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.

This article appears in Feb 5-11, 2003.