New York State Senate Minority Finance Committee

2011 Mid Year Report

On Receipts and Disbursements
Senator John L. Sampson
Senate Minority Leader Joseph F. Pennisi Secretary, Senate Finance Committee Minority November 2011

Senator Liz Krueger

Ranking Member, Senate Finance Committee

New York State Senate

2011 Mid Year Report

On Receipts and Disbursements Senate Finance Committee/Minority
Senator Liz Krueger, Ranking Member
Joseph F. Pennisi, Secretary to the Finance Committee/Minority
Prepared by Senate Finance Committee/Minority, Office of Fiscal Studies Michael J. Laccetti, Director of Fiscal Studies Paul Alexander, Principal Fiscal Analyst Matthew Peter, Fiscal Analyst Felix Muniz, Director of Budget Studies Cheryl Halter, Budget Analyst Dwayne Robertson, Budget Analyst

Table of Contents
Contents
EXECUTIVE SUMMARY .................................................................................................................................. 5 ECONOMIC OUTLOOK ................................................................................................................................... 7 National Economy ..........................................................................................................................7 New York Economy ......................................................................................................................15 National GDP compared to New York State GSP ................................................................................ 15 Financial Sector ................................................................................................................................... 15 Housing Market................................................................................................................................... 16 New York State Unemployment ......................................................................................................... 17 New York Employment by Sector ....................................................................................................... 18 Wage and Personal Income Growth ................................................................................................... 18 New York State Adjusted Gross Income ............................................................................................. 20 Empire State Manufacturing Survey ................................................................................................... 21 ECONOMIC INDICATORS ............................................................................................................................. 22 REVENUE OUTLOOK .................................................................................................................................... 23 All Funds ......................................................................................................................................23 General Fund ...............................................................................................................................23 Personal Income Tax ....................................................................................................................26 Components of PIT Collections .......................................................................................................... 27 Withholding ........................................................................................................................................ 27 Estimated Taxes .................................................................................................................................. 27 Final Returns ....................................................................................................................................... 28 Other Payments .................................................................................................................................. 28 Refunds ............................................................................................................................................... 28 User Taxes ...................................................................................................................................28 Sales Tax ......................................................................................................................................29 Cigarette & Tobacco Tax ...............................................................................................................30 Motor Fuel Tax .............................................................................................................................31 Alcoholic Beverage Tax .................................................................................................................32 Auto Rental Tax............................................................................................................................33 Highway Use Tax ..........................................................................................................................33 Business Taxes .............................................................................................................................34 Corporation Franchise Tax .................................................................................................................. 34 Corporation and Utilities Tax .............................................................................................................. 34 Insurance Tax ...................................................................................................................................... 35 Bank Tax .............................................................................................................................................. 35 Petroleum Business Tax ...................................................................................................................... 36 Other Taxes..................................................................................................................................36 Estate Tax ............................................................................................................................................ 36 Real Estate Transfer Tax ...................................................................................................................... 37 Metropolitan Commuter Transportation Mobility Tax....................................................................... 37 General Fund Miscellaneous Receipts ................................................................................................ 37

Alcoholic Beverage License Fees:........................................................................................................ 38 Lottery/VLTs ...............................................................................................................................38 Traditional Lottery .............................................................................................................................. 38 Video Gaming ...................................................................................................................................... 39 DISBURSEMENT PROJECTIONS.................................................................................................................... 40 Education.....................................................................................................................................40 Tax Levy and General Fund Support for Public Schools (GSPS) Caps.................................................. 40 Foundation Aid.................................................................................................................................... 41 Universal Pre-K .................................................................................................................................... 42 Expense-Based Aids ............................................................................................................................ 43 Medicaid ......................................................................................................................................45 Methodology....................................................................................................................................... 45 Midyear Projections ............................................................................................................................ 46 SFY 2012-13 Forecast for Medicaid Spending................................................................................... 47 Risks to the Financial Plan .................................................................................................................. 47 Public Assistance ..........................................................................................................................47 Family Assistance ................................................................................................................................ 47 Safety Net Families ............................................................................................................................. 48

EXECUTIVE SUMMARY
Section 7 of Chapter 1 of the Laws of 2007 requires representatives of the Governor, Senate, Assembly and Comptroller to meet on or before November 15th to review State financial and economic information and projections for the current and upcoming State Fiscal Year. Commonly known as Quick Start, its goal is to facilitate timely adoption of the State budget for the next fiscal year. As part of this process, each house is required to prepare and make available a forecast of receipts and disbursements for the current and ensuing fiscal year no later than November 5th. A joint report is published and made available on the respective web sites after the meeting. Blue Chip economic indicators generally forecast moderate economic growth and low inflation for 2012 at the national level. Similar trends are expected for New York State as well. Nationally, corporate profits are expected to continue trending downward. Also, hiring is expected to remain weak for the next year thus leaving the unemployment rate around the eight percent mark in New York and around the nine percent level in the US. Nationally, wage growth is projected to be around two percent. In New York State, wages are expected to increase around 4.5% in 2012. But personal consumption is expected to remain sluggish nationally in 2012. Based on these economic projections, NYS All Funds tax collections are now projected to reach nearly $64.7 billion in SFY 2011-12, an increase of $3.8 billion or 6.2 percent from SFY 201011. Further slight growth is projected for SFY 2012-13 as All Funds tax collections increase to $65.6 billion, an increase of $914 million or 1.4 percent. All Funds Personal Income Tax collections are expected to total $38.94 billion in the current year and $38.98 billion SFY 2012-13. All Funds Business Taxes collections are projected to rise in SFY 2011-12 by $455 million or 5.7 percent totaling $7.89 billion this year and $8.34 billion in SFY 2012-13. User Taxes and Fees are projected to rise in SFY 2012-13 by $215 million or 1.0 percent over current year levels. $14.76 billion is expected to be collected in the current year and $14.9 billion next year. The All Funds Other Taxes category is projected to be $3.3 billion SFY 2012-13 which represents an increase of $200 million from the current year. Much of the increase is derived from an increase in expected MTA Mobility Tax revenues. NYS General Fund tax collections are now projected to reach nearly $41.9 billion in SFY 201112, an increase of $2.74 billion or 6.9 percent from SFY 2010-11. Further growth is projected for SFY 2012-13 as General Fund tax collections to $42.4 billion, an increase of $400 million or .9 percent. General Fund Personal Income Tax collections are expected to total $25.9 billion in the current year and in SFY 2012-13.
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General Fund Business Taxes collections are projected to rise in SFY 2011-12 by $557 million or 10.5 percent totaling $5.8 billion this year and $6.2 billion in SFY 2012-13. User Taxes and Fees are projected to rise in SFY 2012-13 by $376 million or 4.3 percent over current year levels. $9.2 billion is expected to be collected in the current year and next year. The General Fund Other Taxes category is projected to be $1.085 billion in SFY 2012-13 which represents an increase of $55 million from the current year. General Fund Miscellaneous Receipts are also projected to remain at approximately $3.0 billion again in SFY 2012-13, a small decrease from the current year. In the SFY 2011-12 Enacted Budget, the Legislature enacted two year appropriations for School Aid and Medicaid. On this disbursement aspect of the Financial Plan, $19.64 billion in School Aid is estimated to be disbursed in SFY 2011-12. This is projected to rise to $20.44 billion in SFY 2012-13, an increase of $805 million or 4.1 percent. Foundation Aid, which comprises $14.89 billion, 70 percent of the total, is projected to remain in SFY 2102-13 at SFY 2011-12 levels. Expense-based aids, which include Building Aid, Transportation Aid, Special Education Aids and BOCES aid, are projected to grow by $362 million or more than 6.2% percent. State Medicaid spending is capped at $15.28 billion for SFY 2011-12 and at $15.88 billion for SFY 2012-13. Projected State spending for SFY 2011-12 will fall below the enacted cap for this SFY by .05 percent or $70 million. For SFY 2012-13 projected baseline State spending would increase above the enacted cap by 3 percent or $544 million. However it is anticipated that the continued work of the Medicaid Redesign Team will produce recommendations resulting in expenditures at or close to the cap of $15.88 billion. The State share of Public Assistance disbursements is projected to reach $396,385,252 in SFY 2011-12 and grow to $396,436,382 in SFY 2012-13, an increase of $51,130 or .013 percent. Public Assistance consists of Family Assistance (financed by Federal Temporary Assistance to Needy Families (TANF) funds) and Safety Net Assistance for both families and single individuals. Safety Net is financed from State and Local sources only. The Family Assistance caseload is projected to be 260,383, a decline of 1,114 or .43 percent in SFY 2012-13. This is also compounded by a decline in the caseload for Safety Net for individuals, which is projected to drop by 4,758 or 2.7 percent. Safety Net for Families is also projected to decline by 672 or .56 percent in SFY 2012-13. As is always the case, there are substantial risks with this or any other forecast. However, current national and international conditions make the situation even more risky. For example, the economic recovery, at both the State and national level is fragile. Job growth remains weak and the stock market is highly volatile. Also, internationally, there are pervasive concerns about the viability of the European Union and more specifically, the health of the Greek, Italian and Spanish economies. Any major shock to the national and/or international political economy could have widespread negative implications for the American economy.

ECONOMIC OUTLOOK
National Economy
The United States economy continues to encounter slow growth. The real gross domestic product (GDP), the output of goods and services produced by labor and property located in the United States, is estimated to have increased at an average annual rate of less than 1 percent during the first half of this year. According to the Bureau of Economic Analysis (BEA), the GDP increased at an annual rate of 1.3 percent in the second quarter of 2011 (third estimate). In the first quarter, real GDP increased 0.4 percent. The GDP increased at an annual rate of 2.5 percent in the third quarter of 2011 according to the BEA advance estimate. The GDP increase in the second quarter chiefly reflected positive contributions from nonresidential fixed investment, personal consumption expenditures (PCE), exports, and federal government spending. These positive developments were partly offset by negative contributions from state and local government spending and private inventory investment, according to the BEA. The GDP acceleration in the second quarter primarily represents a deceleration in imports, an upturn in federal government spending, and an acceleration in nonresidential fixed investment that were partly offset by a deceleration in PCE, a downturn in private inventory investment, and a deceleration in exports, according to the BEA.

According to Federal Reserve Board, factors that contributed to this weak growth include political unrest in the Middle East and North Africa, strong growth in emerging market economies, and significant increases in the prices of oil and other commodities and the natural disaster in Japan. Despite these setbacks, growth in the second half of the year will likely increase more than in the first half due to commodity prices coming off their highs and manufacturers' problems with supply chains nearing a resolution. Since the start of the intense financial crisis in the second half of 2008, there have been some hopeful developments. U.S. manufacturing production increased nearly 15 percent since its trough, due largely to the growth in exports. The U.S. trade deficit has been lower recently than it was before the crisis began in 2008. The U.S. current-account deficit for international transactions decreased $1.6 billion to $118.0 billion (preliminary) in the second quarter of 2011. Real exports of goods and services increased 3.6 percent in the second quarter as compared with an increase of 7.9 percent in the first quarter. Real imports of goods and services increased 1.4 percent as compared with an increase of 8.3 percent in the first quarter. Despite this positive news, economic challenges still persist. The aggregate output in the United States had not returned to the level that it had achieved prior to the crisis by the second quarter of 2011. This slow economic growth has led to slow rates of increase in jobs and household incomes.

House prices and financial asset values have declined resulting in a reduction in household wealth. This reduction in household wealth has led numerous families to face high debt burdens and reduced access to credit. New home construction is at only about one-third of its average level in recent decades. A number of factors are causing this poor housing market. These factors include the high number of distressed and foreclosed properties, tight credit conditions for builders and potential homebuyers, and the large number of "underwater" mortgages (this is when homeowners owe more than the market value of their homes).

Perhaps the most important factor keeping consumer confidence low has been a poor job market. The growth rate of private sector employment has slowed in 2011. State and local governments have tightened their belts by cutting spending and employment in the face of ongoing budgetary pressures. The unemployment rate has remained approximately 9 percent since early this year. Recent indicators, including new claims for unemployment insurance, point to the probability of more slow job growth in the short-run.

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According to the BEA , real personal consumption expenditures increased 0.7 percent in the 2nd quarter as compared with an increase of 2.1 percent in the first. Durable goods declined 5.3 percent as compared to an increase of 11.7 percent. Nondurable goods increased 0.2 percent as compared with an increase of 1.6 percent.

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U.S. banking and financial conditions have improved notably since the beginning of the depths of the crisis in 2008. Despite this improvement, credit remains tight for many households, small businesses, and residential and commercial builders. The reason for this tight credit is partly due to weaker balance sheets and income expectations which have increased the estimated credit risk of many potential borrowers. U.S. corporate profits from current production (corporate profits with inventory valuation and capital consumption adjustments) increased by $61.2 billion in the second quarter as compared with an increase of $19.0 billion in the first quarter. Current-production cash flow (net cash flow with inventory valuation adjustment) -- the internal funds available to corporations for investment -- increased $86.2 billion in the second quarter as compared with an increase of $21.1 billion in the first quarter, according to the BEA.

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The raising of the federal debt ceiling controversy and the subsequent downgrading of the U.S. long-term credit rating by a major rating agency partly added to the financial turbulence that occurred this summer. Global financial markets have been under significant stress recently due to concerns over the sovereign debt in Greece and other euro-zone countries and the sovereign debt exposures of the European banking system. The natural disaster in Japan put upward pressure on prices of motor vehicles by disrupting the global supply chain. Due partly to this factor, inflation picked up during the first half of this year. During the first half of this year, the price index for personal consumption expenditures rose at an annual rate of about 3-1/2 percent while the preceding two years had an average of less than 1-1/2 percent. Inflation has already begun to moderate as this temporary factor fades in its impact.

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Since early July 2011, interest rates on 10-year Treasury notes have decreased by nearly a full percentage point. According to the Congressional Budget Office (CBO), this drop in interest rates is attributed largely due to such factors as a weaker U.S. economy, potential losses on the sovereign debt of some major euro-zone countries, and because the Federal Reserve indicated that it would maintain short-term interest rates low for an even longer period than many market participants may have anticipated.

The prices of oil and other commodities have either leveled off or have come down from their highs. Increased automobile production has begun to reduce pressures on car and light truck prices. Longer-term inflation expectations have remained stable according to surveys of households and economic forecasters. The significant amount of excess resources in U.S. labor and product markets, and the stability of longer-term inflation expectations should restrain inflationary pressures, according to Federal Reserve Board.

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New York Economy

National GDP compared to New York State GSP
While the national recession has technically ended, both the national and state economic recovery has been slow and incomplete. As shown below, there was negative growth in the national GDP of -2.5% as the recessions effects took hold in 2009. In New York there was a less significant decline of -1% in 2009. Even though the New York economy declined in 2009, it declined at a much slower rate than the national economy. For 2010, the New York economy is estimated to perform slightly worse than the national economy, growing by 3% in the first two quarters and then slowing to 1.2% during the second half of the year. In 2010 the national economy began to recover and saw growth of approximately 4.2%, with the most significant growth seen in the first two quarters of the year. In 2011, national growth is projected to slow to approximately 2.8% in the first half of the year.

Economic Growth
6.00% 4.00% 2.00% 0.00% -2.00% -4.00% 2002 2003 2004 2005 2006 2007 2008 2009 2010
US GDP NY GSP

Source: Bureau of Labor Statistics

Financial Sector
Due to Wall Streets location in New York State and the large segment of New York State population that is employed by this sector, projections of weaker earnings on Wall Street have detrimental effects on the rest of the States fiscal outlook. The Comptroller is predicting that economic uncertainty due to the lingering European debt crisis, a sluggish recovery, and a relatively weak job market will lead to weaker Wall Street profits. As a result of weakening Wall Street profits, it is projected that bonuses and overall jobs from the financial sector will be weak in 2011. The Comptroller predicts a loss of 10,000 jobs by the end of 2012, beginning in April
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of 2011. Additionally, New York Citys four year financial plan expects profits to decline from $20 billion in 2011 to $14 billion in 2012. These factors have led the Office of the State Comptroller to estimate that Wall Street related tax collections will fall short of their targets in SFY 2011-12 and could be even greater in SFY 2012-13. The Comptroller also warns that a slowdown in the financial sector can cause a ripple effect throughout the rest of the State economy, causing a decrease in consumer spending and a weakening of other tax collections.

Housing Market
Similar to the experience of the nation as a whole, the housing market in New York has not recovered from the recession. Housing prices in New York State fell sharply in 2009 as the housing crisis deepened nationwide. In 2010, the number of houses sold in NYS decreased from 2009, but the sales price of existing homes rebounded considerably, surpassing 2008 prices. Additionally, in 2011 year to date housing prices have increased 4% over 2010. However, in the first eight months of 2011, home sales were down 9.2% from the same period in 2010 and 3.3% from the same period in 2009.

Number of Houses Sold in New York State

90000 80000 70000 60000 50000 40000 30000 20000 10000 0 2008
*Represents first 8 months of 2011

Number of Houses

2009

2010

2011*

Source: New York State Association of Realtors

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Annual Median Sales Price of Existing Single Family Homes in New York State
$225,000 $220,000 $215,000 $210,000 $205,000 $200,000 $195,000 $190,000 $185,000 $180,000 $175,000 2008 2009 2010 2011 Price Value of Homes

Source: New York State Association of Realtors

New York State Unemployment

During the recession, New York States unemployment rate fared better than the national average. At the height of the recessions effects on employment in 2010, the State unemployment rate was 8.6%, nationwide the unemployment rate was 9.6%. In 2011, unemployment in New York is currently at 8%, while the national unemployment rate is 9.1%.
12.0% 10.0% 8.0% 6.0% NYS Unemployment 4.0% 2.0% 0.0%
1/1/2010 2/1/2010 3/1/2010 4/1/2010 5/1/2010 6/1/2010 7/1/2010 8/1/2010 9/1/2010 10/1/2010 11/1/2010 12/1/2010 1/1/2011 2/1/2011 3/1/2011 4/1/2011 5/1/2011 6/1/2011 7/1/2011 8/1/2011 9/1/2011

U.S Unemployment

Source: New York State Department of Labor

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New York Employment by Sector

Since September of 2010 the New York State economy has gained 103,400 jobs from the following sectors: Educational and Health Services, Professional and Business services, Leisure and Hospitality, Financial Activities, Trade, Transportation and Utilities, Construction and Information. During the same period the New York State economy lost 13,000 jobs in four sectors. These sectors were: Government, Manufacturing, Other Services, and Natural Resources and Mining. The number of jobs created in New York State since September 2010 total 90,400.

Information Natural Resources, Mining and Construction Other Services Manufacturing Financial Activities Leisure and Hospitality Professional and Business Services Trade, Transportation and Utilities Government Educational and Health Services 0 500,000 1,000,000 1,500,000 2,000,000 2011 2010 2000

Source: NYS Department of Labor

Wage and Personal Income Growth

In general, New York State has weathered the recession better than the country as a whole, however in 2009 at the height of the recession New York State had negative 7.2% wage growth compared to the national average of negative 4.3%. This is principally due to NYS dependence on Wall Street and the financial sector and a 31.6% fall in bonuses for that sector. After the major fall in wage growth and the gradual Wall Street recovery, NYS wages have continued to grow, 2.2% in 2010, 3.8% in 2011 and 4.6% in 2012. This is compared to a National average of 1.6%, 1.7%, and 1.7% in 2010, 2011, and 2012 respectively.

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8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% -10.0% -12.0% -14.0% 2007 2008 2008 2009 2010 2011 2012 Average NYS Wage Average U.S Wage

Source: NYS Division of Budget As the State is realizing wage growth during the economic recovery, it is also realizing personal income growth. As shown in the diagram below that personal income nationwide dropped 5.1% in 2009, it grew by 2.8% in 2010. In NYS personal income fell 5.4% in 2009, and grew by 3.7% in 2010.
$60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 2007 2008 2009 2010 United States New York State

Source: Bureau of Economic Analysis

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New York State Adjusted Gross Income

$800,000,000 $700,000,000 $600,000,000 $500,000,000 $400,000,000 $300,000,000 $200,000,000 $100,000,000 $0 2004 2005 2006 2007 2008 2009 2010 2011 2012 NYSAGI in Dollars

Source: NYS Division of Budget Adjusted Gross Income (AGI) is the income base that determines personal income tax liability. During the height of the recession in 2008 and 2009 NYS AGI fell 8.7% and 10.8% respectively. These major declines followed four years of substantial growth. The strong growth seen in the pre-recession years were fueled by strong equity and real estate markets. When the recession hit, both of these elements of growth were hit hard, resulting in the drastic decline in 2008 and 2009. It is estimated that recovery in AGI started in 2010 and will gather strength in 2012. NYS Adjusted Gross Income (AGI) By Percent Change Year Percent Change 2004 11% 2005 8.7% 2006 10.6% 2007 14.6% 2008 -8.7% 2009 -10.8% 2010 5.1% 2011 4.5% 2012 7.0% Source: NYS Division of Budget, Executive Budget SFY 2011-12
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Empire State Manufacturing Survey

The Empire State Manufacturing Survey released by the Federal Reserve Bank of New York, indicates the conditions for New York State manufacturers. The survey has found that conditions for New York State manufacturers continued to deteriorate in October. According to the survey, the general business conditions remained negative, but largely unchanged from previous surveys. New orders were flat, but the shipments index increased. Additionally, the inventory index went below zero, showing that there was a decline in overall amount of inventory. The overall report, indicates that conditions in the future will be steady, but dramatic growth will not be seen in the near future.

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ECONOMIC INDICATORS
Economic Outlook (CY)
(Percent Change)

2010

2011 3.8 1.7 2.1 412 3.1 7.3 1.5 1.7 0.7 9.1 2.80 .590

2012 3.9 2.0 1.9 402 2.2 5.0 1.6 1.7 2.2 9.0 2.60 .700

National Economy
GDP Real GDP Personal Consumption Expenditure Real Net Exports (billions) CPI - All Urban, Percent Change Pretax Corporate Profits Disposable Personal Income Wages and Salaries Nonagricultural Employment Unemployment Rate T-Note Rate, 10-Year Housing Starts (millions) 4.2 3.0 2.0 422 1.6 32.2 1.8 1.6 (0.5) 9.6 3.20 .590

New York Economy

Personal Income Wages and Salaries Nonagricultural Employment Unemployment Rate 3.2 2.2 (0.4) 8.5 3.2 3.8 1.0 8.3 4.2 4.6 1.9 7.8

Source: Blue Chip Economic Indicators/DOB Forecasts

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REVENUE OUTLOOK

All Funds
All Funds tax collections are estimated to total $64.7 billion in SFY 2011-12. This reflects an increase of 6.3 percent from collections of $60.8 billion in SFY 2010-11. For SFY 2012-13, All Funds tax collections are projected to increase by 1.4 percent to $65.6 billion.

General Fund
General Fund tax collections are estimated to be $41.9 billion in SFY 2011-12, an increase of 7.0 percent from SFY 2010-11 collections of $39.2 billion. Similar to the increase in tax collections at the All Funds level, the increase in General Fund collections is a result of the moderate economic recovery. For SFY 2012-13, General Fund tax collections are projected to increase by 1.1 percent to $42.4 billion. As with All Funds collections for SFY 2011-12, this increase primarily reflects projected moderate economic growth.

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ALL FUNDS TAX COLLECTIONS

(Millions of Dollars) Personal Income Tax Withholding Estimated Payments Final Returns Other Payments Gross Collections Refunds State/City Offset User Taxes and Fees Sales and Use Auto Rental Cigarette/Tobacco Motor Fuel Highway Use Alcoholic Beverage MTA Taxicab Surcharge Business Taxes Corporate Franchise Corporation and Utilities Insurance Bank Petroleum Business Other Taxes Real Estate Transfer Estate and Gift MCT Mobility Tax Pari-mutuel Other Total All Funds Taxes 2010-11 Actual 36,209 31,240 9,735 1,964 1,063 44,002 (7,693) (100) 14,206 11,538 95 1,616 517 129 230 81 7,279 2,846 813 1,351 1,179 1,090 3,176 579 1,219 1,359 17 2 60,870 2011-12 Estimated 38,939 31,777 11,785 2,130 1,089 46,781 (7,694) (148) 14,753 12,005 102 1,676 512 144 233 81 7,888 3,203 832 1,410 1,337 1,106 3,072 620 1,015 1,422 14 1 64,652 2012-13 Projected 38,980 32,281 11,553 2,219 1,134 47,187 (8,059) (148) 14,968 12,121 107 1,762 515 144 238 81 8,343 3,388 904 1,466 1,434 1,151 3,275 690 1,070 1,501 14 1 65,566

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GENERAL FUND TAX COLLECTIONS

(Millions of Dollars) 2010-11 Actual 23,894 31,240 9,735 1,964 1,063 44,002 (7,693) (3,263) (9,052) (100) 8,795 8,085 480 230 5,279 2,472 616 1,217 974 1,237 1,219 17 1 39,205
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Personal Income Tax Withholding Estimated Payments Final Returns Other Payments Gross Collections Refunds STAR RBTF State/ City Offset User Taxes and Fees Sales and Use Cigarette/Tobacco Alcoholic Beverage Business Taxes Corporate Franchise Corporation and Utilities Insurance Bank Other Taxes Estate Pari-mutuel Other Total General Fund Taxes

2011-12 Estimated 25,912 31,777 11,785 2,130 1,089 46,781 (7,694) (3,292) (9,735) (148) 9,171 8,460 492 219 5,836 2,797 631 1,286 1,122 1,030 1,015 14 1 41,949

2012-13 Projected 25,913 32,281 11,553 2,219 1,134 47,187 (8,059) (3,322) (9,745) (148) 9,221 8,465 518 238 6,171 2,928 715 1,318 1,210 1,085 1,070 14 1 42,390

Personal Income Tax

Article 22 of the Tax Law imposes a tax on the income of individuals, estates and trusts. Personal Income Tax (PIT) receipts contribute over one half of all tax collections deposited into the General Fund. New Yorks definition of income closely follows federal rules, which include wages, salaries, capital gains, unemployment compensation, and interest and dividend income. Those components sum to federal adjusted gross income (FAGI). New York State adjusted gross income (NYSAGI) is calculated starting with this base, from which certain income items are then added or subtracted. The New York standard deduction or itemized deductions are subtracted from NYSAGI to arrive at New York State taxable income. Certain credits are then subtracted from the calculated tax to determine total personal income tax liability.

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The personal income tax is paid in a variety of ways: the withholding of wages and other income payments, the payment of estimated taxes, the payment of unpaid taxes through final returns, and the payment of overdue taxes known as delinquencies through assessments. Any overpayment of the personal income tax is refunded to the taxpayer. The manner of payment determines the income year to which the tax applies. For example, withholding is paid when the income is earned. Therefore, 2011 wages would be reflected in 2011 withholding. However, tax payments made with the final returns are based on the prior years income. As a result, final payments made in 2011 are a reflection of income earned in 2010. The same pattern holds true for refunds. All Funds net personal income tax receipts for SFY 2011-12 are estimated at $38,939 million, an increase of $2,730 million, or 7.5 percent over SFY 2010-11. Gross PIT collections are estimated to increase by $2,779 million, or 6.3 percent over SFY 2010-11. All Funds net personal income tax receipts for SFY 2012-13 are projected to increase by $41 million, virtually no change from SFY 2011-12. For SFY 2012-13, gross collections receipts are projected to increase by $406 million, or .86 percent over SFY 2011-12. General Fund PIT receipts for SFY 2011-12 are estimated to be $25,912 million, $2,018 million higher than SFY 2010-11. Net General Fund receipts for SFY 2012-13 are projected at $25,913 million, virtually no change from the current year.

Components of PIT Collections Withholding

In order to spread the payment of the personal income tax over the course of the tax year, employers are required to withhold a portion of the taxpayers tax liability from the employees earnings. Withholding has a slight lag from the period in which it is withheld to the time the State receives the payment from the employer. Withholding is closely correlated to wage and salaries received during any given quarter. As part of the SFY 2009-10 Enacted Budget, the tax rate was increased on New Yorks high income taxpayers. For SFY 2011-12, withholding payments are estimated to be $31,777 million; an increase of $537 million from SFY 2010-11. For SFY 2012-13, the withholding component is projected to increase to $32,281 million, an increase of $504 million from SFY 2011-12.

Estimated Taxes
Individuals make estimated payments if the tax they will owe for the year is significantly more than the amount of tax being withheld from their wages. Individuals who have large amounts of non-wage income (self-employment income, interest, dividends, or capital gains) generally make these quarterly payments. Estimated tax payments are due on the fifteenth of April, June, September, and January. Estimated payments are also made when a taxpayer files for an extension to file his annual return. When a taxpayer files for an extension, he or she is required to estimate his tax liability and, if payment is due, submit it with the extension. Estimated payments

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for SFY 2011-12 are estimated to be $11,785 million, an increase of $2,050 million from SFY 2010-11. For SFY 2012-13, estimated payments are projected to be $11,553 million.

Final Returns
Final returns are due by April fifteenth of every year. The final return is essentially a reconciliation between a taxpayers withholding and/or estimated payments and the tax liability calculated on the total personal income received throughout the tax year. A payment is due when the combination of withholding and estimated payments result in an underpayment of the total tax liability. For SFY 2011-12, personal income tax collections from final returns are estimated at $2,130 million, $166 million higher than collections in SFY 2010-11. For SFY 2012-13, collections from final returns are projected to be $2,219 million, an increase of $89 million from SFY 2011-12.

Other Payments
These collections are comprised of assessments due on later or audited returns and filing fees required to be paid by the States limited liability companies and limited liability partnerships. For SFY 2011-12, other payments are estimated at $1,089 million, an increase of $26 million from SFY 2010-11. For SFY 2012-13, collections from other payments are projected at $1,134 million.

Refunds
A refund occurs when a taxpayer overpays his personal income tax, either through overwithholding or remitting excess estimated payments. Similar to payments made with final returns, refunds are made as a result of filing an annual return. For SFY 2011-12, refunds are estimated at $7,694 million, no change from SFY 2010-11. For SFY 2012-13, refunds are projected to be $8,059 million, an increase of $365 million.

User Taxes
Cash flow in user taxes and fees follows a quarterly pattern. Collections for the months at the conclusion of a calendar quarter exhibiting larger collections as a result of taxes remitted by quarterly taxpayers. User taxes in New York are comprised of six taxes, as follows: Sales and Use Tax Cigarette & Tobacco Tax Motor Fuel Tax Alcoholic Beverage Tax Highway Use Tax Auto Rental Tax

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Source: NYS Tax & Finance Department & Senate Finance Committee /Minority

As can be seen from Figure 24, the sales and use tax is the largest component of user taxes. However, sales tax as a proportion of All Funds collections, declines over the years from SFY 2004-05 while cigarette and tobacco taxes has increased as a result of various tax rate changes. Similarly, collections from the motor fuel tax decline marginally while the other taxes in this category remain the same. All Funds sales and user taxes collections are estimated to be $14.75 billion in SFY 2011-12, a 3.9 percent increase from SFY 2010-11. On a General Fund basis, receipts are estimated to increase by 4.3 percent to $9.2 billion in SFY 2011-12. All Funds collections from sales and user taxes are projected to be $14.97 billion in SFY 2012-13, a 1.5 percent increase from the SFY 2011-12 estimate. General Fund collections are projected to be $9.2 billion in SFY 2012-13, a .55 percent increase from the estimate in SFY 2011-12.

Sales Tax
The Sales and Use tax is the second largest tax revenue source for the State. Sales of tangible personal properties and some services are taxed under Article 28 of the Tax Law unless statutorily exempt. The sales tax is imposed upon receipts from the following: the sales of tangible personal property statutorily specified services
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specified electricity gas, refrigeration, and steam services telephone service food and beverages sold by restaurants and caterers hotel occupancy certain admission charges. In New York State, the sales and compensating use tax was enacted in 1965 at the rate of 2 percent. The tax rate was subsequently increased to 3 percent in 1969, 4 percent in 1971, and to 4.25 percent in 2003. The last increase in the tax rate was a temporary change as a result of the economic recession beginning in 2001. The sales tax rate reverted back to 4 percent in June 2005. For SFY 2011-12, All Funds sales and use tax receipts are estimated to be $12.0 billion, a 4.1 percent increase from that in SFY 2010-11. General Fund collections are estimated to increase to $8.46 billion in SFY 2011-12, an increase of 4.6 percent. All Funds collection are projected to be $12.12 billion in SFY 2012-13, an increase of .97 percent. On a General Fund basis, sales and use tax collections are projected to be $8.47 billion in SFY 2012-13, virtually no change from the current state fiscal year. The increase in sales tax collections is impacted by economic activities, such as changes in employment, prices of consumer goods and services, the consumer sentiment index, and tax law changes. One of the factors impacting collections is the temporary removal of the sales tax exemption on clothing from October 2010 until March 2011. In SFY 2011-12, the exemption was reinstated, except at a threshold of $55 per item of clothing or footwear.

Cigarette & Tobacco Tax

The New York State cigarette excise tax is imposed by Article 20 of the Tax Law on the import or use of cigarettes within the State. The tax is paid through the purchase of a tax stamp which is adhered to the package of cigarettes. The tax rate is currently $4.35 per package of 20 cigarettes. Over the past ten years, the cigarette tax has been increased four times. New York City levies a separate cigarette excise tax equal to $1.50 per pack. In addition to the excise tax on cigarettes, the State imposes a tax on other tobacco products, such as chewing tobacco, snuff, and cigars. These products are taxed at a rate of 75 percent of the wholesale price. However, snuff products are taxed at a rate of 96 cents per ounce. All Funds receipts in SFY 2011-12 from the cigarette and tobacco taxes are estimated to be $1.67 billion, a 3.7 percent increase from collections in SFY 2010-11. General Fund receipts are estimated to increase 2.5 percent to $492 million in SFY 2011-12.

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In SFY 2012-13, All Funds collections are projected to be $1.76 billion, with $518 million to be deposited into the General Fund. This reflects a 5.1 percent increase in All Funds receipts and a 5.3 percent increase in General Fund receipts. Taxable cigarette consumption is a function of retail cigarette prices and a long-term downward trend in consumption. The decline in consumption reflects the impact of increased public awareness of the adverse health effects of smoking, smoking restrictions imposed by governments, anti-smoking education programs, and changes in consumer preferences toward other types of tobacco.

New York State Taxable Cigarette Consumption

1,200 1,000
Stamp Sales (millions)

800 600 400 200 0

Source: New York State Department of Tax and Finance

Motor Fuel Tax

Motor fuel and diesel motor fuel taxes are imposed by Article 12-A of the Tax Law upon the sale, generally for highway use, of motor fuel and diesel motor fuel, respectively. The motor fuel tax is levied on fuel used in motor vehicles operating on the public highways of the State or on fuel used in recreational motorboats operating on the States waterways. Currently, the tax is imposed at a rate of 8 cents per gallon on both gasoline and diesel motor fuel. All Funds receipts from the motor fuel tax are estimated to be $512 million in SFY 2011-12, virtually no change from SFY 2010-11. For SFY 2012-13, All Funds collections are projected to be $515 million. All motor fuel receipts are deposited into the Dedicated Highway and Bridge Trust Fund (DHBTF) and Dedicated Mass Transportation Trust Fund (DMTTF).
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Motor fuel tax collections are a function of the number of gallons of fuel imported into the State by distributors. Gallonage is determined in large part by fuel prices, the amount of fuel held in inventories, the fuel efficiency of motor vehicles and overall state economic performance.

New York State Motor Fuel Gallonage

2,000,000,000 1,800,000,000 1,600,000,000
Billions of Gallons

1,400,000,000 1,200,000,000 1,000,000,000 800,000,000 600,000,000 400,000,000 200,000,000 0

2005 Q1 2005 Q2 2005 Q3 2005 Q4 2006 Q1 2006 Q2 2006 Q3 2006 Q4 2007 Q1 2007 Q2 2007 Q3 2007 Q4 2008 Q1 2008 Q2 2008 Q3 2008 Q4 2009 Q1 2009 Q2 2009 Q3 2009 Q4 2010 Q1 2010 Q2 2010 Q3 2010 Q4 2011 Q1 2011 Q2

Diesel

Gasoline

Source: New York State Department of Taxation & Finance

On a calendar year basis, taxable gasoline gallons increased by 1.53 percent in CY 2010 compared with CY 2009, while the taxable diesel gallons declined by 1.40 percent. In the first quarter of CY 2011, taxable gallons of diesel gasoline decreased 6.1 percent compared with sales in the fourth quarter of 2010. Compared with the first half of CY 2010, taxable diesel gallons in the first half of CY 2011 have increased by 3.3 percent while sales of taxable gasoline decreased by 1.5 percent.

Alcoholic Beverage Tax

New York State imposes excise taxes at various rates on liquor, beer, wine and specialty alcoholic beverages. The tax is remitted by licensed distributors and noncommercial importers of such beverages in the month following the month of delivery. Overall, per capita consumption of taxed beverages and receipts has remained fairly constant in recent years with declines in one beverage class being offset with increases in others. This shift is primarily due to shifts in consumer preferences.

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Collections from the alcoholic beverage tax are estimated to be $233 million in SFY 2011-12, a slight increase from SFY 2010-11. In SFY 2012-13, All Funds collections are projected to be $238 million, a 2.1 percent increase from SFY 2011-12. Currently, all receipts from the alcoholic beverage tax are deposited in the General Fund. In the SFY 2009-10, the rate on beer increased from 11 cents to 14 cents per gallon and that on wine increased from 18.9 cents to 30 cents per gallon.

Auto Rental Tax

Since June 1990, the State has imposed a 5 percent tax on charges for the rental or use in New York State of a passenger car with a gross vehicle weight of 9,000 pounds or less. The tax does not apply to a car lease covering a period of one year or more. In SFY 2009-10, this rate was increased to 6 percent. Receipts from the auto rental tax are influenced by the overall health of the economy, particularly consumer and business spending on travel. For SFY 2011-12, collections from the auto rental tax are estimated to be $102 million, a 7.4% percent increase from that in SFY 2010-11. In SFY 2012-13, collections from this tax are projected to be $107 million, a 4.9 percent increase.

Highway Use Tax

Articles 21 and 21-A of the Tax Law impose a highway use tax on commercial vehicles using the public highways of the State. Highway use tax revenues are derived from three sources: the truck mileage tax, fuel use tax, and registration fees The truck mileage tax (TMT) is levied on commercial vehicles having a loaded gross weight of more than 18,000 pounds, or an unloaded weight in excess of 8,000 pounds for trucks and 4,000 pounds for tractors. The tax is imposed at rates graduated according to the gross vehicle weight. All highway use tax receipts are directed to the Dedicated Highway and Bridge Trust Fund. In addition, a supplemental tax equal to the base truck mileage tax is imposed. For SFY 2011-12, collections from the highway use tax are estimated to be $144 million, a 11.6% percent increase from SFY 2010-11. Collections from this tax are projected to be essentially the same as in SFY 2012-13. Fuel tax collection on highway use fluctuates with fuel consumption and hence, in turn, is influenced by economic conditions. These tax collections can also be affected by fuel prices.

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Business Taxes
All Funds business tax receipts are estimated to total $7.89 billion for SFY 2011-12, an increase 6.9 percent from SFY 2010-11 collections. Much of this increase reflects increased economic activity and generally increasing corporate profits. Also, this increase is partially attributed to the business tax credit deferral program enacted in SFY 2010-11. For all business tax collections, General Fund collections are estimated to total $5.84 billion for the current fiscal year, an increase of 10.5 percent from SFY 2010-11. For SFY 2012-13, All Funds business tax receipts are projected to increase to $8.34 billion, an increase of 5.8 percent over SFY 2011-12. General Fund receipts are projected to increase to $6.2 billion, an increase of 6.6 percent. Projected growth reflects revenues as a result of the deferral of tax credits and increased corporate profitability as businesses continue to rebound from the latest economic recession.

Corporation Franchise Tax

Levied by Article 9A of the New York State Tax Law, the corporate franchise tax imposes a tax on income from domestic and foreign corporations for the privilege of exercising their corporate franchise or doing business, employing capital, owning or leasing property, or maintaining an office in New York. The corporate franchise tax is imposed at a rate of 7.1 percent on businesses entire net incomes. Article 13 imposes a 9 percent tax on unrelated business income from not-for-profit organizations. The corporate franchise tax generates nearly half of all business tax revenues, averaging 43 percent in All Funds receipts over the last five years. For SFY 2011-12, All Funds receipts are estimated to total $3.20 billion, 12.5 percent growth over SFY 2010-11. Excluding audits, corporate franchise tax revenues are estimated to increase 27 percent primarily due to growth in corporate profits and additional revenues from the deferral of tax credits. General Fund receipts are estimated to total $2.80 billion, an increase of 13.1 percent. For SFY 2012-13, All Funds receipts are projected to increase to $3.39 billion, an increase of 5.7 percent. On a General Fund basis, receipts are projected to increase to $2.93 billion, 4.7 percent growth. The projected growth is a result of increased revenues from the continued deferral of the tax credits and continued growth in corporate profitability.

Corporation and Utilities Tax

Specialized industries, including public utilities, newly organized or reorganized corporations, out-of-State corporations doing business in New York State, transportation and transmission companies, and agricultural cooperatives are required to pay taxes and fees under Article 9 of the Tax Law. Historically, a majority of Article 9 revenues have been derived from public utilities
34

and the transportation and telecommunications industries. However, due to regulatory and statutory changes over the last seven years, the telecommunications industry has become the primary source of revenues from this tax. For SFY 2011-12, All Funds receipts are estimated to total $832 million, an increase of 2.3 percent from SFY 2010-11. General Fund receipts are estimated at $631 million for SFY 201112 compared with $616 million in SFY 2010-11. This increase is largely the result of increasing underlying trends in liabilities, partially attributable to increasing telecommunications services in SFY 2011-12. Through September, All Funds receipts have amounted to $310.4 million, slightly less than the comparable period last year and 14 percent less than the average midyear totals over the last five years. For SFY 2012-13, All Funds receipts are projected to increase to $904 million, an increase of 8.7 percent. General Fund receipts are projected to increase to $715 million, an increase of 13.3%. The rebound in revenues is a result of steady increases in the consumption of telecommunications and public utilities services projected through 2012.

Insurance Tax
Article 33 of the Tax Law imposes taxes on insurance companies, insurance brokers, and certain insurers for the privilege of conducting business in the State. The tax base for Article 33 is divided between life and non-life insurers. A premiums-based tax is levied on non-life insurers and independently procured insurance. Life insurance companies pay an income tax similar to the corporate franchise tax, as well as a premiums tax component at a rate of 0.7 percent of taxable premiums. However, the sum of the two cannot exceed 2 percent of taxable premiums. Accident and health insurers are taxed at a rate of 1.75 percent of premiums and all other insurers are taxed at a rate of 2 percent. All Funds Insurance Tax receipts are estimated to total $1.41 billion for SFY 2011-12, an increase of 4.4 percent. A slight increase in liability over the fiscal year is offset by a reduction in receipts as a result of the increased prepayment from 30 to 40 percent that went into effect last March as well as an anticipated decline in audits receipts. General Fund receipts are estimated to total $1.286 billion in SFY 2011-12, a 1.4 percent increase from the previous fiscal year. All Funds revenues are projected to increase by 4.0 percent in SFY 2012-13, totaling $1.466 billion. General Fund revenues, in turn, are projected to increase 2.5 percent for a total of $1.31 billion. This growth is primarily attributed to increased revenues from the provision that defers certain tax credits.

Bank Tax
Bank Tax revenues are collected under Article 32 of the Tax Law. The tax is imposed on banking corporations conducting business in New York State, comprised of three types: clearinghouses, savings institutions, and other commercial banks. Similar to Article 9-A
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requirements, bank tax liability is computed under four alternative bases: alternative minimum, entire net income (ENI), asset base, and a fixed dollar minimum. The tax is collected on the base that yields the highest liability. For SFY 2011-12, All Funds receipts are estimated to total $1.34 billion, an increase of 13.4 percent from SFY 2010-11. The increase is attributable to slightly better profits and a large decrease in the amount of refunds that are being paid out this year. General Fund revenues are estimated to total $1.12 billion in SFY 2011-12, an increase of 15.3 percent. In SFY 2012-13, All Funds and General Fund receipts are projected to increase by 7.8% percent to $1.43 billion and by 7.3 percent to $1.21 billion, respectively, as increased revenues are collected from the deferral of tax credits and liability growth steadily increases year over year.

Petroleum Business Tax

The Petroleum Business Tax (PBT) is levied under Article 13-A of the Tax Law. The tax is imposed on petroleum related businesses and is based upon the quantity of various petroleum products imported for sale or use in the State. PBT rates are amended on January 1st of each year to reflect the change in the Petroleum Producers Price Index for the twelve month period ending the previous August 13th. The changes in the rates are, by law, only allowed to fluctuate by 5 percent per year. All Funds receipts for SFY 2011-12 are estimated at $1.11 billion, a 1.5 percent increase over SFY 2010-11. The PBT index increased by 5 percent on January 1, 2011. This increase is capped in the Tax Law regardless of what the petroleum producer price index actually is. For SFY 2012-13, PBT receipts are projected to increase to $1.15 billion, a 4.1 percent increase partially attributed to a 5 percent increase in the PBT index effective January 1, 2011. There are no General Fund receipts for this tax.

Other Taxes
Other taxes are primarily comprised of the estate and gift taxes, real estate transfer taxes, the Metropolitan Commuter Transportation Mobility Tax (Payroll Tax), and pari-mutuel taxes.

Estate Tax
New Yorks estate taxes do not have to be remitted until nine months following a persons death. As a result, the amount of estate taxes paid in any particular month is not a reflection of the current economy, but the economy at the time of death. These collections are also a function of the size of the estates on which the taxes are paid. Estate tax collections are estimated to decrease in SFY 2011-12 by 16.7 percent from SFY 201111, to $1.02 billion. Three super-large estates were settled in SFY 2010-11. Estate taxes are
36

projected to slightly increase by 5.3 percent in SFY 2012-13 to $1.07 billion. The Estate Tax revenue is a function of households real net worth, indirectly to the stock index and any kind of tax law change, specifically related to credit exemption on the value of inherited estates. In current fiscal year, households real net worth is expected to increase compared to SFY 2010-11.

Real Estate Transfer Tax

Real estate transfer tax collection for SFY 2011-12 are estimated to be $620 million, up by $41 million. Real estate transfer collections for SFY 2012-13 are projected to total $690 million, increasing by $70 million, this increase reflects the projected general improvement in the housing market statewide. There are no General Fund receipts for this Tax.

Metropolitan Commuter Transportation Mobility Tax

Established in 2009, the Metropolitan Commuter Transportation Mobility Tax, also referred to as the payroll tax, provides additional revenue to the Metropolitan Transportation Authority (MTA). The tax imposes a rate of 0.34 percent on the payrolls of certain employers and selfemployed individuals doing business within the Metropolitan Commuter Transportation District. All Funds receipts for SFY 2011-12 are estimated at $1.42 billion, a 4.6 percent increase over SFY 2010-11. In SFY 2012-13, receipts are projected to increase 5.6 percent, totaling $1.50 billion. This increase is attributed to forecasted growth in wages and proprietorship incomes in the NYC metropolitan area.

General Fund Miscellaneous Receipts

SFY 2010-11 Actual 680 645 34 52 270 6 1,408 3,095 SFY 2011-12 Estimated 455 755 132 49 202 10 1,495 3,098 SFY 2012-13 Projected 525 735 109 51 202 10 1,285 2,917

Licenses, Fines, and Fees Abandoned Property Motor Vehicle Fees Alcoholic Beverage License Fees Reimbursements Investment Income Other Total

General Fund miscellaneous receipts are estimated to total $3.1 billion in SFY 2011-12. This Report accepts DOB projections for Miscellaneous Receipts in all categories. Collections in SFY 2012-13 are projected to decrease by 5.8 percent; decreasing from $3.1 billion to $2.92 billion.
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Alcoholic Beverage License Fees:

New York State distillers, brewers, wholesalers, retailers, and others who sell alcoholic beverages are required by law to be licensed by the State Liquor Authority. License fees vary depending on the type and location of the establishment or premises operated, as well as the class of beverage for which the license is issued. For SFY 2011-12, collections are estimated to be $49 million, a 5.8 percent decrease from SFY 2010-11. Collections are projected to be $51 million in SFY 2012-13, a 4.1 percent decrease from SFY 2011-12.

Lottery/VLTs
Traditional Lottery
Many provisions were enacted in SFY 2011-12 that impact Lottery receipts. These provisions included: Provide "Free-Play Allowance" to Video Lottery Gaming Facilities. Facilities are authorized to provide free game ("free-play") credits as a marketing tool to increase play at the facility. This action allows Video Lottery Gaming facilities to offer free-play credits that are excluded from net machine income. The amount of free-play allowance provided to each facility is capped at 10 percent of the net machine income at that facility. Number of 75 Percent Instant Games. Increases the number of instant games with a 75 percent prize pay-out from three to five new games per year. Increase Prize Payout Percentage on Multi-Jurisdictional Games. New York currently offers two multi-jurisdictional lottery games, Mega Millions and Powerball. If the prize payout on either of these games were to increase above their current 50 percent prize-pay, New York would not have been able to participate due to the statutory limit prohibiting a prize-payout in excess of 50 percent on multi- jurisdictional games. This action allows the Lottery to have up to a 55 percent prize-payout on multi-jurisdictional games. Multi-State Progressive Video Lottery Games. The Lottery offers progressive jackpots (a cash prize that grows larger until won) for certain Video Lottery Games. Currently, terminals in different New York State video lottery gaming facilities can be combined into a progressive jackpot pool. This allows New York to combine with play in other states to increase the progressive jackpots through larger pools. It is estimated that these changes will increase revenue this year by $111 million (All Funds) and by $127 million in SFY 2012-13.
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For SFY 2011-12 it is estimated that traditional lottery sales will contribute $2.2 billion on Aid to Education for New York State compared with $2.1 billion for the current State Fiscal Year.

Video Gaming
The current trend of increased revenue from video gaming is estimated to continue through the end of SFY 2011-12. For SFY 2011-12 it is estimated that revenue from video gaming sales, combined with the revenue from the franchise agreement for Aqueduct and the anticipated increase in sales with expanded hours at VLT facilities, will contribute more than $682 million in Aid to Education for New York State. In total, collections from video gaming are projected to decrease by $238 million to $682 million in SFY 2011-12. However, this decrease is caused the lack of a one-time payment related to Aqueduct that was received by NYS in SFY 2010-11. However, base level VLT proceeds are expected to increase by approximately $150 million in the current year.

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DISBURSEMENT PROJECTIONS
Education
The State Education Department (SED) is required by law to provide an update of State Aid claims for school districts. This update takes place three times a year in the months of February, May and November, on or before the 15th of each month. The most recent data we currently have in an unofficial update provided by SED in September 2011. The State Budget process for the 2011-2012 School Year continues a similar path than in prior years due to the States continuing fiscal crisis and the loss of American Recovery and Reinvestment Act (ARRA) federal funds. School Districts were scheduled to receive approximately $16.03 billion in Foundation Aid for School Year (SY) 2011-2012. However, the enacted budget continued to freeze Foundation Aid at the 2008-2009 level of $14.89 billion; a decrease of $1.14 billion from current law. The enacted school aid run reduced State Aid in the amount of $700 million or 3.8 percent on a Year to Year basis. The enacted budget included a school aid restoration of $230 million for School Year 2011-2012. This brings computerized aids funding to $19.64 billion in School Year 2011-2012. At the same time, the enacted budget applied a Gap Elimination Adjustment in the amount of $2.55 billion to formula-based aids. Only Building Aid, Building Aid Reorganization Aid and Universal Pre-kindergarten (UPK) are excluded from the Gap Elimination Adjustment formula.

Tax Levy and General Fund Support for Public Schools (GSPS) Caps
Chapter 97 of the Laws of 2011 established a tax levy limit that affects all school districts in New York State, except the Big Five City school districts. The law is effective for the 2012-2013 School Year. The tax levy for school districts cannot increase more than the rate of inflation or 2 percent, whichever is lower. At the same time, the enacted budget included legislation that would limit school aid growth to the rate of growth of personal income. It is estimated that personal income growth would increase within a range of 4.1 percent and 4.5 percent or approximately between $805 million and $870 million for SY 2012-2013. According to the New York State School Boards Associations policy agenda titled NYSSBA: Essential Fiscal Reform Play Book, school districts experienced double-digit increases in health insurance costs in both 2009 and 2010, and average annual increases in employer-provided health care benefit costs nationwide are projected to increase in 2011 by another 10.6 percent to 11.6 percent, depending on the type of plan. According to a recent study by the Empire Center for New York State Policy, tax-funded annual contributions to the Teachers Retirement System over the next five years will quadruple. The $3.6 billion rise in teacher pension contributions (from about $900 million in FY 2010-11 to $4.5 billion by FY 2015-16) equates to an average increase of nearly 3.5 percent a year. At the same time, school districts have eliminated about
40

30,000 teaching and support staff positions and cut programs as way to deal with the fiscal crisis and loss of State Aid. However, costs are expected to increase.

*Source: New York State Education Department, Fiscal Challenges Facing New York State School Districts: Prepared for the Regents School Finance Symposium, September, 2011.

The New York State Education Department estimated that if current spending patterns continue to increase at their historical rate of growth of 5.3 percent, school districts could be facing additional adjustments to their school budgets. According to SED, projected revenues will be outpaced by current costs (after adjusting for the 2 percent tax cap on local revenue growth and no growth in federal aid or School Tax Relief Program (STAR) by almost $17.6 billion in SY 2016-2017.

Foundation Aid
Foundation Aid accounts for over 70 percent of total School Aid. Foundation Aid has been frozen at the 2008-2009 level of $14.894 billion for the last three years. The enacted budget continued the freeze in SY 2011-2012, however, it authorized the restart of Foundation Aid in SY 2012-2013. Full phase-in of the formula would be delayed until 2015-16.

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The Foundation Aid formula drives funds to schools districts with the greatest needs. The formula was the result of the 13-year court battle between the Campaign for Fiscal Equity and the State of New York.

* Source: State Education Department Local Assistance Tables. Foundation Aid is subject to reduction as part of the
Gap Elimination Adjustment formula.

Universal Pre-K
According to the National Institute for Early Education Research (NIEER), approximately more than 1.3 million children participate in State-funded Prekindergarten programs, about 40% of all 3 and 4-year-olds in the nation. State spending on Prekindergarten programs totals more than $5.4 billion across the Nation. The New York State Universal Prekindergarten (UPK) program was established under Chapter 436 of the Laws of 1997. During the 2004-05 school year, 192 districts (224 eligible) served approximately 57,000 students. In School Year 2011-2012, this number has increased considerably from 192 to 450 school districts and the number of 4-year old has increased from 57,000 to almost 108,400. The Senate Finance Committee estimates that Universal Pre K for the 2012-2013 School Year will be funded at the $384.2 million level. However, funding for UPK could increase if New York State is awarded funds from a Race to the Top Early Learning Grant. The State application
42

has a request of $100 million of the $500 million total federal grant. These funds could be used to increase the number of high-quality early childhood learning programs, provide teachers with tools to measure students strengths and weaknesses, assist parents in becoming more involved in their childrens education and improve the quality of the early education workforce.
*Source: State Education Department Local Assistance Tables

Expense-Based Aids
Expense based aids are an important part of the funding received by school districts. These funds reimburse school districts for costs already incurred in areas such as transportation, school construction, special education and cooperative services. For SY 2011-2012, the enacted budget funded all expense-based aids at present law levels. BOCES services are created when two or more school districts decide they have similar needs that can be met by a shared program. BOCES helps school districts save money by providing opportunities to pool resources and share costs. Sharing is an economical way for districts to provide programs and services that they might not be able to afford otherwise. It is often more efficient and less costly to operate one central service than it is to have separate programs in each school district. BOCES services are often customized offering districts the flexibility to meet their individual needs. The reported School Aid amount for School Year 2011-2012 totaled $724.8 million, an increase of $23.7 million or 3.39 percent above SY 2010-2011. If we were to estimate BOCES aid based on percentage increases over the last five years, BOCES Aid for the next School Year could increase by 4.48 percent or $32.4 million in SY 2012-2013. Transportation Aid reimburses school districts for approved transportation expenses including equipment, salary, and benefits. The reported School Aid amount for School Year 2011-2012 totaled $1.65 billion, an increase of $74.6 million or 4.73 percent above SY 2010-2011. A precise estimate for SY 2012-2013 cannot be provided at this time since the most recent data that we currently have is based on the latest SED September 2011 database update. If we were to estimate Transportation Aid based on percentage increases over the last five years, Transportation Aid would increase by 4.24 percent or $70 million in SY 2012-2013. Building Aid allows school districts to receive aid for approved building projects. The reported School Aid amount for School Year 2011-2012 totaled $2.55 billion, an increase of $164.2 million or 6.88 percent above SY 2010-2011. We will not have actual data until the November 2011 release of the database update. If we were to estimate Building Aid based on percentage increases over the last five years, Building Aid would increase by 8.75 percent or $223.43 million in SFY 2012-2013. Private Excess Cost Aid provides reimbursement for public school children with more severe disabilities who are placed in private school settings or in the schools in Rome and Batavia. The reported School Aid amount for School Year 2011-2012 totaled $351.1 million, an increase of $10 million or 2.96 percent above SY 2010-2011. If we were to estimate Private Excess Cost Aid
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based on percentage increases over the last five years, Private Excess Cost Aid would increase by 9.37 percent or $32.9 million in SFY 2012-2013. Public Excess Cost: It is difficult to determine the total amount of this increase since Public Excess Cost Aid is folded into the Foundation Aid formula. In the case of High Cost Excess Cost Aid the data can only address four years making a precise estimate difficult. If we were to estimate High Cost Excess Cost Aid based on percentage increases over the last four years, High Cost Excess Cost Aid would increase by 0.75 percent or $3.77 million in SFY 2012-2013.

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Year to Year Aid Growth 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Total Growth $1,679,767,224 $1,799,607,048 $1,980,717,668 $2,193,556,373 $2,389,392,474 $2,553,687,981 $119,839,824 $181,110,620 $212,838,705 $195,836,101 $164,295,507 $873,920,757 7.13% 10.06% 10.75% 8.93% 6.88% 52.03% $1,345,266,148 $1,439,597,699 $1,534,399,005 $1,556,151,317 $1,578,509,079 $1,653,161,482 $94,331,551 $94,801,306 $21,752,312 $22,357,762 $74,652,403 7.01% 6.59% 1.42% 1.44% 4.73% $583,090,493 $625,080,931 $41,990,438 7.20% $671,492,579 $46,411,648 7.42% $693,198,605 $21,706,026 3.23% $701,067,912 $7,869,307 1.14% $724,850,871 $23,782,959 3.39%

Building Aid $ Change % Change Transportation $ Change % Change BOCES $ Change % Change Private Excess Cost Aid $ Change % Change High Cost Excess Cost $ Change % Change

$307,895,334 22.89%

$141,760,378 24.31%

$226,763,492

$625,080,931 $51,086,190 22.53%

$671,492,579 $46,411,648 7.42%

$693,198,605 $21,706,026 3.23%

$701,067,912 $7,869,307 1.14%

$724,850,871 $23,782,959 3.39%

$150,856,130 66.53%

$473,038,208

$521,445,823 $48,407,615 6.00%

$495,629,073 -$25,816,750 -4.95%

$500,840,499 $5,211,426 1.05%

$505,295,422 $4,454,923 0.89%

$32,257,214 6.82%

Medicaid
Methodology
The Senate Finance Medicaid forecast model is comprised of five components including, institutional, non-institutional, managed care, non institutional long term care, and other categories and is based on the projections of price and service units to forecast Medicaid expenditures for Department of Health Medicaid spending. This forecast does not include Medicaid spending in other agencies. These calculations are derived from data contained in the Management Accounting Reporting Subsystem (MARS) reports 39, 51, 72 and 73. Projections are based on an analysis of service category trends. State spending is analyzed and compared to prior year levels of spending. The projected changes are further refined to larger data sets and compared with quarterly percentage changes. In order to account and adjust for periodic reconciliation of account, the Senate Finance forecast model includes review of quarterly data, which is more reliable. The total expenditures for the next year are projected from the current year base by multiplying the cost per unit of beneficiary by the trended units of service. This total is also multiplied by the expected State share for each category of service. The Senate Finance model also continues to refine these calculations to apply other variables not expressed in the model such as economic indicators like unemployment rate trends, public assistance caseload trends and wages and salary trends. In terms of the estimates produced with this methodology, the accuracy must be balanced against a number of unknowns. Principally, as part of phase one of Medicaid redesign, a total of 78
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individuals proposals are being implemented with the global goals of moving Medicaid towards a managed care model, implementing new payment/reimbursement models, phasing in new utilization/cost control structures, and the transferring of local administrative responsibilities for the Medicaid program to the State. The financial impacts of such actions in terms of overall State savings or additional costs for the current State Fiscal Year (SFY), and subsequent SFYs are not entirely understood. Another factor that must be considered is associated with the 52 State plan amendments (SPAs) submitted to Centers for Medicare and Medicaid Services (CMS) as part of phase one of the Medicaid Redesign process. Twenty of those recommendations have been approved by CMS. Failure of the Centers for Medicare and Medicaid Services to approve the remaining 32 measures could result in the State not achieving a number of anticipated saving actions, and spending could be higher than projected by the Medicaid expenditure forecasts for SFY 2011-12 and SFY 2012-13. Total Medicaid spending reflects payments for more than twenty major service categories. Although the eMedNY system provides monthly data for a substantial percentage of budgeted Medicaid spending, significant expenditures remain outside the confines of eMedNY (in the form of offline payments), and are thus not accounted for in a detailed manner on a consistent basis. Examples of significant expenditures that are made outside the eMedNY system are administrative costs that are reimbursed by the State to local governments, cash receipts from audit recoveries made by the Office of the Medicaid Inspector General (OMIG), and State spending related to its assumption of localities Medicaid payments under the existing spending cap. Although Medicaid payments made outside the eMedNY system total more than $1 billion per year, there is no readily available information source to allow Senate Finance to track this spending on a regular basis. Midyear Projections As part of the efforts associated with the Medicaid Redesign Team, Medicaid State spending was capped for a two year budget cycle. Medicaid spending is capped at $15.28 billion in SFY 201112, and $15.88 billion for SFY 2012-13. The midyear forecast projects State Medicaid baseline expenditures for SFY 2011-12 at $15.21 billion (including enhanced FMAP adjustment) representing a negligible $70 million decrease in Medicaid baseline expenditures when compared to the enacted $15.28 billion cap. The Senate Finance forecast projects increased spending in freestanding clinic services and Medicaid Managed Care (MMC). These two categories of spending are expected to experience the greatest year to year growth. The projected increase in spending for freestanding clinic services and MMC spending are driven primarily by the increase in number of beneficiaries served in clinics, and higher than anticipated enrollment in MMC. These expected increases are expected to be offset by projected year to year reductions in spending for hospital inpatient services. This spending trend can be attributed to the enactment of Medicaid reimbursement reform for inpatient and outpatient services, which has a goal of shifting spending from inpatient services to outpatient and primary care services, and the migration of recipients to MMC.

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The number of Medicaid enrollees, including MMC, is expected to exceed 5 million before the end of 2011. Economic factors continue to drive Medicaid enrollment, and Senate Finance estimates a total of 208,000 new enrollments in the Medicaid program for SFY 2011-12. SFY 2012-13 Forecast for Medicaid Spending The Senate Finance forecast model was trended forward primarily using the most recent 12 months of spending and utilization data with various projected adjustments. Medicaid spending is capped at $15.88 billion for SFY 2012-13. The Senate forecast projects that baseline Medicaid expenditures for SFY 2012-13 would be $16.42 billion, an increase of $544 million or 3 percent above the SFY 2012-13 enacted cap. These projections must be balanced against potential fiscal impacts resulting from actions associated with phase two of Medicaid redesign, and also from fully annualized State savings associated with phase one initiatives started in the current SFY. This report anticipates that savings measures will lower projected State spending levels back down to or close to the enacted cap for SFY 2012-13. Risks to the Financial Plan A significant portion of the forecast relies on economic indicators such as unemployment rates. As a result, upward or downward trends in the State and national economy can change the projections of the forecast for SFY 2011-12 and SFY 2012-13. Furthermore, a two house bill, S.5889-B (Gallivan)/Same as A.8644 (Paulin), has been introduced that would gradually transfer all local Medicaid costs to the State over an eight-year period between calendar years 2012 and 2019. The total fiscal impact to the State between State Fiscal Years 2011-12 and 2019-20 would be $33.0 billion. In State Fiscal Year 2019-20, the annual cost to the State would be $8.7 billion.

Public Assistance
New York States Public Assistance caseload consists of two major categories of recipients: Family Assistance and Safety Net Assistance. The temporary cash assistance programs offer support services and cash assistance to eligible low-to moderate-income families and individuals. The Family Assistance program is financed through federal Temporary Assistance for Needy Families (TANF) funds. Recent changes as part of the enacted budget will fully finance Family Assistance benefits with federal funds. The Safety Net Assistance program is financed only by State and local funds and provides cash assistance to individuals and families who have exhausted their five-year time limit for TANF eligibility. Although welfare caseload is volatile and difficult to predict, there is a strong relationship between the number of welfare recipients and economic factors, such as employment and low wage work, unemployment rate, and entry level employment.

Family Assistance
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For SFY 2011-12, the updated Family Assistance caseload for New York State (NYS) is projected at 261,497, an increase of 9,144 or 3.6 percent more than enacted budget levels. The Family Assistance caseload for NYS was determined by analyzing a six month trend in actual monthly caseload adjusted for unemployment and average low wage data for the period from January 2011 through July 2011. Carrying that trend forward results in a projected caseload of 260,383 for SFY 2012-13. The Monthly Average Payment (MAP) is projected at $404.95 for New York City (NYC) and $288.03 for the Rest of the State (ROS).

Safety Net Families

For SFY 2011-12, the updated Safety Net Families caseload for New York State is projected at 120,395; an increase of 4,082 or 3.3 percent more than. The Safety Net Families caseload for NYS was determined by analyzing a six month trend in actual monthly caseload adjusted for unemployment and average low wage data for the period from January 2011 through July 2011. Carrying that trend forward results in a projected caseload of 119,723 for SFY 2012-13. The Monthly Average Payment is projected at $288.31 for NYC and $221.63 for the Rest of the State. Safety Net Singles For SFY 2011-12, the updated Safety Net Singles caseload for New York State is projected at 182,831, an increase of 19,774 or 12.1 percent from enacted budget levels. The Safety Net Singles caseload for NYS was determined by analyzing a six month trend in actual monthly caseload adjusted for unemployment and average low wage data for the period from January 2011 through July 2011. Carrying that trend forward results in a projected caseload of 178,073 for SFY 2012-13. The Monthly Average Payment is projected at $511.28 for NYC and $368.24 for the Rest of the State.

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Family Assistance NYC Recipients/month Total Expenditures MAP State Share ROS Recipients/month Total Expenditures MAP State Share

Public Assistance 11-12 Enacted 140,701 $ 703,814,542 $416.85 $0.00 111,652 $370,769,496 $276.73 $0.00 $0.00 252,353

11-12 SFC Recast 145,861 $696,982,202 $398.20 $0.00 115,636 $395,197,594 $284.80 $0.00 $0.00 261,497

12-13 SFC Projected 146,787 $713,296,748 $404.95 $0.00 113,596 $392,628,671 $288.03 $0.00 $0.00 260,383

Family Assistance-State Share Total Family Assistance-Recipients Safety Net Families NYC Recipients/month Total Expenditures MAP State Share ROS Recipients/month Total Expenditures MAP State Share Safety NetFamilies-State Share Safety Net Families-Recipients Safety Net Singles NYC Recipients/month Total Expenditures MAP State Share ROS Recipients/month Total Expenditures MAP State Share Safety NetSingles-State Share Safety NetSingles-Recipients Total State Share Total Recipients

82,349 $283,145,508 $286.53 $82,112,197 33,964 $88,662,343 $217.54 $25,712,079 $107,824,276 116,313

86,813 $295,056,552 $283.23 $85,566,400 33,582 $89,841,253 $222.94 $26,053,963 $111,620,363 120,395

86,765 $300,182,606 $288.31 $87,052,956 32,958 $87,653,778 $221.63 $25,419,596 $112,472,552 119,723

103,378 $644,929,856 $519.88 $187,029,658 59,679 $262,761,863 $366.91 $76,200,940 $263,230,598 163,057 $371,054,874 531,723

114,656 $679,790,838 $494.08 $197,139,343 68,175 $302,157,054 $369.34 $87,625,546 $284,764,889 182,831 $396,385,252 564,723

112,033 $687,362,787 $511.28 $199,335,208 66,040 $291,822,835 $368.24 $84,628,622 $283,963,830 178,073 $396,436,382 558,179

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