Brooklyn's Progress
December 2009/January 2010

BY JILL D’AMICO

One would be hard-pressed to find anyone who considers Albany the happiest place on earth, but like many state capitals these days, things are looking downright grim.

Governor David Paterson is under pressure to close another multi-billion dollar budget deficit, months after passing a $132 billion state budget that closed a record $17.7 billion deficit with the help of $8 billion in new taxes and fees.

Deficit Reduction Plan
Gov. Paterson has put the screws on the state legislature to use his plan or come up with ideas to close a projected $10 billion budget deficit over the next two years, after the state Division of the Budget revised its forecast. State legislators have been called into special session to discuss the measures.

"Based on current revenue trends, there should be little optimism that a rebound in tax collections — from Wall Street or any other source — will bail us out of our budget problems,” said New York State Budget Director Robert L. Megna.

The numbers aren’t pretty. Data shows that the New York State economy deteriorated more quickly during the first half of 2009 than originally anticipated. According to the Bureau of Labor Statistic's Quarterly Census of Employment and Wages, New York State wages fell 15% in the first quarter of 2009, the largest quarterly decline in the 34 years they have on record. Wages are projected to fall 5.8% in 2009, which would also be the largest annual decline in the history of QCEW data. Personal income and non-agricultural employment are also projected to decline by 2.8% and 2.3%, respectively, in 2009. And while the Brooklyn Chamber of Commerce’s Brooklyn Labor Market Review projected Brooklyn would make it out of 2009 less scathed than other parts of the city, the statewide budget problems remain.

Gov. Paterson’s proposed $5 billion two-year Deficit Reduction Plan is currently being debated in special legislative sessions, but not much progress has been made. The shaky 32-30 democratic majority of the State Senate is blocking much progress form being made, according to reports.

“The fiscal challenge we must address is clear and undeniable,” Gov. Paterson said. “Revenues have continued to plummet below already conservative projections and immediate action is needed to restore the fiscal integrity of our State budget. Delaying the tough choices we must inevitably make will do nothing besides make those choices more difficult.”

The plan would lead to $3 billion dollars in savings for the ’09-’10 fiscal year alone, but getting there will be the hard part. Gov. Paterson predicts savings will be achieved through spending cuts, technology aids and the use of surplus funds.

“The State of New York has and will continue to meet all of its obligations to bondholders,” said Mr. Megna. “Other expenditures, however, may ultimately have to be delayed past their currently scheduled payment dates in order to prudently manage cash-flow.”

On the table are a round of new cuts, including slashing school funding by $480 million.

"This is not about how we're getting along," said Gov. Paterson. "This is about the fact that we're short on cash in December, and we have obligations that we have to pay."

Tax and Spend
This latest pressure comes on the heels of a slate of taxes and fees that were enacted over the last few months have hit businesses when they need it least.

The latest battle was over newly issue license plates, which are mandatory, and would carry a $25 fee. Assembly and Senate leaders have said the plan is dead, but lawmakers offered no other way to raise the $130 in annual revenue the move was said to earn the state.
 
But that hasn’t stopped additional fees at the DMV. The Motor Vehicle Registration fee is now, on average, $55, up from $44. In addition, original and renewal license fees have gone up 25%.

Nearly all forms of automobile transportation have been hit with higher taxes, as well, and some small businesses are being hit from all sides.

Yellow cabs are now charging a surcharge of .50 cents per ride, and the state sales tax has been extended to black cars and livery cabs as well.

The state fee on auto insurance has doubled from $5 to $10, which is expected to increase car insurance costs by more than $48 million.

“Prior to June 1, there was a 5% car rental tax — now it’s 11%,” said Gil Cygler of All Car Rent A Car. “That was a huge hit — it doesn’t make sense because if you’re a city resident and you need a car for any length of time you can just go to New Jersey to rent one.”

The total tax hike on car rentals is estimated to bring in $8 million for this fiscal year, and $10 million a year after that.

The Department of Motor Vehicles has also been a conduit for state revenue. Drivers in New York City and its surrounding counties now pay a $50 registration surcharge to help the Metropolitan Transportation Authority’s budget shortfall as well. These expenses add up for businesses such as Mr. Cygler’s, which has been in business for 30 years.

“Between the increase and the $25 surcharge, car registrations have practically doubled. That’s been a huge issue for us — it’s very frustrating and difficult.”

Mr. Cygler said that he couldn’t logically pass these expenses on to his already-strapped consumers.

Termed “sin taxes” when they were introduced earlier this year, taxes on beer, wine and cigarettes were floated as well, and there have been increases from 18.9 cents per gallon to 30 cents per gallon on wine, and the beer tax has increased from 11 cents per gallon to 14 cents per gallon. While the cost per-bottle or six-pack has been described as “negligible,” retailers see it differently.

“It’s definitely is an issue — all tax increases are felt,” said Heather Hamilton, owner of Long’s Wines and Liquors in Bay Ridge. “Everyone’s dollar is stretched thin right now and customers notice every penny. Sometimes they buy less because of it, and even though it might seem insignificant, they notice the fifty cents more per bottle.”

Groups like the New York Association of Convenience Stores have managed to tie up a proposed cigarette retailer licenses fee in court, but it will likely come into effect in 2010.

The fee would increase cigarette and tobacco retailer license fees from a flat $100 up to $5,000, depending on the volume sold.

Tax preparers will also have to pay a newly instated $100 fee if they prepare more than 10 tax returns for this year.

One of the moves that will make a large impact on Brooklyn and the state’s manufacturing landscape is the early sunset of the Empire Zone progress. Set to expire on June 30, 2010, a year earlier than originally planned, the enacted budget will also decertify companies producing less than $1 in actual investment and wages for every $1 in state tax incentives. For companies certified after April 1, 2009, a 75% cap will be imposed on the amount of Real Property Tax Credits that a firm can receive, and all new program participants are required to meet a 20:1 cost-benefit standard, except for manufacturing firms, which must meet a 10:1 standard. Set to provide savings of $90 million for the 2009-2010 fiscal year, these moves were fought by business advocacy organizations like the Brooklyn Chamber of Commerce and firms alike.