Message from Liz...
The legislature has once again enacted an on-time budget, which, given the legislature's record in recent decades is something of an accomplishment. Unfortunately, the budget we passed is not a good one, and it offers a lesson as to why "compromise" is not always a good thing.
Sometimes what passes for compromise is actually more about political horse trading, with the outcome being convoluted, counterproductive public policies that will not achieve their stated goals. On three key issues in this year's budget – the minimum wage, tax policy, and funding for services for the developmentally disabled – the willingness of the Republican-led Senate Majority Coalition to compromise on key principles of fairness has resulted in some terrible public policies.
Minimum Wage
The minimum wage deal is the first example of a compromise gone wrong. Majorities of members in both the Senate and the Assembly supported setting the rate at $9.00 an hour this year and building in future increases indexed to inflation. In spite of this, the Senate's "majority coalition" of Republicans and five breakaway Democrats instead forced a deal that will spread out the increase over three years, so the minimum wage won't actually reach $9.00 until December 31, 2015. What's more, the deal does not index the minimum wage to inflation. Indexing is crucially important because it removes the politics from minimum wage increases, and instead bases them on actual increases in the cost of living faced by workers. This is also good for businesses – it provides more stability and predictability, instead of irregular, unpredictable lurches.
But the details of the increase itself are not the worst of it. As part of the "compromise", the minimum wage increase was linked to a tax credit for businesses who hire minimum wage workers between the ages of 16 and 19. This tax credit essentially makes taxpayers, rather than employers, shoulder almost the entire cost of the wage increase for these workers.
When you look at the fine print on this dubious tax credit, it becomes clear that this is truly awful policy no matter your opinion of the merits of the minimum wage. First, it will encourage employers to only hire younger workers, since they only get the credit for workers under 20. It will also discourage keeping those workers once they turn 20, since the employer loses the credit at that point, and if they can find a way to let them go, they can hire younger workers again and collect the credit. And because the employer loses 100 percent of the credit the moment they increase the workers' salary by even a penny over the minimum wage, it ensures that these young workers (and the older workers already at a disadvantage in competing for the jobs) will never get a raise. So, this model turns the "minimum wage" into the "maximum wage" for too many in our economy.
This incoherent policy shows the danger of trying to work out a "compromise" that makes everybody happy – instead of a deal that serves public policy goals, the four men in a room have created a Rube Goldberg contraption that will not work properly for workers or for businesses.
Tax Rebate Checks
Another "compromise" was in the area of tax policy. The governor wisely agreed to extend through 2018 the high-earners income tax surcharge, which was set to expire after 2014. Doing so keeps higher rates for those making over $2 million, and keeps a slightly lowers tax rate for those making under $300,000. While I argued for more progressivity when this plan was first enacted in 2011, keeping it at least ensures that we do not revert to a system where millionaires pay the same rates as people making $40,000.
Unfortunately, this relatively good policy came at an annual cost of $410 million in lost revenue from an inappropriate and politically motivated deal. The Senate Majority Coalition would not agree to extend the personal income tax rates without getting something they could call "tax relief," but what they got was a blatant political giveaway that is also patently unfair to many taxpayers. The deal calls for three years of $350 checks to be sent to all families with children who make between $40,000 and $300,000. The first checks will go out in 2014, and based on past experience we should expect these checks to arrive in mid-October – right before the next election. The last time the state implemented such a policy, the checks were specially printed to prominently indicate they were sent courtesy of then-Governor Pataki and the State Legislature.
But beyond the politics of these checks, the details of the plan are awfully confusing. The checks will be based on tax records from two years previous, so a family would have to have met the income guidelines and had a child in 2012 to get a check in 2014 – so apparently families with newborns aren't worthy of tax relief. Nor are seniors or childless families, since individuals and families without children aren't eligible.
In my view, the most egregious part of this policy is the exclusion of families making under $40,000. The backers of this provision claim that's because people making under $40,000 don't pay taxes, which is patently false. In 2009, New Yorkers making less than $40,000 paid $1.26 billion in taxes. Furthermore, taxpayers are already required to have tax liability to be eligible for the credit.
As I pointed out on the Senate floor when debating this bill, in my district you won't find that many families with children living on less than $40,000 annually, but that is certainly not the case in most of the rest of the state. I question the wisdom of these checks, which will cost the state an estimated $410 million annually, but if this is to be state policy, it is particularly outrageous that there is no concept of progressivity built into the plan and the taxpayers with the lowest income are excluded from the benefit.
Cuts to Programs for the Developmentally Disabled
One thing we could be doing with some of the money from those rebate checks is restoring funding to programs for the most vulnerable New Yorkers. In his Executive Budget, the governor proposed an $120 million cut to programs for the developmentally disabled. Because this funding cut would result in a matching cut in federal funding, the total loss would be $240 million, or six percent of total state funding for these programs. The legislative leaders all spoke about the importance of eliminating this devastating cut, but in the end only restored $30 million. With the federal match, that still leaves these agencies short $180 million.
Of all the critical roles government plays, it is hard to think of one more important than meeting the needs of the developmentally disabled. These are people whose basic quality of life and in many cases their very survival depends on access to services that only government has the ability to fund. While there may be agencies that can absorb these cuts, the fact is that many service providers are operating with no margin for error, and I fully expect in the months ahead we will be hearing about residences for the developmentally disabled shutting their doors, leaving their clients and their families with no place to turn. I am deeply disappointed that the governor and legislative leaders could not find sources of funding to ensure these programs were not devastated.
While there were some good things in the budget, in the end I voted against many of the budget bills, including the revenue, aid to localities and health bills, because they included indefensible policies such as those outlined above. While the Senate Majority Coalition sees the on-time budget containing these compromises as a praiseworthy victory, I see bad public policy, real harm being done to some of the most vulnerable in our society, and a lost opportunity to enact a truly progressive budget.
We would have had the votes in the Senate to do much better than this, if a small number of breakaway Democrats had rejoined us and prioritized good public policy over these incoherent political compromises.
PS: As I write this, several state legislators, plus a city councilmember and assorted others, have just been indicted on bribery and corruption charges. As in the past, I have three immediate reactions:
- Good for the law enforcement officials working to catch the bad guys – I hope they catch them all!
- Damn! Now more people will think we are all crooks – including me – and it will make it that much harder to encourage good people to run for elected office.
- Maybe this jolt will force legislators to uproot our state's culture of corruption at the source – a campaign finance system that centers on entrenched interests handing out large checks to politicians. We should respond to these indictments by finally passing serious campaign finance reform legislation!