been invited to participate in a forum like this, so we appreciate the opportunity to -- to add our thoughts at least on this very important issue. My name is Duncan McKenzie and I am the incoming CEO for the New York State Association of Realtors. We are an Albany based real estate trade group representing nearly 67,000 members across the state. New York’s Realtors had been in the forefront of seeking property taxes reform for many years. We were that leading private sector force behind enactment of the original STAR program, and I will mention that for historical accuracy although, I would say that we are not bragging about it at this point. NYSAR’s leadership on these issue is derived from the first- hand observation of Realtors across the state. Their reports was that high property taxes lead the reasons that make New York state a less attractive place to live compared to other regions in the nation. It's frustrating and sad that meaningful property tax reform continues to elude resolution year after year. Government has acted relatively quickly to the sudden foreclosure crisis dominating December 13, 2007 Page 42 the news recently. The lawmakers and school officials continually fail to stem the problem of property taxes that has existed for so many years. Certainly, the rising foreclosures is a very serious matter and we look at as such. But overtime increasing property tax the property taxes will undoubtedly drive many more New Yorkers from their homes than predatory mortgage loans. In spite of the owners tax burden the status of New York housing market is not really all bad news. I am pleased to report that high property taxes have not caused a full-blown housing affordability crisis in New York. But instead fast there is an ongoing story of what might have been. Even though statewide sales through the third quarter of this year down about 8 percent as compared to the same period last year, 2007 is still shaping up to be the best year for sales in New York state history. Imagine however, how much better the housing numbers in the state’s overall economy might be with lower property taxes. The housing market must rank near Wall Street and agriculture as a major economic engine for New York state, the state’s fiscal picture would undoubtedly be more stable if lower property taxes fueled a more robust housing economy plus less near dependence on the stock market. Increased second hand vacation home sales could be an added boost to the economy as well, but this segment of the housing market is particularly vulnerable to the high property tax issue. In addition to help lower property taxes, the state could take a number of actions to promote December 13, 2007 Page 43 housing and thus the overall economy, for example one result of the high rising foreclosures is return of lending markets to more stringent lending practices, the days are -- easy to find zero down mortgage product for example, the 106 percent mortgages that we saw even recently really are I think the past, main lenders are now going back but most lenders that we can see are going back to acquiring a down payment. We are proposing and proposed for many years and we have spoken with folks in budget as well about a proposal that we have advocated that would create a first time home buyer savings account program, it would allow folks to put up to $5,000 individually and $10,000 as a family into a savings accounts and deduct that from their state taxes. In this way we create at least a market based way for folks to put the money inside that they would need for closing cost now, she is not going to be that easy to get into a house without those kinds of moneys in the bank. NYSAR and local Realtor organizations across the state have been involved in government sponsored forums where new ideas for cutting property taxes have abounded these include and you have heard them all today E.J. touched on a bunch of them as well, and even though these ideas are out there, it seems that they -- they tend to just fester and not really happen and it seems like today a lot of what you hear is, if there is a scale it's kind of like from frustration to desperation and I suppose if you were to put the realtors on that scale we would -- way December 13, 2007 Page 44 over on the frustration side because we are just not in a position to create these changes that we see clearly every day how much they effect home buyers. As I talked to you before briefly about the STAR program as people have said school taxes make up the lion share of the property tax bill, yet the cornerstone of the state’s property tax relief the STAR program really has no appreciable benefit, our folks talk to us constantly about how STAR is really been used by the local school districts to mass (unintelligible) little above the rate of inflation, and in the end there is really no net benefit for most home buyers and home owners. So we would agree with many of the other the other folks earlier today who said that it's worth really may be scrapping the whole program taking a fresh look at it and finding a way to -- to make it work better and actually I would also defer to what E.J. said we went back and I remembered the STAR program happened before I worked for the Realtors and in our testimony we talk about the need to cap spending, but it may well be stemming the tax rates just the way they go so we don't mean to try and be experts in that area, we would defer to those but wherever you put the cap and it seems that there needs to be some type of an institutional restrain whether it be on spending or on taxing, because there doesn't seem to be the ability or the willingness on a voluntary basis to achieve that, it was interesting to us that in the press release announcing this here, Mr. Francis accurately noted that unexpected revenue from Wall December 13, 2007 Page 45 Street have allowed law makers to put off tough fiscal choices, and small business people weave you every single expenditure as a tough fiscal choice and it's sad from our perspective to see that it takes a crisis situation to think about spending retrain as opposed to having it be the priority when you are doing budgeting, and I guess that's where we would end our comments. Female Speaker: Thank you. Male Speaker: Thank you. Female Speaker: That was our last scheduled speaker for today I really want to thank everybody for coming out particularly, recognizing that looks like it's getting dangerous outside and safe travels to everyone, thank you.