The events and aftermath of September 11, 2001 have put many of the privileges and opportunities which Americans expect to find present in their everyday lives in perspective and others in question. However, an educational system that provides the skills, knowledge, and opportunities for our children to develop into productive and creative citizens is an enduring expectation.

There is too much at stake to allow any of New York's children to fall through the cracks of our educational system. Our schools must not only meet, but also exceed the demands placed on them by a changing world. Each child must be furnished with a full range of educational opportunities. We must endeavor to provide every student with a classroom that fosters learning, a classroom with teachers who challenge and inspire, and a classroom which is well maintained and secure.

When we expect higher achievement from our educational system we must also provide the support and the resources to assist our schools in meeting those expectations. In 1997, the Assembly majority created the Learning Achieving Development by Directing Education Resources (LADDER) Program, a comprehensive, multi-year initiative. The LADDER Program targets significant educational and financial support for children throughout the State to reduce class size; repair school buildings; provide incentives for full-day kindergarten; strengthen professional development; provide resources for up-to-date instructional materials, educational technology and after-school programs; and establish and support a Universal Prekindergarten program. These programs are all geared to provide children with a firm foundation upon which to build their continued academic achievements.

In fact, LADDER presents a commitment to excellence and to equity; it is not a question of who should have access to wired schools, smaller classes, quality teachers and universal prekindergarten, but when will all districts have these basics for a global 21st century education so that all of our children may excel. Full implementation of LADDER programs combined with sufficient resources to help schools meet the demands of the new, higher Regents standards is a commitment to the future which the State must make and keep.

The Executive Budget for the 2002-03 school year would leave school districts without the resources necessary to ensure that all children are meeting higher academic standards. The Executive proposal of $14.2 billion provides an infinitesimal increase of $6.0 million, or four one-hundredths of one percent, in General Support for Public Schools.

According to Assembly calculations, this represents a cut of $1.02 billion from present law. In fact, the State Education Department estimates the State share of total education expenditures for School Year 2000-01 to be 40.4 percent, a small increase from the 39.8 percent State share in 1995-96, when Governor Pataki first took office. Given the enactment of the Governor's proposed school aid increase in 2001-02 along with this year's proposal, it is clear that we may not be just standing still, but may in fact, be moving backwards.

For the second year in a row, the Governor proposes combining thirteen separate aid categories into one Flex Aid, including aids specifically targeted to our neediest students; these aids are frozen at last year's level, thereby providing no additional basic operating aid to schools in New York State. In addition, the Governor's proposal cuts valuable teacher programs, eliminates full day kindergarten incentives and provides level funding for most other programs.

September 11, 2001

The September 11th terrorist attack on the World Trade Center had a sudden and damaging effect on the students, staff, and families of the New York City public school system. On the 11th, over 9,000 students who were dangerously close to the Twin Towers were evacuated without a single injury. However, over 1,500 students and 800 staff members lost a family member or loved one as a result of the disaster. In the days immediately following the attack, eight schools located in the "frozen zone" were closed, displacing nearly 6,000 students and school staff.

In the aftermath of these terrible events, New York City schools continued to work to restore a safe, supportive school environment for traumatized students and staff, and to regain normalcy and stability throughout the entire system. New York City schools lost critical classroom time as a result of September 11th, throughout the system and in Lower Manhattan in particular. Emergency mental health services, including counseling and other intervention services, are a continuing need of students and teachers alike.

Ultimately, all of the students affected by this tragedy must be afforded the resources needed to provide the opportunity to reach the new and higher learning standards being implemented in our city and New York State.

The 2001-02 school year marked the fourth year of a multi-year implementation plan for the LADDER Program, which is designed primarily to advance the quality of early childhood education. This innovative initiative provides a comprehensive approach to improve the education system of the State.

The Assembly remains committed to providing the full level of statutory funding for LADDER Programs, as agreed to by the Governor and both houses of the Legislature in the 1997-98 State Budget. The cumulative effect of all of these LADDER initiatives is to support the attainment of the new Regents higher learning standards for all students. The major cornerstone of the LADDER Program focuses on providing universal access to prekindergarten programs throughout the State.

Once more, however, the Executive has failed to meet statutory provisions for LADDER programs. Funds for Universal Prekindergarten are provided at last year's expenditure level and funding for Early Grade Class Size is decreased from last year's level. The Executive Budget Proposal folds Minor Maintenance Aid into Flex Aid and completely eliminates funding for the incentive for full day kindergarten. In addition, there are no funds for Shared Services Aid, Professional Development Grants or Educational Technology Incentive Aid. Furthermore, the statutory increases for textbooks and software are ignored. Again, the Executive proposal amounts to a significant departure from the LADDER agreement, which is statutory.

Universal Prekindergarten and Full-Day Kindergarten

In an effort to promote educational excellence, the Assembly has fought long and hard to maintain and expand access to educational programs for all four-year-olds. There is agreement among educators that early intervention at the prekindergarten level is essential for school readiness. New York State's Universal Prekindergarten provides that positive step by preparing children for the rigors of an increasingly more structured educational setting where standards are kept and met at each grade level. Evidence has found that those students who are never given the opportunity to attend prekindergarten programs enter school at a disadvantage, which they may never overcome.

The benefits of prekindergarten education programs are well documented and evidenced in volumes of research. A key 1996 study of the long-term effects of preschool education known as the Ypsilanti Perry Preschool Project of High/Scope followed African-American children "at-risk" of later school failure for three decades. Researchers found the children "fared better not only in school but also in their health, social adjustment, and economic prospects." Their research concluded that the investment in preschool far outweighed the costs these same children could be to society had they not experienced the substantive early education intervention. It is important to note that these results have been duplicated time and again in a multitude of additional studies, indicating that all children gain a significant advantage from a high quality preschool program. In fact, recent research from the Rochester Early Childhood Assessment Partnership clearly demonstrates that their Universal Prekindergarten program has been effective in increasing students' academic performance. The report finds that a full 83 percent of children served by the program made gains in academic skills. In addition, there were significant gains made in the areas of motor skills and social skills.

The Universal Prekindergarten Program has successfully fostered collaboration among community providers of early childhood programs within school districts. Fifty percent of the districts responding established more than half of their Universal Prekindergarten slots in community-based early education programs in the community. Such collaboration efforts are good for our schools and our entire communities. Another cornerstone of this program has been inclusiveness of students with disabilities into the prekindergarten programs.

In New York State, school districts have found enthusiastic responses from parents, teachers, and communities involved in the Universal Prekindergarten program. In each of the school years following the enactment of the Universal Prekindergarten Program, the number of four-year-olds served by the program and the number of districts participating in the program has steadily increased. In fact, despite the unwillingness of the Governor to fully support the remaining phase-in of Universal Prekindergarten, the program in 2001-02 grew to a record level of 190 participating districts serving an estimated 55,000 four-year-olds. In total, over the past four school years, a cumulative total of approximately 150,000 four-year-olds have benefited from the valuable educational opportunities provided by the this program. (see Figure 1)

The LADDER Program's focus on early childhood education also contained an incentive for school districts to move to full-day kindergarten. This initiative builds upon the developmental foundation of a child's participation in a prekindergarten program and continues his or her preparation for first grade. Overall, since 1998-99, 76 school districts have taken advantage of the Full-Day Kindergarten incentive. This has resulted in an additional cumulative total of almost 20,000 students who were offered the opportunity of a full day of kindergarten instruction. (see Figure 2)

Reduced Class Size

Few topics in education have undergone more research and study than the issue of class-size reduction. The results of this wealth of research often proves the same: the smaller the class the higher the student performance, the greater the teacher satisfaction and the greater the benefits to the total learning environment. Improved conditions in smaller classes allow teachers to teach more effectively and students to participate on a level of deeper learning and creativity. When class size is reduced, students achieve higher scores on standardized reading and math tests, student behavior is improved and participatory learning takes place.

One of the most important studies on class size was declared a "watershed event" in research by Robert Slavin, John Hopkins University, an American Education Research Association (AERA) reactor. The study, Project STAR was a large scale, four-year, longitudinal, experimental study of reduced class size in Tennessee schools. The study included 79 schools in 42 systems and encompassed schools in inner-city, rural, urban and suburban locations. The study revealed that in each grade level (K-3) and across all school locations, smaller classes made the highest scores on the norm-referenced Standard Achievement Test and the criterion-based Basic Skills First Test. These results were both statistically and educationally significant.

The reduction in class size allows teachers to use new teaching strategies and individualized instruction. By allowing teachers to focus their attention on fewer students, more contact with families is made, which in turn fosters better communication. The smaller class size also allows for more enthusiasm, patience, flexibility and humor.

Reduction of class size helps our children and our teachers to create better learning environments where children learn to love to learn. Despite many obstacles, the 2001-02 school year observed a record 208 school districts participating in the K-3 Class Size Reduction program. Cumulatively, since the 1999-00 school year, an estimated 6,000 classrooms were reduced to a class size of 20 in the early grades. Therefore, the K-3 Class Size Reduction program has impacted the lives of 120,000 students in the early grades, bettering these students chances of achieving the Regents higher learning standards and fulfilling their academic potential. (see Figure 3)

Educational Technology

In an era that has been marked by the need for a well-educated, technologically sophisticated workforce, the need for investment in our schools' educational technology is paramount. There is no debate over whether students should learn how to use computers as a learning and research tool, nor is there any disagreement over the benefits derived from learning in globally-connected classrooms. One of the major tenets of the LADDER Program is the provision of increased funds for instructional materials, including computer software and hardware and textbooks.

The benefits of such investments are well-known. A recent report sponsored by the Scholastic Network and Council of Great City Schools focused on the work of 500 students in fourth and sixth grade classes in seven urban school districts. The results show significantly higher scores on measurements of information management, communication and presentation of ideas. Results from another recent, two-year study in Illinois indicated that the use of technology in the classroom did, in fact, have a significant impact on student achievement.

One of the gravest problems in the area of educational technology is not in its use but in its deployment. The so-called "digital divide" that refers to the technology haves and have-nots is very much a reality. As long as disparities remain in the way technology is deployed and utilized in the classroom, the achievement gap that exists for students in poorer school districts will continue.

The Assembly remains committed to funding the educational technology for all our students facing a competitive global economy.

Extended Day and School Safety

Funding extended day programs is another key component of the LADDER Program. Now more than ever, parents need to have a safe place for their school-age children when they are at work. Children of all ages need to know that there is a secure environment where they can spend time with their friends, do homework, receive some extra help with a course or study skills, and participate in other productive activities.

According to the U.S. Bureau of Labor Statistics, in 69 percent of all married-couple families with children ages 6-17 years, both parents work outside of the home. The National Institute on Out-of-School Time notes that there are approximately eight million children 5-14 years of age who regularly spend time without adult supervision. Children are at the greatest risk between the hours after school and before the time when parents are likely to return home from work.

In addition to the obvious objective of providing a supervised environment, many reports note that after-school programs provide many positive outcomes for children. Children in after-school programs were reported by their teachers to have better work habits and interpersonal skills, as well as stronger emotional adjustment, conflict resolution skills and grades. The Assembly's commitment to making our schools safer and providing enriching and expansive after-school programs has never been stronger.

School Facilities

A cornerstone of the LADDER plan is its focus on the need to improve the condition of school facilities across the State through formula changes which increase State support for construction. In 1998, the Legislature secured a 10 percent increase in Building Aid reimbursement, a regional cost factor, and additional aid for Minor Maintenance and Repair projects.

The Assembly continued to push for additional funds for school construction, which resulted in the enactment of the RESCUE capital program. In School Year 1999-2000, RESCUE provided an additional $145 million in State support for critical school facility needs. This valuable program was expanded by $50 million in School Year 2000-01. School districts can apply for RESCUE funding through School Year 2002-03 and will be allowed to use the funds to offset the costs of improving the condition of school facilities. To date, claims for RESCUE funding total nearly $125 million of the $195 million available.

Beyond simply providing additional resources for school facilities, RESCUE also includes a comprehensive public school building safety program which requires the annual inspection, safety rating, and monitoring system of all public school buildings used primarily for instruction. This serves as a mechanism to ensure that facilities are well maintained and well equipped to support the efforts of students as they prepare for the future.

In 1997-98, Building Aid totaled $775 million. As a result of the Building Aid incentives enacted in 1997, Building Aid has almost doubled over the past four years to a total of $1.42 billion in 2001-02. Schools across New York State have benefited from increased Building Aid and the Assembly will continue to ensure that school districts are reimbursed for much needed school infrastructure improvements.

However, even with the recent efforts of the Legislature to provide additional State support for school facilities, there remains an unmet need for capital expenditures. The new learning standards set by the Regents will require facility changes to correlate with instructional changes, including the need for modern science laboratories and air conditioned buildings to accommodate additional summer instruction. With many of the 4,000 school buildings in New York State having been built prior to World War II, it is essential that the State continue to provide the resources necessary to improve the condition that students face in their school facilities on a daily basis.

Higher Standards

For the past several years the State has implemented a series of education reforms to raise the bar by creating new performance benchmarks for all children in grades K-12. These reforms were set in motion by the New York State Board of Regents, and were designed to ensure that all of New York State's students have the knowledge and skills to access greater social and economic opportunities.

The State's emphasis on higher levels of performance has compelled the school community including teachers, administrators and parents to reexamine longheld beliefs and practices to come up with fresh approaches to incorporating the standards into the curriculum. New strategies have included emulating effective methods of teaching and instruction, improving the quality of teacher training and professional development, and providing extra help to struggling students.

Recent test scores have demonstrated that the commitment to higher standards at all levels has begun to pay off. Statewide, students in elementary schools have made significant gains over the past three years. This year, in elementary schools 69.1 percent of students are meeting the math standards, and 60 percent of students are meeting the English standards. At the secondary school level, more students are passing Regents examinations in four of five areas required for graduation than took these examinations in 1996-97.

While some progress has been made, more work clearly needs to be done. Across the State, middle school student achievement in both English and math remains unchanged. At the same time, high-need districts are struggling the most with meeting these new requirements. In fact, while overall student achievement continues to improve, our State's neediest districts will still lag behind their more affluent counterparts. Nearly all students in low-need districts are meeting standards; however, in our large cities between 50 and 60 percent of students are still failing. Only 50 percent of students residing in large city school districts are meeting mathematics standards in the fourth grade and just 44 percent of New York City students are meeting fourth grade English standards. The Assembly remains committed to providing the resources necessary for all students to meet high standards, regardless of where they live.

Figure 4

Figure 5

Figure 6

Figure 7

Teacher Quality and Professional Development

Research has made it clear that when we invest in the teaching workforce's capacity to provide all students an opportunity to learn, we also invest in our children's intellectual growth and achievement levels. Our teachers need to be given opportunities to participate in professional development experiences that foster their professional growth and understanding. Our teachers are key players in helping us transform our schools into 21st century learning communities where our children are eager to learn and achieve to their fullest potential.

North Carolina and Connecticut, for example, invested in beginning teacher mentoring and ongoing professional development for all its teachers and posted large student achievement gains in mathematics and reading. States that repeatedly lead the nation in student achievement in math and reading have among the most highly qualified teachers in the country and have made longstanding investments in the quality of teaching. Factors such as high teacher turnover, large pupil to teacher ratios, and inexperienced or uncertified teachers all increase the likelihood of lower achieving students.

The Legislature has traditionally supported a variety of professional development opportunities for teachers. Programs which received funding during the 2001-02 school year included Teacher Centers at $30 million, and the Teacher Mentor Intern program at $5 million; in addition, Teacher Support Aid at $67.48 million assists large city districts in both attracting and retaining new teachers. Furthermore, the LADDER program provides such opportunities through both Shared Services and a Professional Development Grant program as well. Finally, other initiatives such as Early Grade Class Size Reduction and Minor Maintenance and Repair programs do much to improve the ability to deliver instruction effectively as well as improve the classroom environment.

Unfortunately, the Executive budget fails to provide adequate resources for our teachers. The Governor's 2002-03 education proposal cuts Teacher Support Aid by nearly $53 million, cuts Teacher Centers by $20 million, and reduces the Teacher Mentor-Intern Program by 66 percent. It is irresponsible to cut support for those who teach our children at a time when many of our students are struggling to meet high standards. Because change is a process made by both individuals and organizations, it is essential that we support our teachers in their transition to 21st century educators. We must be able to provide all our children with the tools needed to keep our nation growing. (see Figure 8)

Figure 8

Executive Budget Fails to Provide Adequate Resources

The Executive Budget for the 2002-03 school year leaves school districts without the resources necessary to ensure that all children can meet high academic standards. The Executive proposes a meager $6.0 million increase in General Support for Public Schools (GSPS) bringing total support to nearly $14.2 billion. This is a result of combining thirteen separate aid categories into one Flex Aid, cutting valuable teacher programs, eliminating full day kindergarten incentives and providing static funding for most other programs. The Executive Budget also relies heavily on increases in Federal grants, some of them one-time infusions.

In comparison, the Assembly calculates that present law generates $1.02 billion, an 8.38 percent increase over 2001-02.

Flex Aid

The backbone of the Executive's proposal is the consolidation of thirteen distinct aid categories into a single category-Flex Aid, which would take effect in 2003-04. Aids comprising this block grant include Operating Aid, Tax Effort and Tax Equalization and Extraordinary Needs Aid, Operating Standards Aid, Gifted and Talented, Educationally Related Support Services Aid, Limited English Proficiency, Minor Maintenance, Public and Private Excess Cost Aid, BOCES, and Special Services Aid. The Executive's Flex Aid proposal provides level funding of $10.415 billion.

Prior Year Claims

The Executive Budget provides a mechanism for the accelerated payment of prior year claims to the five large city school districts. Financing provided by the Municipal Bond Bank will permit acceleration of payments for prior year claims totaling $214 million. Up to $204 million of the total would be available to New York City. A school aid intercept would be used to pay debt service on the tax-exempt bonds.

Building Aid

The Executive Budget proposes three primary changes to building aid. First, the proposal conforms the payment of building aid for hard dollar projects with the recently enacted assumed amortization changes, for bonded projects, resulting in savings of approximately $130 million. Also, the Governor proposes using current building aid ratios for all projects approved by voters after July 1, 2002. Finally, the Executive proposes allowing school districts to contract with the Dormitory Authority for construction and construction management services, and exempts such contracts from Wicks Law provisions.

LADDER

The Executive proposal continues to shortchange LADDER programs. The Governor recommends the elimination of the full day kindergarten incentive. The proposal also eliminates start up grants for Class Size Reduction, which result in an $11.85 million decrease. The Executive maintains level funding for Extended Day/School Violence at $30.20 million. The Governor fails to fund the Educational Technology Incentive or Professional Development grants. However, the Executive proposal does contain modest increases for Textbook Aid and Software Aid. Finally, the Executive proposal also maintains current expenditures level for Universal Prekindergarten programs.

Under the Executive Budget, local school districts will continue to shoulder a large burden of educational spending. This is especially difficult for our high need districts as they struggle to meet high academic standards. Excluding STAR, the State share of total educational expenditures is 40.4 percent or only one percentage point higher than in 1994-95 when the Governor took office. The Executive budget continues New York's place at the back of the class in state support for public schools.

It is our obligation to provide every child in New York with access to a high quality education, from early childhood to graduation. To uphold that commitment we must insure early learning opportunities through Universal Prekindergarten and full-day kindergarten, smaller class sizes in the early grades, provide support for academic intervention services so that children can meet tough Regents standards, and provide school buildings that are safe, clean and technologically equipped. The Executive budget fails to meet this obligation.

School Aid Litigation

Litigation was commenced in May of 1993 in State Supreme Court challenging New York State's funding structure for New York City public schools. The lawsuit was filed on the grounds that that current system violated the Education Clause of the New York State Constitution, the Equal Protection Clause of the State and Federal Constitutions, and Title VI of the Civil Rights Act of 1964 and its implementing regulations.

On January 10, 2001, the Court ruled in favor of the plaintiff on both the State Constitutional claim and the claim involving the implementing regulations of Title VI of the Civil Rights Act. The Court held that New York State has consistently violated the Education Article of the State Constitution by failing to provide the opportunity for a sound basic education to New York City's public school students. In addition, the Court found that the school financing system has an adverse unjustified disparate impact on minority public school students in violation of Federal Civil Rights regulations.

In February of 2001 the Governor appealed the decision. Oral arguments were held before the Appellate Division on October 25, 2001. A decision is expected on the appeal in early 2002.

Reading, writing and arithmetic are the foundations of any sound basic education, but because the world's nations have made significant gains in the number of people who are educated and literate, we must continue to seek excellence. A basic education is no longer adequate for the leaders of tomorrow. Our higher standards demand that New York State provide the tools for all children no matter their socio-economic background, family history and composition or where they live. Providing the opportunity for all children to excel must remain our unwavering goal.

In a time of uncertainty, it is imperative to recognize that a strong higher education system provides a crucial foundation for economic growth and the development of a highly trained workforce. In addition, the public universities of New York have historically assumed increased importance during times of economic uncertainty. From 1980 through 2001, enrollment in both the State University of New York (SUNY) and the City University of New York (CUNY) significantly increased during periods of low economic growth (see Figure 9).

Figure 9

In light of the relatively bleak economic outlook combined with the estimated increase in student enrollment at public colleges and universities in New York State, the need to maintain the quality and value of the public university systems in the State has never been more critical.

Unfortunately, the 2002-03 Executive Budget continues to ignore the needed investment by New York State in higher education. Since 1995, higher education has been the target of cumulative proposed reductions by the Executive of over $1.8 billion, including the $235 million reduction in Tuition Assistance Program (TAP) funding proposed in the coming Academic Year. The Assembly has stood firm in its commitment to working families throughout the State and has consistently fought to restore roughly $1.4 billion of the Executive's previously proposed reductions.

SUNY and CUNY

The Governor's 2002-03 budget proposal would provide a total of $1.7 billion in General Fund support for the four-year colleges of the State's two public university systems -- SUNY and CUNY. This includes $1.1 billion in support of the general operating budget of the State-operated campuses of SUNY and $617.9 million in General Fund support for CUNY senior colleges.

The Governor's proposal would also provide $328.9 million for SUNY-operated community colleges and $128.6 million for CUNY community colleges. This reflects the continuation of the $2,250 per full-time equivalent (FTE) funding level first enacted in 2000-01 by the Legislature. Unfortunately, the Governor fails to provide additional State support for these campuses, in a moment where increased demands are being placed on the educational services that they provide.

In 1999-00, tuition and fee costs for attending a community college in New York State were the 4th highest in the nation, roughly 91 percent higher than the national average (2001-02 Almanac of Higher Education). In a time when a significant investment is being directed toward large research institutions, the needs of the State's community colleges should not be ignored. Community colleges serve as a gateway to the pursuit of a higher education and train a significant portion of the workers needed in the new economy.

Throughout much of this Governor tenure, New York State has trailed the rest of the nation in support for higher education (see Figure 10).

Figure 10

In fact, in 2001-02 New York ranked 31st in the nation in annual percent change in state support for higher education. New York State ranks 43rd in the nation over the last seven years and 47th in the nation over the 10-year period from 1991-2001 by that same measure of public funding for higher education (Center for Higher Education and Education Finance).

According to a recent survey issued by the Center for Higher Education and Educational Finance, New York State ranks 36th in the nation in State support per capita for higher education. In addition, New York ranks 47th in State support for higher education per $1,000 of personal income. Underlying these facts is the reality that in 1995, the average cost of tuition and fees for students attending a public four-year institution was approximately $2,921. Since 1995, the average cost of tuition and fees has increased by approximately $1,062 or 36.4 percent to $3,983 (1995-96 and 2001-02 Almanac of Higher Education). As a result, the average cost of tuition and fees for a student attending a public four-year institution in New York State is now nearly 19 percent greater than the national average (2001-02 Almanac of Higher Education).

Tuition Assistance Program

The proposed 2002-03 Executive Budget includes $481.4 million for the Tuition Assistance Program (TAP). This represents a $155 million reduction from 2001-02 appropriated levels, which would translate into an overall reduction of $235 million in estimated TAP expenditures in the 2002-03 Academic Year. Unfortunately, the Governor fails to provide the necessary resources to support TAP even at such lower funding level. Rather, he has advanced dramatic modifications that could threaten the long-term viability of the Program. The Governor proposes to fund $345 million, or 72 percent of the costs of TAP in 2002-03, through a one-time transfer of funds from the Federal Temporary Assistance for Needy Families (TANF) Program. Overall, the combined impact of the Governor's across the board one-third reduction to TAP awards and his proposal to use TANF funds to support TAP, would result in an astonishing $531 million reduction, or nearly 80 percent from 2001-02 in General Fund support for the Program. TAP has all too often been the target of proposed reductions. In fact, since 1995-96, the Governor has proposed cutting the TAP Program by roughly $800 million.

The 2002-03 Executive Budget Proposal would reduce the TAP awards for all eligible students by one-third. This across-the-board, regressive measure would directly add to the financial burden that college students across the State would bear in pursuit of a higher education. In fact, a second component of the Governor's TAP proposal is the provision of incentives that directly encourage students to fall further into debt in order to fund their educational costs. Governor Pataki proposes the creation of a new TAP Performance Award that would require students to self-finance their college education via additional student loans. Upon the completion of a degree, students would be eligible to receive a TAP Performance Award equal to the amount that their TAP award has been reduced, plus accrued interest. Finally, the Governor also proposes the creation of a new $10 million TAP Loan Program to support the additional student loan borrowing for students who have exhausted their federal student loan eligibility.

TAP is one of the most significant investments that New York State provides to students seeking access to a higher education. Beginning in 1974, TAP has served a generation of college going New Yorkers, serving as a national model for how to ensure that a higher education is beyond the grasp of none of our students. As the cost of receiving a higher education has steadily risen, the need for additional tuition assistance has never been more imperative. The Assembly has consistently rejected the Executive's proposed TAP reductions and is committed to ensuring that vital support for student financial aid is maintained. These efforts were culminated in historic enhancements to the Program in 2000-01. This multi-year commitment has raised the maximum award to $5,000, has eliminated the previous 90 percent tuition cap on awards, has raised the minimum award to $500, has expanded the income eligibility for TAP recipients by roughly $30,000, from $50,500 to $80,000, and has reduced the downward adjustment of awards for college juniors and seniors by 50 percent.

In addition to expanding the TAP Program, a college tuition tax reduction was enacted in 2000-01 which will provide $200 million in tax relief annually when fully implemented. This measure will ensure that working families with a student pursuing a higher education will have the choice of deducting from their income 100 percent of qualified tuition expenses up to $10,000 or receiving a tax credit of the lesser of $200 or tuition paid.

The combined impact of the national recession and the tragic events of September 11th in New York make it more important than ever for the State to make dramatic changes in its approach to economic development. Despite the Assembly's repeated call for implementation of comprehensive job creation strategies, New York State is ranked only 27th in employment growth when compared to other states. If Downstate New York were a separate state, it would be ranked 20th, while Upstate would be ranked 34th. These figures reflect a drop in ranking over the previous year and underscore the fact that the Executive failed to capitalize on the nation's longest economic expansion in history.

In 2001, the Assembly introduced and passed the Jobs 2001 Agenda, a comprehensive seven point plan which outlines steps the State needs to take to ensure economic growth in every region and in every leading industry. The plan would eliminate bureaucracy and move economic development to the local level, promote a skilled workforce for the new economy, invest in partnerships between universities and industry, invest in programs that revitalize communities, revive the manufacturing sector, revitalize tourism and encourage entrepreneurs and small business growth.

Rebuilding Lower Manhattan

The area below 14th Street in Lower Manhattan was the source of $47 billion in wages in 2000 or 14.9 percent of all wages in the State in 2000. In 2000, there were 1.9 million people employed in Manhattan. Just over 500,000 or 26.1 percent of those employed were from the area below 14th Street in Manhattan. These figures clearly illustrate that New York's economic success depends heavily on the revitalization of Lower Manhattan.

Following the events of September 11th, the Assembly demonstrated leadership by calling for a comprehensive Lower Manhattan Recovery plan that included, among other things, tax incentives, grants and low-cost loans to promote business stability and growth in Lower Manhattan and for the statutory creation of the Lower Manhattan Resurgence Authority.

Assembly priorities for the revitalization effort include relocation assistance to retain businesses not only in the financial district, but also within the City and the State as a whole, the restoration and upgrading of Lower Manhattan infrastructure including utility and communication lines and improved public transportation.

Another integral component of the Assembly revitalization plan was the creation of the Liberty and Resurgence Zones. The Liberty Zone was defined as the area south of Canal Street while the Resurgence Zone encompasses the area north of Canal Street and south of Houston Street. These Zones would encompass all of Lower Manhattan. Due in large part to efforts of the Assembly these two new Zones were ultimately created as part of the final 2001-02 State budget. Although the Executive supported only the creation of the Liberty Zone, the Assembly recognized that the effects of September 11th extended beyond the immediate boundaries of the Liberty Zone and successfully advocated for the creation of the Resurgence Zone. The Zones were provided with $10 million to support economic development purposes as well as preferential access to up to 80 megawatts of low cost power to assist in the retention and attraction of business. The Executive Budget does not provide any new funding for these zones.

In an effort to closely monitor existing or emerging issues in Lower Manhattan as a result of the September 11th terrorist attack, the Assembly held a series of hearings including the impact on the City's economy including small businesses and the impact on tourism in the City. In order for the revitalization efforts to succeed, there must be a clear vision and an expedited flow of funds.

Improving the Upstate Economy

While the Downstate economy struggles to rebound in the aftermath of the World Trade Center attacks, the Upstate economy has also struggled. With its historic dependence on manufacturing, it was among the last to recover from the recession of the early nineties and among those that benefited the least from the prolonged economic boom that began in the mid-nineties. Now with the current national recession, initially felt in the manufacturing sector, nearing the end of its first year, the Upstate economy has the dubious distinction of being among the last to recover from the last recession and the first to suffer in the current recession. In fact, Upstate's job growth fell from a lackluster 33rd in the nation in 2000 to 34th in 2001.

In order for the Upstate economy to recover and thrive the State must ensure that Upstate communities are centers of commercial growth. The Assembly's 2001 Jobs Agenda empowered communities to plan and implement locally and regionally developed revitalization strategies that range from promoting high-tech jobs to street-scaping and large scale commercial development. In addition to this comprehensive job creation package, the Assembly is in the process of holding a series of hearings around the State focused on the issues facing the Upstate economy.

The Assembly recognizes that revitalization of the Upstate economy is a necessary component to any viable economic development package. Any comprehensive economic development package must expeditiously address the needs of all regions of the State. The Executive proposes the creation of an Empire Opportunity Fund to provide for the financing of major capital infrastructure, construction, and other economic development projects that either directly create and retain jobs or build capacity for future growth.

The Executive proposes State-supported bonding authorization of up to $750 million to initially pay for Empire Opportunity Fund projects. In addition, the Executive proposes the dedication of a portion of future State receipts from the newly authorized casinos. However, it should be noted that the Executive's proposed Capital Program and Financing Plan indicates that no State-supported bonds will be issued to support Empire Opportunity Fund projects until SFY 2004-05, a full three years from now.

Under the Governor's proposal, funding would be limited to projects in areas outside the City of New York. In addition, this proposal does not provide for the immediate infusion of funds at the level that is adequate to support a comprehensive job creation and retention strategy that will turn our economy around. Rather, it continues the failed one-size-fits-all, project-by-project approach of the past, with no clear vision that provides a balanced funding approach and capitalizes on each region's unique economic strengths. It also fails to tie into the State's training programs administered by the Department of Labor, which can be an integral part of attracting businesses to the State by providing a qualified workforce which is developing its skills on an ongoing basis.

Revitalizing New York's Manufacturing Sector

New York's manufacturing industry has been steadily losing jobs. From 1995 through 2000 the manufacturing industry lost over 66,200 jobs statewide. In order for manufacturers to remain competitive in a global economy and provide stable employment opportunities to their employees, they must be able to quickly adapt to a rapidly changing technological climate. In order to revitalize the State's manufacturing sector, the Assembly's Jobs Agenda supports the designation and funding of industrial retention activities in each region of the State that would network the resources of Local Development Corporations, Technology Development Organizations, government agencies, financial institutions, unions and non-profit organizations to assist companies in need of technical support.

Restructuring ESDC/Promoting Regional Growth

The existing structure of the State's economic development programs does not adequately allow it to provide for the most effective delivery of economic development services. New York's economy is actually a collection of diverse regional economies. However, the State's cumbersome bureaucracy that provides top-down, project-by-project delivery of funds has been slow to respond to the unique needs of these regional economies and restricts the State's economy from reaching its full potential. In addition, the development of a rapidly changing, technology-based "new economy" has only further highlighted the need for flexibility and responsiveness.

The current structure of funding has left many areas of our State economically depressed. These areas failed to reap the economic benefits of the prolonged economic expansion and now are facing recession. Although restructuring State economic development programs is not enough by itself to boost the State's economy, it can contribute to this effort by optimizing the State's valuable, but limited, resources and marketing the State as an attractive business location. In addition, a decentralized decision-making process will capitalize on the expertise of regional and local economic developers and business leaders, resulting in wise investments in significant industries.

Several states from Florida to Michigan to New Jersey have recently established new public-private organizations to direct all or part of their economic development agenda. A new professional economic development organization for New York State, freed from partisan and political considerations, would provide increased coordination and flexibility for the State's program while also being more market driven, responsive and accountable.

Providing Capital Access to Small Business

Small businesses represent the lion's share of firms in New York State and comprise over half of the State's private sector workforce. As of June 2001, small businesses accounted for 98.1 percent of the all businesses in the State and employed 53.5 percent of the State's private sector workforce.¹ Despite their importance to the State's economy, many small business start-ups continue to find it difficult to access much needed financing, especially venture capital. Minority and women owned businesses are even more susceptible to failure due to their inability to access financing.

The Assembly continues to put the needs of small businesses high on its priority list. Originally an Assembly initiative, the Excelsior Linked Deposit Program provides small business with the access to capital through "linked loans." The Assembly is encouraged by the Executive's proposal to increase the amount available for this important program by $100 million. Under the Executive's proposal, the State Comptroller's authorization to invest State funds in linked deposits would be increased to $250 million, while public authorities authorization remains flat at $50 million. In order to achieve the maximum access to capital for small businesses, the Assembly has worked to ensure that public authorities participate fully in this Program. In addition, in order to reach under-served areas, the Assembly has supported participation by credit unions in the Excelsior Linked Deposit Program.

Under the CAPCO Program, another Assembly initiative, insurance companies that invest in certified venture capital firms are given credit for their investments, thus encouraging those companies to invest in small businesses. To date the Assembly has allocated $280 million to the CAPCO Program, for which investment credit may be claimed. The Assembly supports the CAPCO Program and finds it necessary in providing financing to small businesses.

The Assembly also supports the New York State Venture Capital Program. Under this program, the Comptroller is authorized to make investments in partnerships, trusts, and limited liability companies that agree to invest in qualified businesses in the State. This Program is intended to serve the capital needs of emerging, high-tech companies.

Empire Zones

The most important economic development program for attracting and retaining businesses in New York State is the Empire Zones Program. As part of the 2000-01 State budget, the Assembly Majority fought for and secured the transformation of the old Economic Development Zone Program into the new Empire Zone Program. Among the many benefits of this new Program is that a business that locates in a zone may operate virtually tax-free. There are currently 62 Empire Zones operating in New York State, and an additional four Zones remaining to be designated.

Investing in Workforce Development

As technology continues to drive changes in almost every industry sector and as new, emerging industries gain significance in the State's overall economy, the demand for a workforce that is technically skilled continues to grow. According to the U.S. Chamber of Commerce, members of employer organizations have made it clear that a quality workforce is one of their most pressing challenges. In 2000, workforce and education issues were the number one priority of 82 percent of the members of the largest chambers of commerce in the Nation.² A survey of small businesses in Western New York conducted by the National Federation of Independent Businesses identified finding qualified workers as a significant barrier to growth for 44 percent of respondents.³

Without a highly trained workforce, we put at risk New York's present and future prosperity. This shortfall will jeopardize New York State's leadership role in the nation's economy and undermine the growth of the high-tech industry in New York. According to the Meta Group, an Information Technology (IT) consulting and research company, the number of unfilled IT jobs is increasing by approximately 25 percent per year.⁴ If present trends continue, 1.2 million vacant IT positions are expected by the year 2005.

The Executive Budget continues the existing Strategic Training Alliance Program. This job training program, which provides for the development of a technically skilled workforce, was enacted in 1998 and funded at $34 million. However, as of October 10, 2001 the Department of Labor and the Urban Development Corporation had only executed 56 awards totaling $4 million. While the Assembly supports workforce retraining and employee skills upgrading, the inability of the Executive to implement this program at a time when there is such a great demand for a trained workforce further demonstrates the need for a change in the administration of economic development in New York State. Furthermore, only a small percentage of awards and funding has been approved for training projects undertaken by industry alliances or consortia. Providing training assistance to businesses through consortia is an innovative and cost-effective way to ensure that employees are highly trained.

Transportation

The Capital Program of the Department of Transportation, along with a number of local road and bridge programs, are supported by New York's Dedicated Highway and Bridge Trust Fund. This fund is comprised of revenues from motor fuel taxes, motor vehicle registration fees, and highway user fees.

The Capital Program of the Department of Transportation is a five-year plan to improve and rehabilitate critical components of the State's transportation infrastructure by providing funds for State and local roads and bridges, transit systems, the State's freight and passenger rail network, airports, ports and canals. This program also provides funds for economic investments through the Industrial Access Program. The Capital Program is vital to improving the transportation infrastructure, increasing the flow of goods and services, and stimulating economic development and job creation.

Highways and Bridges

The Executive proposes maintaining the current $1.75 billion letting level for highway and bridge construction projects. The Executive recommends transferring auto rental tax revenues and motor vehicle fees from the General Fund to the Dedicated Highway and Bridge Trust Fund to increase bond ratio coverages. The projected revenues to be transferred total $206 million. The Executive also recommends moving $24 million from the Consolidated Highway Improvement Program (CHIPS) operating fund to the CHIPS Capital program. The CHIPS operating fund was reduced by the Executive in SFY 2000-01 by nearly $35 million, and the new proposal continues this lower funding level. Funding for the CHIPS Capital Program is $241.8 million and $39.7 million for Municipal Streets and Highways Program ("Marchiselli") which is equal to SFY 2001-02 funding levels.

Mass Transit and Port Authority of New York and New Jersey

The events of September 11th have severely impacted the transportation infrastructure of the Metropolitan Transportation Authority (MTA) and the Port Authority of New and New Jersey. Infrastructure damage to roads and subway tunnels, trains and stations is estimated to cost billions of dollars to repair. The MTA will likely experience lost revenues due to changes in ridership and projected tax receipt declines following September 11th. The Executive budget relies on $250 million in Federal aid, which has not been secured yet, to cover the costs of rebuilding State and city infrastructure in Lower Manhattan. The Port Authority, in addition to the losses of the World Trade Center complex itself, has experienced revenue losses associated with its bridges, tunnels and transit operations. The ability of these agencies to identify and meet the critical transportation needs of the State has been diminished.

The Executive's proposed budget for SFY 2002-03 fails to address the MTA's Capital Program and debt restructuring plan. The MTA's 2000-04 $17.1 billion five-year Capital Program debt service costs are estimated to reach $1.4 billion annually by 2004. Correspondingly, by 2004, 21 percent of the MTA's revenues will be used for debt service payments. Since interest rates have dropped dramatically, a sound debt refinancing plan could provide substantial savings to the Authority.

Prior to the tragedy of September 11th, ridership on the State's transit systems had reached all-time highs. Now more than ever, effective means of transporting people as well as goods is of extreme importance. It is imperative that commitments to mass transit be maintained and expanded. The economy of the State as a whole and each of its communities, from Montauk to Niagara Falls, depends on quality transportation infrastructure. Revitalization of the State's transportation infrastructure should be a primary point of the redevelopment efforts. Transportation is a critical component of restarting the economic engine and enhancing the economic competitiveness of New York.

Energy

The Governor's lack of an effective electric deregulation strategy continues to negatively affect residential and business consumers throughout the State. Utility rates in New York are consistently among the highest in the nation, with residential electricity rates over 80 percent higher than the national average. In addition, electricity prices in the State have increased faster than prices in the rest of the country. Given concerns about job creation and retention in Upstate New York and also in New York City following the devastating terrorist attacks on September 11th, the need for a comprehensive energy policy that encourages economic growth and provides rate relief for business and residents throughout the State should be addressed immediately.

In 2001, the Assembly demonstrated leadership in the energy policy arena. To assist families and businesses struggling with high energy prices, the Assembly approved the New York State Transitional Energy Plan (NYSTEP) -- a comprehensive energy plan to provide for immediate action to relieve burdens on consumers and protect them from extreme price fluctuations and unfair selling practices. NYSTEP would promote conservation, energy efficiency and alternative energy resources to lower energy costs, and spur job creation.

Following the events of September 11th, one of the main objectives put forth by the Assembly was to assist existing large and small businesses in lower Manhattan, attract new businesses, and retain and create jobs in the area. Legislation was passed that required the Power Authority of the State of New York to provide low-cost electricity to dislocated and displaced businesses and businesses intending to relocate near the site of the former World Trade Center buildings for a minimum of three years. The Assembly insisted that the Power Authority prioritize recipients of the low-cost power to ensure that lower Manhattan businesses will benefit the most. In order to ensure that lower Manhattan remains the engine of the State's economy, the Power Authority needs to implement this program as soon as possible.

In 1997, the Assembly was instrumental in creating the "Power for Jobs Program," which makes available low-cost electricity to New York businesses that retained or created jobs. The Assembly has fought for the continuation of this Program and was responsible for its expansion in both 1998 and 2000. The Executive has proposed extending all current low-cost power contracts that are due to expire this year in the Executive Budget. In 2000, the Assembly first proposed the extension of contracts that were set to expire. The Assembly is encouraged that the Executive has continued this beneficial Assembly initiative, of continuing existing contracts.

The Assembly will continue to advocate for policies and actions that will provide for rate relief for energy consumers throughout New York State and mechanisms to guarantee market development that offers true customer choice.

Labor

The Department of Labor is the lead agency for workforce development in the State. It has administrative responsibility for the Federal Workforce Investment Act (WIA), employment programs for public assistance recipients, the Unemployment Insurance Program, the Occupational Health and Safety Program, and the Labor Standards Program. State and federal programs administered by the Department provide employment and job training services to currently employed or under-employed individuals, unemployed individuals, dislocated workers, and public assistance recipients.

The Federal Workforce Investment Act, the successor to the Job Training Partnership Act (JTPA), requires states to establish a system of "one-stop" employment centers that will provide a broad range of services in each workforce investment area. The centers are designed to serve any individual looking for employment related services and to assist employers who need to identify skilled workers. Outside New York City, most "one-stop" sites are now operating although there are still concerns that services to individuals, particularly training services have been disrupted during the transition from JTPA to WIA. New York City, however, continues to lag the rest of the State. Self-imposed delays in the process have left the City with only one operational center even though the initial local workforce plan filed with the State projected one center for each borough. Without "one-stop" centers and a fully implemented system for retraining and reemployment, many workers in New York City unemployed as a result of the September 11th World Trade Center attacks and the economic downturn are severely under served.

New York City has seen an unemployment rate increase of 1.8 percent over the last year, while New York State's rate has gone up a half a percent less (1.3 percent). With the increase in unemployment now being experienced, the City lacks a system to deal with the needs of unemployed and under-employed workers. Prior to September 11th, the Administration's single focus was on moving individuals who are on public assistance into jobs. New York City did not develop a system to deal with the employment related needs of other workers including unemployed individuals and employed low skill workers eligible for training that would have been funded under WIA. In fact, New York City has spent only $76 million of the $184 million in Federal Funds it has received since 1997 to implement WIA.⁵

The events of September 11th, and other job losses, will particularly affect individuals leaving public assistance and entering employment for the first time. These are often individuals at the lowest income levels in the workforce. Assistance that would help them retain unsubsidized employment such as additional job training, skill upgrades and tuition assistance is available under the Federal Welfare-to-Work Block Grant. The Executive has not made effective use of these kinds of job retention services, leaving nearly $200 million in Federal Funds dedicated for these purposes unspent. The changes in the economy that the State has experienced could have a significant affect on these individuals potentially returning to public assistance.

Renewed growth in the State's economy will depend in part on the increased productivity of its workforce and skills development of that workforce is critical to the process. There has been an increased commitment by employers to training, necessary in part because of the shrinking pool of available labor and the skills gap which has led to a shortage of skilled workers in key industries. That employer commitment extends to small businesses as well as large firms. A recent survey of businesses conducted by the Office of the State Comptroller found that 71 percent of firms responding felt that their workers required frequent training and skill upgrades to keep pace with technological change. However, 75 percent of firms were unaware of state or federal training programs available to meet their needs. Of those that were aware of public sector training efforts, only seven percent felt that they were very effective.⁶

Like these businesses, the Assembly has long recognized the importance of strengthening the State's economy by improving the skills of the New York workforce. Economic growth is dependent on a comprehensive plan that must include commitments of assistance from the State to both workers and employers for skills development efforts. However the Executive has not put forward a strong proposal to close the gap between the skills of working New Yorkers and those skills required in a technology driven economy. Funding provided for skills training appropriated by the Legislature has not been expended and, in some cases, program spending has been reduced. Federal programs, like WIA and Welfare-to-Work, have also been underutilized and the State has not managed these programs well. The Assembly will focus on developing solutions to remedy this situation at a time when every available dollar in these programs is vital to those whose self-sufficiency is at stake due to the present economic conditions.

Health

The Health Care Reform Act of 2000: An Update

The passage of the Health Care Reform Act of 2000 (HCRA 2000) improved access to high quality, cost effective health care to all New Yorkers. In January 2002, prior to release of the Executive Budget, the Legislature negotiated with the Executive and subsequently enacted a major health care package (S.6084/A. 9610) that significantly adds to HCRA 2000 and will serve to improve the quality of health care in New York even further. To achieve this quality improvement goal, the new law primarily focuses on enhancing the health care workforce through recruitment and retention initiatives and improving access to health care coverage.

The following are highlights of the major provisions of the recently enacted health care package:

Recruitment and Retention of Health Care Workers

The HCRA 2000 expansion provides total funding of $1.8 billion gross (including federal, state, and local shares) for hospitals, nursing homes, free-standing clinics, and personal care providers statewide. The funding will be provided over a three-year period to support the recruitment and retention of non-supervisory workers at these facilities. Funding will be distributed beginning April 1, 2002, based on a facility's or provider's total gross salary and fringe benefit costs through a Medicaid rate add-on.

Empire Conversion

As part of the final agreement, Empire Blue Cross/Blue Shield is permitted to convert to a for-profit corporation. Upon conversion, 95 percent of the proceeds from the conversion will be dedicated to HCRA 2000, while five percent of the proceeds will be assigned to a charitable foundation. The foundation's mission will be to expand and/or enhance access to health care of the uninsured and underinsured and to support public and community health programs. The concept of a charitable foundation to support an array of health care-related programs has been a long-standing initiative of the Assembly.

Medicaid Buy-In Program

Through the Assembly's insistence and perseverance, the health care package also includes a Medicaid Buy-In Program for the working disabled. This program will provide Medicaid coverage for disabled persons, with incomes up to 250 percent of the Federal Poverty Level (FPL) and with assets up to $10,000, effective April 1, 2003. Disabled workers with incomes above 150 percent of the poverty level will pay a premium for coverage based on a sliding fee scale.

Streamlining Child Health Plus, Family Health Plus, and Medicaid

The recently enacted health care package provides for the removal of various obstacles to enrollment in the Child Health Plus (CHIP), Family Health Plus, and Medicaid Programs. Many of the streamlining provisions in the package were previously advanced by the Assembly in more comprehensive health care access enhancement legislation. Specifically, the newly enacted changes will eliminate the face-to-face interview during the recertification process for the Medicaid Program. The new law also directs the Commissioner of Health to develop a simplified recertification form for persons renewing coverage in the Child Health Plus, Family Health Plus, or Medicaid Programs. Persons applying for community-based Medicaid will now be able to self-attest to their resource level. To ensure uninterrupted health care coverage, the package includes a 60-day grace-period during the recertification process for families renewing Child Health Plus coverage. Finally, it allows individuals to self-attest to income during the recertification process in the Child Health Plus Program.

Breast and Cervical Cancer Expansion

The new health care package also provides Medicaid coverage up to 250 percent of the Federal Poverty Level to uninsured and underinsured women who are diagnosed with breast or cervical cancer.

Family Health Plus and Healthy New York: An Update

HCRA 2000 established Family Health Plus, a comprehensive program for subsidizing health insurance that provides health insurance coverage to low-income adults between the ages of 19 to 64 years. This program was modeled on legislation authored earlier by the Assembly. In May 2001, New York State received federal approval of Medicaid waivers necessary to implement the Family Health Plus program. In June 2001, New Yorkers were able to call the Department of Health's hotline to receive information about the program and place their name and application on an application list. In September 2001, the Department of Health accepted applications for the program and in October 2001, the program finally became fully operational. Implementation of the program in New York City, however, has faced setbacks due to the September 11th disaster. Once fully implemented the program is expected to be available to up to 600,000 uninsured New Yorkers.

In addition, the HCRA 2000 created Healthy New York, which is a subsidized insurance program for small businesses with 50 employees or less to provide their workers with basic health insurance. HCRA 2000 also provided for subsidized premiums for workers whose employers do not provide insurance and those who are self-employed. Insurers began offering coverage for both programs on January 1, 2001. To date, however, participation in the Healthy New York program has been minimal. In total, the health insurance programs created in HCRA 2000 are projected to provide health insurance coverage for approximately one million New Yorkers when fully implemented.

Disaster Relief Medicaid and Family Health Plus

In the wake of the tragedy of September 11, 2001, New York City residents have been enrolling in Disaster Relief Medicaid/Family Health Plus which provides four months of Medicaid coverage with a pared down eligibility review process. Between September 24, 2001, and January 31, 2002, any New York City resident whose household income meets the income test is eligible to sign up for Disaster Relief Medicaid/Family Health Plus, regardless of whether or not they were directly affected by the attack on the World Trade Center.

It is estimated that more than eight times the number of low-income individuals have enrolled in Disaster Relief Medicaid/Family Health Plus than would have enrolled under the regular Medicaid Program. In the month of October 2001 alone, approximately 50,000 low-income individuals enrolled in Disaster Relief Medicaid/Family Health Plus. By the end of January 2002, it is estimated that approximately 200,000 low-income individuals will have been enrolled in this program.

One of the major reasons for rapid enrollment growth in Disaster Relief Medicaid/Family Health Plus has been the simplification of the enrollment process. Although various obstacles to enrollment were removed in the major health care package passed in January, 2002, further revisions to the enrollment process are needed to insure that eligible uninsured persons receive the health care coverage to which they are entitled. Currently, nearly 50 percent of the uninsured population that is eligible for Medicaid, Child Health Plus, or Family Health Plus coverage are not enrolled in the programs due to the complexity of the enrollment process. Given the recent economic downturn and the possibility for even greater numbers of uninsured, it is imperative to assure easy access to these programs for eligible individuals.

Medicaid Coverage for Legal Immigrants

The Assembly has advocated for many years the importance of providing legal immigrants with Medicaid and Family Health Plus coverage. In June 2001, the New York State Court of Appeals affirmed the Assembly's position when it unanimously decided in Aliessa v. Novello that New York State can no longer deny Medicaid coverage to legal immigrants. The Court ruled that New York's Constitution prohibits the State from treating needy New Yorkers differently based on their United States citizenship status. As a result of this decision, legal immigrants, including those classified as Persons Residing Under Color of Law are now eligible for both the Medicaid and the Family Health Plus Programs in New York State, provided that they meet all other eligibility requirements. The Department of Health is currently implementing this decision.

Pre-Natal Care Assistance Program

In another recent court decision, Lewis v. Grinker, the Second Circuit struck down the mandate of Federal reimbursement for pre-natal care services for undocumented and documented immigrant women. However, the Second Circuit ruled did order that all babies born to these women must be deemed automatically entitled to Medicaid coverage for the first year of their lives. In light of this decision, it is critical that New York State maintains coverage for these much needed pre-natal care services to ensure healthy birth outcomes.

A study in the American Journal of Obstetrics and Gynecology found that undocumented immigrant women who received no pre-natal care were nearly four times as likely than women who received services to have low-birth weight babies and seven times as likely to have pre-mature deliveries. The cost of caring for such a baby was determined to be $2,341 more than the cost of caring for a baby whose mother had received pre-natal care. Additionally, the study found that for every $1.00 cut from the Pre-Natal Care Assistance Program (P-CAP), New York State can expect to see an increase of $3.33 in the cost of postnatal care and an increase of $4.63 in incremental long-term costs.⁷

To ensure healthy birth outcomes, the State has in fact taken action to provide all eligible women, regardless of their immigration status, with access to pre-natal care coverage. These services are funded through Medicaid appropriation in both the current fiscal year budget enacted by the Legislature and the Executive's proposed SFY 2002-03 Budget.

Child Care

The availability of reliable child care gives parents the opportunity to seek and to retain employment. In State Fiscal Year 2001-02, the Office of Children and Family Services (OCFS) coordinated an $840 million Child Care Block Grant to support 174,000 subsidized slots across New York State, as well as a variety of child care quality initiatives. Regrettably, while this funding sustained government-subsidized child care assistance for low-income families at the previous year's level, it allowed for no subsidy expansion to working families struggling to make ends meet, as had been advocated by the Assembly once again in 2001.

The shortage of available child care slots is yet another obstacle to working families. The demand far exceeds the supply and this has created a pressing need to develop additional child care capacity. In SFY 2000-01, the Assembly secured $15 million in second year funding for the Child Care Facilities Development Program, bringing the cumulative appropriation total for this program to $30 million. To date, grants totaling $29.85 million have been awarded statewide, which will create approximately 5,500 new child care slots for working families.

Exacerbating the need for child care slots are the events of September 11th and the downturn in the economy. As of October 17, 2001, the World Trade Center disaster had sent 22,000 people to the unemployment line, most of whom were employed in the services industry (48.8%).⁸ The reverberating impact of this increased level of unemployment, as well as increasing numbers of children with parents who work outside of the home, makes quality, affordable child care essential for New York State's families and employers. Despite this overwhelming need, the Executive proposes to increase funding for the Child Care Block Grant by only $37 million in SFY 2002-03, bringing the total to $877 million. The additional funding will support 3,500 new subsidies for a total of 177,500 subsidies. Moreover, the Executive does not propose any new capital funds for child care development. The Governor and the Legislature must continue to work together to maximize available resources to increase the number of subsidized child care slots and to develop additional child care capacity.

Child Welfare

Family and Children's Services Block Grant

The Family and Children's Services Block Grant was established in SFY 1995-96 to consolidate State reimbursement for child welfare services. This new funding methodology was created to allow counties greater flexibility in the delivery of preventive, protective, adoption and foster care services. From the beginning, this Block Grant was criticized for being inadequately funded and accused of being a systemic deterrent to the provision of proper social work. Inadequate funding of the Block Grant has also been blamed for a decrease in the workforce with turnover reaching as high as 50 percent in some voluntary agencies due to increasingly non-competitive salaries.

In SFY 1999-2000, the Legislature extended the Block Grant until March 31, 2001. At the same time, it required the Office of Children and Family Services to evaluate the existing system of child welfare financing and service delivery and to submit a proposal regarding the future funding of child welfare services after that date by June 30, 2000. The Governor included the proposed funding methodology put forth by OCFS in June 2000 in his proposed SFY 2001-02 Executive Budget but failed to address other programmatic and administrative changes recommended by the office. The Assembly passed legislation that addressed not only the funding methodology but also programmatic and administrative changes to the delivery of child welfare services that were missing from the Governor's Budget. However, the SFY 2001-02 enacted budget reverted to a temporary funding methodology reminiscent of the expired block grant as a stop gap measure.

Again, this year the Governor proposes a new funding methodology for child welfare services. This proposal includes $324.4 million in uncapped funding at 65 percent reimbursement for prevention and supportive services, and $364.5 million for a foster care block grant. However, the Governor, once again, does not include Article VII legislation that would provide for critical programmatic and administrative changes needed to insure critical cost-effective delivery of child welfare services.

Persons in Need of Supervision

Chapter 596 of the Laws of 2000 raised the maximum age that a person can be declared in need of supervision from 16 years to 18 years. The law was to take effect on November 1, 2001. Prior to the effective date, however, a study by the Vera Institute, that had been commissioned by the Office of Children and Family Services, revealed that the current Persons in Need of Supervision (PINS) system was unlikely to meet the needs of the large number of 16 and 17-year-olds that would be entering the system. Further, if counties were to continue their pattern of placing PINS in detention and foster care, the age increase would result in additional petitions to the courts that could result in gross total new expenditures approaching $44 million for detention and placements, excluding capital costs associated with capacity expansion. Consequently, the Legislature took action to delay the effective date of Chapter 596 to July 1, 2002 and to limit significantly the Family Court's ability to order detention or foster care placement for PINS. In December 2001, the Assembly held a hearing to examine the readiness of the State's child welfare system to implement effectively the increase in the maximum PINS age. Testimony presented at the hearing concurred with the findings of the Vera Institute. In the SFY 2002-03 Executive Budget, the Governor proposes $34.6 million in TANF funding to accommodate the projected increase in the PINS population associated with the implementation of the 18-year-old age limit.

Mental Health

Several factors have combined over the past several months to highlight the stress on the community-based mental health system in New York. First and foremost, the events of September 11th have been perceived by those most affected by the attack as the day New York became the international epicenter of terrorism. As a result, the mental health system will be coping with the aftermath of the World Trade Center attack for many years to come. Many of those affected will recover with short-term intervention provided by mental health professionals and paraprofessionals. Others, however, may not be so fortunate. Some adults and children will suffer from post traumatic stress disorder, while others already coping day-to-day with serious mental illness will suffer setbacks.

Federal Disaster Assistance for Mental Health Services

The five boroughs of New York City and Dutchess, Nassau, Orange, Putnam, Rockland, Suffolk, and Westchester Counties comprise the federal disaster area declaration stemming from the World Trade Center attack. Based on that declaration, New York State is eligible for crisis counseling grants from the Federal Government.

Community Reinvestment

Although the Governor proposes the closure of 395 State-operated beds in the SFY 2002-03 Executive Budget, none of the $18.3 million in General Fund savings to be realized from this action will be reinvested in community mental health services. This is due to the fact that the Executive offers no proposal for the extension or replacement of the Community Mental Health Reinvestment Act (Chapter 723, Laws of 1993) that expired on September 30, 2001. This groundbreaking piece of legislation mandated that as savings were achieved through "closing" beds in State psychiatric centers, these funds were to be used for creation of new community-based mental health services. The 1993 Reinvestment Act also included provisions for the closure of certain State psychiatric centers, to take place only after specific planning requirements had been met.

The five-year plan for Reinvestment projected that between SFY 1994-95 and SFY 1998-99 sufficient savings would be realized to create a permanent funding stream of $210 million. Those savings would be shifted from support of State-operated psychiatric centers to new and expanded community services. Although the Reinvestment funding stream did not reach $210 million by the close of SFY 1998-99, the program was so successful and popular with local governments and not-for-profit providers that it was extended for an additional two and one-half years, through September 30, 2001.

The combination of the additional demand for both short-term counseling and long-term mental health services related to the September 11th attack and the tragic aftermath, and the failure of the Executive to put forth a new plan for Community Reinvestment will put the mental health system in a tenuous position. The Assembly will continue to seek funding from the Federal Government for mental health services expansion to meet the unexpected demand created by September 11th. In addition, the Assembly will continue its pursuit of a Community Reinvestment Plan that addresses the core of the community-based mental health system -- timely access to services provided by trained and experienced professionals and paraprofessionals.

Temporary Assistance to Needy Families

In 1996, Congress passed the Personal Responsibility and Work Opportunity Reconciliation Act to replace Aid to Families with Dependent Children Program. The following year, New York State enacted comprehensive legislation to comply with the new federal laws and regulations. New York State receives $2.443 billion each year from the Federal Government through the Temporary Assistance to Needy Families (TANF) Block Grant. The Office of Temporary and Disability Assistance (OTDA) administers the State's public assistance programs, including Family Assistance and Safety Net Assistance. The Office also administers the Supplemental Security Income (SSI), Home Energy Assistance (HEAP), Child Support Enforcement and Food Stamp programs, as well as the capital Homeless Housing Assistance Program.

TANF Surplus

New York's $2.443 billion TANF allocation is based on the State's caseload and expenditures in Federal Fiscal Year 1995. New York's public assistance caseload and related expenditures were significantly higher in FFY 1995 than is currently the case. As a result of the change in the number of New Yorkers in the TANF program, the State in the current fiscal year has approximately $1.5 billion in federal TANF funding above the amount needed to support the Federal share of the Family Assistance Program. This funding overage is commonly referred to as the "TANF surplus." The Legislature appropriates the "TANF surplus," to provide additional funding for children and family services, employment initiatives, and transitional programs.

Programs supported by TANF funds in New York State since the incorporation of the TANF Block Grant funds into the State budget in 1997-98 include employment and training and transitional programs such as child care; education, health and other social services; and various legislative initiatives. These legislative initiatives have included: health care worker training, child care worker incentives, wage subsidy programs, displaced homemaker programs, child welfare preventive services, summer youth employment programs, and English as a Second Language adult literacy programs.

Federal Welfare Reform Reauthorization

The 1996 Personal Responsibility and Work Opportunity Reconciliation Act requires Congress to reauthorize spending by October 1, 2002. Most of the attention regarding reauthorization is focusing on the TANF Block Grant and whether or not the amount TANF funds received by individual states will be reduced.

The primary issue facing New York State with respect to reauthorization is indeed the level of its TANF Block Grant allocation. Congress will examine the State's caseload and its use of the TANF surplus to serve low-income families. New York has had one of the largest undisbursed TANF surpluses in the country, and the risk is that unexpended funds could be subject to federal recapture during TANF reauthorization. In the event the Federal Government does recapture these funds, that action would have a deleterious effect upon New York's ability to serve the needs of its citizens, particularly now in what is a tenuous economic period.

The Executive, after years of resisting the expenditure of these "surplus" funds for programs and services that assist impoverished families move toward self sufficiency, has now proposed to hastily allocate the entire $885 million TANF reserve that has accumulated over five fiscal years. While parts of the proposed allocation may represent a legitimate attempt to provide programs and services to help public assistance recipients and low-income working families improve their circumstances, others are simply an attempt to supplant long-standing State financial support for education programs, such as education, with federal TANF funds on a one-time basis.

The most fundamental change in the 1996 federal welfare reform law was eliminating the entitlement to cash assistance. For the first time, Congress imposed time limits on receipt of welfare and sanctioned payments to recipients who failed to comply with program and work mandates. Public assistance recipients can now only receive cash assistance for five years over a lifetime. The first recipients reached the five-year limit in New York in December of 2001. This raises serious issues that must be addressed during the reauthorization debate at the Federal level.

These issues are even more significant given current economic conditions, particularly in New York since the September 11th attack. The terrorist attack on the World Trade Center and subsequent economic impact will add pressure on the public assistance system as an economic safety net. It is foreseeable that the number families seeking assistance may significantly increase as a result of the events of September 11, 2001. Early reports have already shown a slight increase in the public assistance caseload in October and November of 2001.

Transition from Family Assistance to the Safety Net

At the end of October 2001, there were 45,940 Family Assistance cases at maximum number of months of New York State Assistance. The number of cases exempt from the time limit was 8,388, therefore the total number of cases that were not exempt that would hit the 60 month time limit was 37,552. The number of cases that converted to the Safety Net Program was 29,328. The number of cases closed due to failure to comply with the application process was 2,777. There were 1,346 cases appealing denial of safety net benefits.

Food Stamps

Many families that continue to be eligible for Food Stamps are not receiving them after securing employment and leaving public assistance. Food Stamps should be a means of supporting families that are making the shift into the workforce. The State must try to improve the ability to identify and better serve eligible families. The Food Stamp Program could be made more effective if measures were taken to simplify eligibility rules and adjust the quality control system.

Earned Income Tax Credit

The Earned Income Tax Credit (EITC) is a refundable tax credit that supplements wages and offsets taxes paid by low-income workers. The program is designed to move families over the poverty line and encourage work among single parents receiving assistance. In 1994, at the initiative of the Assembly, a State Earned Income Tax Credit was first instituted. The credit is refundable and is aimed at providing assistance to working class families in New York. In 1999, the Legislature increased this credit from 20 to 25 percent of the federal credit, phased-in over a two-year period beginning January 1, 2000. In 2000, the credit was again enhanced from 25 to 30 percent of the federal credit, phased-in over a two-year period beginning January 1, 2002.

It is paramount that the State address issues surrounding poverty and the economically disadvantaged. Failure to do so only delays and increases the investments needed to solve preventable problems within the State. Many New Yorkers will feel the brunt of the tragedies portrayed upon our State and this nation; there are measures that can be taken to ease the trauma caused by these events.

Criminal Justice

Throughout the nation, the crime rate is falling, with the now 10-year decline in serious and violent crimes across the nation representing the longest decline in nearly three decades. This is also true in New York State. This trend has continued for the State through the end of 2001, with all categories of violent crime continuing to fall.

The decline in the crime rate continues to relieve some of the pressure on the State's criminal justice system, allowing overworked criminal courts to continue to clear their backlog. The number of total felony dispositions through the first 10 court terms of 2001 was 6.2 percent below the 2000 level. Corresponding estimates indicate that the total admissions to the State Department of Correctional Services (DOCS) was down 8.3 percent for the first 10 months of 2001. New court commitments decreased by 10.5 percent, and all other admissions decreased by 12.6 percent. The only category of DOCS admissions not following the trend of decline is conditional release violators, which increased by 10.1 percent.

During calendar year 2001, there was a dramatic decrease in the Department of Correctional Service's capacity demand, which is the combined total of the under-custody population and the number of inmates awaiting transfer to State prison who remained confined in county jails. As of December 31, 2000, capacity demand was 71,076 (70,500 under-custody and 576 State-ready inmates); as of December 31, 2001, DOCS capacity demand dropped to 67,893 (67,395 under-custody and 498 State-ready inmates), a decrease of 4.5 percent.

The Economy

The National Economy

Prior to September 11, 2001, the United States economy was already struggling. Gross Domestic Product (GDP) growth had rapidly decelerated in the four quarters prior to the attack. Economic weakness had been part of a larger global downturn, making it unlikely that global demand would help to turn the national economy around. Despite these signs of weakness, just prior the attack most economists expected economic growth to pick up some time in the second half of 2001.

The September 11th terrorist attack on the World Trade Center affected the economy at two basic levels. At a national level, there has been a large macroeconomic effect that is distinct from any physical damage from the attack. Across the country, transportation and production was disrupted, reducing output even where no physical damage occurred. Consumer spending on airlines, hotels, and travel in general has been reduced, due in part to safety concerns and changing procedures for airline travel. Even outside of these sectors, consumer behavior in general has been negatively affected.

In addition to any generalized economic effect, there is also the local disruption resulting directly from the attack on the World Trade Center. This includes a loss of lives, as well as capital and jobs. The attack also caused a long-term disruption to transportation and other activity over a large and vital part of Manhattan. Though the local disruption effected a physically small area of the State, that area made up a large portion of State wages (see Figure 11).

The Executive's forecast for the national economy is in the general range of other forecasters, but on the low end. The Executive estimates that economic growth as measured by GDP will be 0.4 percent in 2002. This growth rate is less than half of the 1.0 percent consensus forecast from Blue Chip Economic Indicators, a compendium of roughly 50 private sector forecasters (see Table 1). In fact, though the Executive's forecast is in the range of the Blue Chip survey, it falls in the bottom 20 percent of forecasts submitted for 2002 GDP growth rate. The Executive's GDP forecast for 2003 is at the average of the Blue Chip consensus, with both forecasting GDP growth of 3.4 percent in 2003.

The Executive indicates that much of the cause for the current economic slowdown is related to weak investment and corporate profits. The Executive forecasts that corporate profits will increase by a modest 1.7 percent in 2002 after declining a projected 16.0 percent in 2001. Both residential and nonresidential fixed investment are expected to decline in 2002 by 0.9 percent and 5.3 percent respectively. The Executive also forecasts that the S&P 500 will fall again in 2002 by 1.0 percent after declining by 16.5 percent in 2001.

Figure 11

The Federal Reserve has cut the Fed Funds rate more aggressively than anytime in history. After 11 rate cuts totaling 4.75 percent and multiple fiscal stimulus packages in 2001, the Executive's economic forecasting models show monetary and fiscal stimulus effects combined only raising GDP by 0.1 percent in 2001. However, the stimulus will raise GDP by 0.9 percent in 2002.

The New York State Economy

The Executive expects New York State employment to fall 1.2 percent in 2002, double the drop expected in national employment over the same period. Private sector jobs will fall by 1.5 percent, or 103,000 jobs, according to the Executive's 2002 forecast. According to the Executive, job declines in 2002 will be particularly strong in some sectors including: transportation and warehousing (4.8 percent drop), mining and manufacturing (4.5 percent drop), and finance and insurance (4.3 percent drop). Employment is forecast to rebound modestly in 2003 by 0.9 percent, with mining and manufacturing expected to continue declining by 0.6 percent. The State unemployment rate is expected to jump to 6.5 percent in 2002. This is slightly less than the unemployment rate forecast by the Executive for the nation, despite the State experiencing double the loss in employment and both the State and the nation.

Wages and salaries in New York State are estimated by the Executive to decline 1.5 percent in 2002, following a projected increase of 3.6 percent in 2001. The Executive's wage forecast for 2002 is significantly below that of the two major economic forecasting firms. In fact, the Executive forecasts a decline in wages of 1.5 percent, unlike Economy.com forecasts growth of 1.3 percent and DRI-WEFA forecasts growth of 3.0 percent. Bonus income is forecast to decline 24 percent in 2002 following a projected increase of 2.0 percent in year 2001. Personal income is projected to increase 1.1 percent in 2002.

Employment growth in 2001 for New York State is projected by the Executive to lag the national average. Over longer periods State employment growth lags the nation as well. In fact, while New York State employment since 1995 has grown at an annualized rate of 1.3 percent, the rest of the nation had employment growth that was a full 50 percent faster (1.9 percent). Had New York State kept pace with the nation of this period, it would have added 364,000 additional jobs. Even in 2001, New York has grown more sluggishly than the other very large states. Florida, California, and Texas were all among the top five states in terms of growth rate (see Table 2). In addition, the employment growth rankings also show evidence of a lagging Upstate economy, with "Upstate" being defined as all regions other than New York City, Long Island, and the Mid-Hudson. Upstate New York ranked among the twenty slowest growing states.

By far, most of the jobs created in New York State since the mid-nineties have been downstate. In 2000, 82 percent of the State's job growth occurred downstate and only 18 percent occurred in Upstate New York (see Figure 12). However, there are many communities that have not shared in this growth.

In addition to slowing the national economy, the September 11th attack appears to have had a stronger effect on New York City than the rest of the State (see Figure 13). Both New York City and the rest of the State have had rising unemployment. However, unemployment claims in New York City grew more rapidly than the rest of the State immediately after September 11th. These differences suggest that part of the rising unemployment may be due to direct disruption to the New York City economy.

Figure 13

The majority of wages in the State (56.4 percent) are earned in New York City. This is primarily due to wages in the Finance, Insurance and Real Estate (FIRE) and Service sectors (see Figure 14). Sectors in which New York City wages are less than wages in the rest of the State include the Manufacturing, Government, and Trade sectors.

The service sector will bear a large part of the loss of activity and jobs from the economic effects of the attack of September 11th. The loss of output due to the disruption caused by the attack in the service sector is a permanent loss, and it will be difficult to recover these losses by intensifying work effort. Within the FIRE and services sectors, New York City is particularly dominant in the State's Securities and Business Services industries (see Table 3). The Securities industry in particular has been hit hard by recent events, including the September 11th attack.

Figure 14

Table 3

Almost one million residents were added to the State's population between 1990 and 2000. However, like employment and wages, the growth in State population was uneven. From 1990 to 2000, the distribution of New York's population shifted further to the downstate area, with New York City having the majority of the population growth (see Figure 15). By 2000, approximately 13 million New Yorkers were concentrated in the downstate area, accounting for over 71 percent of the State's population. New York City added 686,000 residents, a 9.4 percent increase, between 1990 and 2000. Long Island and the Mid-Hudson region also showed strong growth while upstate New York's population has not significantly changed since 1970. Since 1990, upstate New York's population has also been flat, growing by 2,370 people, or about 0.04 percent. However, upstate New York is still large enough today if considered its own State to rank 15th in the country--between Indiana and Washington.

Figure 15

New York uses a cash basis Financial Plan to report the amount of money that is collected and spent during the State fiscal year. Each year the Division of the Budget develops a plan that shows proposed receipts and disbursements for the coming fiscal year. The plan is then submitted as part of the Executive Budget. It is revised subsequent to enactment of the budget to show the effect of the changes made by the Legislature to the Executive's original budget proposal. The plan is then updated quarterly to revise estimates and reflect actual experience.

The Financial Plan divides receipts and disbursements into different fund categories. The General Fund is the fund into which most State taxes are deposited and from which state operations and the state share of local grants are disbursed. The General Fund provides for funding to programs that are not supported by dedicated fees and revenues.

Programs that are supported by dedicated fees and revenue are funded from Special Revenue Funds. These funds are used to insure that monies are used solely for the purpose for which they are raised, or to insure that individual programs are self-supporting. Examples of such dedicated funding streams include the Environmental Protection Fund and the Dedicated Highway and Bridge Trust Fund. When these funds and non-federal capital and debt service funds are combined with the General Fund, the total is known as State Funds.

The Special Revenue Fund has become the largest fund for receipts and disbursements, surpassing the General Fund. This is a result of increased dedication of tax receipts and an approximately $3 billion increase in Federal Funds.

The State also receives significant budget support from the Federal government, which are reported as Federal Funds. State Funds plus Federal Funds combine to produce an All Funds figure. The All Funds amount is the figure that is usually reported as the State Budget total.

Proposed General Fund Reserves and Uses of the Surplus

In the Midyear Report released in October of 2001, the Executive projected that the State would end SFY 2001-02 with a $1.215 billion surplus in the General Fund, made up entirely of statutory reserves. The Executive has revised this estimate upward in the proposed budget by $862 million, for a projected General Fund closing balance of $2.077 billion. The Executive creates a New World Trade Center Reserve of $1.1 billion, formerly known as the Fiscal Responsibility Reserve, and proposed that it be used toward balancing the projected $5.7 billion budget gap in SFY 2002-03.

The Executive estimates the SFY 2002-03 General Fund closing balance to be $710 million in the Tax Stabilization Reserve Fund. This reflects an $83 million increase in this reserve from SFY 2001-02. The Tax Stabilization Reserve Fund is a Constitutionally restricted fund that can only be used in the event of a revenue shortfall or deficit situation during a fiscal year. The Executive also proposes to increase the maximum allowable size of the Tax Stabilization Reserve Fund from two percent to five percent of total disbursements from the General Fund.

The State Funds closing balance more accurately reflects funds available for future needs. The Executive's projected closing balance for State Funds for SFY 2002-03 is $1.422 billion.

Budget Gaps

The Executive's Financial Plan reflects the projection of a two-year General Fund gap totaling $6.8 billion. This total is comprised of a $1.1 billion gap in SFY 2001-02 and a $5.7 billion gap in SFY 2002-03. The budget gap in SFY 2001-02 was unanticipated, while the gap now anticipated in SFY 2002-03 is substantially larger than the $2.5 billion gap that was originally estimated as part of the Executive's SFY 2001-02 Budget. These changes in the budget gap estimates are largely attributable to the direct loss of revenue resulting from the September 11th attack on the World Trade Center, the projected decline in the rate of receipts growth due to the weakening economy, and anticipated disbursement changes related directly to the September 11th attack and the economic situation.

The Executive proposes using $646 million of reserves and making $454 million in spending reductions and administrative actions to close the projected $1.1 billion General Fund budget gap in SFY 2001-02.

Under the Executive's SFY 2002-03 Budget construct, the projected $5.7 billion General Fund gap would be closed by using:

• $1.1 billion in unrestricted reserves;
• $1.05 billion in new spending reductions and funding offsets
• $885 million in federal Temporary Assistance for Needy Families (TANF) reserve funds to offset General Fund spending;
• $859 million in revenue and bonding actions;
• $785 million in health-related General Fund and Health Care Reform Act (HCRA) actions (enacted on January 16, 2002);
• $581 million in anticipated savings and revenues from budget actions taken at the end of October 2001; and
• $485 million in fund sweeps.

The Executive's proposed use of $1.746 billion to help close the budget gaps in the current and upcoming fiscal years means that all unrestricted reserves would be depleted by the close of SFY 2002-03. In addition, many of the other gap closing actions proposed by the Executive are one-time, non-recurring actions.

One-Time Actions

The following list is illustrative of the one-time General Fund actions encompassed in the Executive's SFY 2002-03 Financial Plan:

Figure 18

Figure 19

Figure 20

Receipts

The Executive estimates that General Fund receipts for State Fiscal Year (SFY) 2001-02 will total $42.4 billion, an increase of $2.5 billion or 6.4 percent from SFY 2000-01. However, the bulk of the increase in overall receipts can be attributed to reserve transactions that transferred prior year General Fund surpluses into the current fiscal year. Adjusting for such transactions, the Executive estimates that receipts will total $41.1 billion, a decline of $1.7 billion or 3.9 percent from SFY 2000-01. Much of this decline is attributable to the direct economic impact of the September 11th attack on the World Trade Center. The attack resulted in devastating destruction of prime office space, significant loss of high-wage employment, and a dramatic decline in tourism.

The Executive projects General Fund receipts for SFY 2002-03 will total $38.9 billion, a decline of $3.5 billion or 8.4 percent. Most of this decline is the result of a net decrease in the Refund Reserve Account of $2.9 billion and a net additional transfer of $1.3 billion into a Special Revenue Fund to pay for the cost of the STAR program. Excluding these transactions, the Executive expects receipts to total $41.5 billion, an increase of $460 million, or 1.1 percent. The weak growth in receipts for the upcoming fiscal year is attributed to a projected decline in statewide employment of 1.2 percent and an expected 1.5 percent decline in wages in 2002, which would be the first such wage decline since 1991.

State Tax Law Changes That Affect Receipts

The Assembly has two main tax policy goals -- job creation and the reduction of tax burdens on the State's working families.

Working Families

Since 1994, the Legislature has enacted numerous tax reductions aimed at alleviating the tax burdens felt by middle class families.

Marriage Penalty

In an effort to help reduce the income tax penalty facing married couples, the Assembly proposed in 2000 to eliminate this penalty by increasing the standard deduction from $13,000 to $15,000. The tax plan enacted in 2000, largely eliminated this penalty by increasing the standard deduction to $14,600.

College Tuition Deduction/Credit

To help make college more affordable for working families, taxpayers are provided with a choice of an itemized deduction or a refundable credit. When fully implemented, the itemized deduction will be 100 percent of qualified tuition expenses up to $10,000. For qualified tuition expenses of up to $5,000, the credit will be the lesser of $200 or tuition paid. For qualified tuition expenses between $5,000 and $10,000, the credit will be equal to four percent of tuition paid. This proposal will be phased-in over a four-year period beginning in Tax Year 2001. When fully implemented, this proposal will reduce revenues by $200 million annually. In addition, the Assembly fought for historic increases to the Tuition Assistance Program (TAP) as part of the 2000-01 enacted budget. As a result, the TAP Program increased by $21.4 million in 2000-01, marking the first year of a four-year phase-in of enhancements that will increase expenditures for the TAP Program by $94 million by 2004-05.

Sales Tax on College Textbooks

Rising tuition costs have made it more difficult for families to afford a college education for their children. To help combat the rising costs of education, the Legislature enacted an exemption for college textbooks purchased by an undergraduate student for use in a required course offered by an institution of higher education from the State Sales and Use Tax. The exemption went into effect June 1, 1998, saving students approximately $23 million annually.

Sales Tax on Clothing

The Assembly has long advocated that clothing purchases should be exempt from the sales tax. In 1995, the Assembly first introduced legislation to exempt the purchase of clothing and footwear costing less than $500 from the State sales tax. Clothing purchases can consume a large portion of the disposable income of a typical middle class family. In 1997, the Assembly was successful in enacting an exemption from the State Sales and Use Tax for purchases of clothing items selling for under $110, effective on March 1, 2000. When combined with State authorized reductions in local sales taxes this will result in taxpayer savings of $880 million when fully implemented.

Personal Income Tax Reduction

In 1995, the Legislature enacted a three-year Personal Income Tax reduction plan. Effective in 1997, the top tax rate was reduced from 7.125 percent to 6.85 percent, accompanied by an increase in the standard deduction from $12,350 to $13,000 for married couples filing jointly. Over 60 percent of the benefit of the Personal Income Tax reduction goes to those earning less than $100,000 per year. This has provided taxpayers with nearly $4 billion in tax savings annually.

Child and Dependent Care Credit

The Federal child and dependent care credit is designed to aid low-income and middle-income families in obtaining dependable day care by allowing them to deduct a portion of household and child care service expenditures from their Federal income tax. In 2000, at the Assembly's initiative, the State child care credit was enhanced. The credit is equal to 110 percent of the Federal credit for taxpayers with incomes under $25,000 and is phased down to 20 percent of the Federal credit for taxpayers with incomes between $25,000 and $65,000. For qualified taxpayers with AGI over $65,000, the credit equals 20 percent of the Federal credit.

Property Tax Relief

In 1997, the Legislature enacted the School Tax Relief Program (STAR), a $2.7 billion State financed real property tax exemption intended to provide relief from the burden of local school taxes. Non-senior homeowners currently receive an exemption of at least $30,000. Senior citizens, with incomes of less than $60,000, receive an exemption of at least $50,000.

Estate and Gift Tax Conformity

In 1997, the Legislature enacted an Estate Tax reduction. This reduction began phasing-in on October 1, 1998 and was completely phased-in on February 1, 2000 which means that estates of less than $1,000,000 will not pay State tax. As of February 1, 2000, the tax exempt threshold is equal to the Federal credit, unless the Federal credit is greater than $1 million. The Gift Tax was repealed completely as of January 1, 2000.

Earned Income Tax Credit

In 1995, at the initiative of the Assembly, an Earned Income Tax Credit equal to 20 percent of the Federal credit was instituted. The credit is refundable and is aimed at providing assistance to working class families in New York. In 1999, the Legislature increased this credit from 20 to 25 percent of the Federal credit. This increase will be phased-in over two years, beginning January 1, 2000. In 2000, the credit was again enhanced from 25 to 30 percent of the Federal credit. This increase will be effective January 1, 2002. The increase from 25 to 30 percent will save taxpayers an additional $125 million annually.

Job Creation

Over the past several years, the Legislature has enacted several tax reductions to promote a better business climate in New York State. These business tax reductions began in 1994 and have continued every year thereafter.

Empire Zones

In 2000, the Legislature established the Empire Zones Program, which is an enhancement of the previous Economic Development Zone Program, by making businesses expanding or locating in the zone free from taxation. Organizations that become a Qualified Empire Zone Enterprise will receive an income tax credit for Real Property Taxes, a Sales Tax exemption on the purchase of tangible personal property, a tax credit equal to the tax liability generated within the zone. The amount of these benefits will be dependent on the level of increased employment. In addition, the Legislature allocated $150 million in tax credits to insurance companies that invest in venture capital pools that invest in businesses statewide. One-third of the credits must be invested in Empire Zones.

In 1999, the Economic Development Zone (EDZ) Wage tax credits, now known as Empire Zone Wage Credits, for wages paid in EDZs and Zone Equivalent Areas (ZEAs) were doubled. The credit was increased from $1,500 to $3,000 for employers who hire targeted employees, and from $750 to $1,500 for other individuals hired.

Sales Allocation for Financial Services

Given that New York is the financial capital of the world, the financial sector is vital to New York's economy. To help make this sector more competitive, the method by which financial services companies allocate receipts was changed from the location of the service performance to the location of the customer's domicile. This change encourages financial services to expand both their payroll and their property holdings in New York State.

Investment Tax Credit Expansion for Securities

In 1998, the Investment Tax Credit was extended to the financial services and the banking industry for investments in equipment used for security trading, including computer and telecommunications technology. This is a five-year program. The credit will only be allowed if employment in this sector is maintained in New York. These industries will receive a benefit of $75 million, when fully implemented.

Utility Tax Reform

In 2000, the Gross Receipts Tax (GRT) on industrial and commercial consumers was eliminated. The Gross Receipts Tax on gas and electric purchased by residential consumers was also eliminated. The method of taxation for utility companies was changed from a gross receipts base to a net income base, and the Gas Import Tax was eliminated. This proposal will reduce revenues by $330 million annually, when fully implemented.

In addition, the Sales Tax on unbundled transmission and distribution of gas and electricity was eliminated over a five-year period.

High Tech Small Business

To promote growth in the New York's "High Tech" industries, various tax reductions were enacted. The high technology tax reduction package included: (1) the elimination of sales tax on computer hardware used in the production of computer software; (2) the deferral of taxation of capital gains if reinvested in an emerging technology company; (3) a $1,000 wage credit for each employee hired above a base level; and (4) a capital investment credit. In total, these reductions will save taxpayers approximately $20 million. In 1999, the Legislature extended the wage credit and the capital investment credit to those taxpayers who file under the Personal Income Tax. This expansion will save small businesses $8 million annually.

Corporate Franchise Tax Reduction

In 1998, three components of the Corporate Franchise Tax were reduced. They included: (1) a rate reduction under the Entire Net Income Base of the Corporate Franchise Tax of 9.0 percent to 7.5 percent, over a 3-year period; (2) a reduction under the Alternative Minimum Tax from 3.5 percent to 3.0 percent, over a two year period; and (3) a restructuring of the "fixed dollar minimum payment" of $325 payment for taxpayers with a payroll of less than $1 million if they have zero net income or even operate at a loss for the year. The minimum amount would be lowered over a two year period to $100 or $225, depending on the size of the corporation. This will provide businesses with $324 million in tax relief when fully implemented.

Small Business Rate Reduction

Small business has been an engine for job growth in recent years. To provide assistance to these businesses, the Legislature reduced the Entire Net Income rate of 7.5 percent that small corporations face under the Corporate Franchise Tax to 6.85 percent, which is the same tax rate that businesses face under the Personal Income Tax.

Bank Tax Reduction

In 1999, the entire net income tax rate was reduced from 9.0 percent to 7.5 percent over a three-year period. This first phase of this reduction began on July 1, 2000 and will be completely phased-in on July 1, 2002. This reduction will save taxpayers $100 million when fully implemented.

Insurance Tax Reductions

In 1997, two actions were taken to promote job creation and a better business climate. For life insurance companies, the tax on premiums was reduced from 0.8 to 0.7 percent. In addition, the cap on maximum liability was reduced from 2.6 percent to 2 percent of premiums. This will help New York's domestic life insurance companies remain competitive with those of other states. In addition, insurance companies are allowed a credit for 100 percent of the amount invested in certified capital companies effective for tax years beginning after 1998. The credit would be earned over 10 years, at a rate of 10 percent per year.

In 1999, the entire net income tax rate for property and casualty insurance companies was reduced from 9.0 percent to 7.5 percent over a three-year period, beginning on July 1, 2000. In addition, the cap on maximum liability will be reduced from 2.6 to 2.0 percent over the same three-year period. When fully implemented, these measures will save insurance companies $50 million.

Hotel Tax Repeal

In 1994, the Legislature eliminated the five percent Hotel Tax. The repeal of the State's Hotel Tax as of September 1, 1994 helped to reverse a downward trend in the State's and New York City's tourism and hospitality industries.

REVENUE ENHANCEMENT PROPOSALS

Quick Draw - Elimination of Restrictions $43.0 million

Eliminates the current restrictions on the operation of Quick Draw. Currently, Quick Draw cannot operate for more than 13 hours daily, eight of which may be consecutive. Additionally, Quick Draw tickets may only be sold at premises licensed for the sale of alcoholic beverages if the sale of food constitutes at least 25 percent of gross sales. Premises not licensed to sell alcoholic beverages may only sell Quick Draw tickets if they are greater than 2,500 square feet in area. This proposal would provide an estimated $43.0 million in Lottery Aid in State Fiscal Year 2002-03, and $68 million annually thereafter.

Instant Games - Increase Prize Payout $17.5 million

Authorizes a prize payout of 75 percent for up to three Instant Games in each fiscal year. Currently, the prize payout for Instant Games is capped at 65 percent. Raising the payout for some games to 75 percent would result in an expected revenue increase due to higher sales. This proposal would provide an estimated $17.5 million in State Fiscal Year 2002-03.

EFT Program - Lower Withholding Threshold $25.0 million

Lowers the aggregate annual withholding tax liability that requires participation in the Electronic Funds Transfer (EFT) program to $100,000 from $400,000. This proposal would provide a one-time spin-up of revenues of $25 million in State Fiscal Year 2002-03 resulting from the April 2003 payment being remitted in March 2003.

New Price Index for Pre-Paid Sales Tax on Cigarettes $5.8 million

Establishes a new price index to adjust the base retail price for inflation. The new index requires that the pre-paid sales tax on cigarettes be rounded to the nearest whole cent per package.

Alcohol Beverage License Fee Adjustments $8 million

Increases alcoholic beverage control license and permit fees for sellers based upon an inflation index. Grocery stores would see an increase of approximately 15 percent in control license and permit fees based upon the alcoholic beverage producer price index for 1992 (the date of the last fee rate change). All other alcoholic beverage control license and permit fees would increase by about 108 percent based upon the alcoholic beverage producer price index for 1976 (the date of the last fee rate change). These increases would be phased-in over a three-year period, beginning in 2002-03. License and permit fees vary, depending upon the type and location of the establishment or premises operated. This proposal is expected to generate $8 million in the State Fiscal Year (SFY) 2002-03, $13 million in SFY 2003-04 and $23 million in SFY 2004-05.

Lower Electronic Funds Transfer threshold to $500,000 $32.5 million

Decreases the threshold for requiring persons to register with the Department of Taxation and Finance to pay their sales and use tax liability by electronic funds transfer or certified check monthly to $500,000 of annual State and local sales and use tax liability from the current threshold at $1,000,000. Results in non-recurring revenue increase in SFY 2002-03 of $32.5 million.

REVENUE PRESERVATION PROPOSALS

Quick Draw - Permanent Extension $182.7 million

Grant the Division of Lottery permanent authorization to operate the Quick Draw game. Current authorization to operate Quick Draw expires on March 31, 2002.

Alcoholic Beverage Tax Enforcement $3 million

Extends various alcoholic beverage tax enforcement provisions. This proposal would authorize any peace officer, when acting in accordance with his/her duties, to inspect selected premises. In addition, it removes the October 31, 2002 expiration date of various enforcement tools that are currently employed by the Department of Taxation and Finance and the State Liquor Authority. The enactment of these enforcement provisions would prevent the loss of $3 million annually.

FEE INCREASES

Department of Agriculture and Markets

Food Processing Fees $1.4 million

Increase current biennial fee from $35 to $100. It would make the fee comparable to the fees charged by other states and local entities. The fee was last raised in 1990. (Statutorily)

Pet Food Registration Fees $0.49 million

Increases pet food brand registration fee from $25 to $100 annually. The fee was last raised in 1974. (Statutorily)

Weightmaster Fees $0.02 million

Increase the fee by 50 percent (from $10 to $15) to help cover the costs of testing the accuracy of calibration equipment. (Statutorily)

Weights and Measures Inspection Fees $0.03 million

Increase the weight and measures inspection fee by 15 percent on average. (Administratively)

Council on the Arts

Surcharge $22.5 million

Increase from $5 to $20 the surcharge on the recording, indexing, entering, and endorsing of documents with county clerks. The increase will provide support for a proposed new public benefit corporation, the New York Institute for Cultural Education, which will comprise the State Museum, the State Library, and the State Archives. (Statutorily)

Consumer Protection Board

Registry Fee $1.4 million

Increase the DO NOT CALL registry fee paid by telemarketers from $500 to $800 annually. The increase will offset costs of the registry. (Administratively)

Department of Environmental Conservation

Pesticide Fees $2.4million

Increase pesticide applicator and other pesticide related fees. (Statutorily)

Fees for Bulk Petroleum Storage $1.0 million

Double current registration fees on petroleum bulk storage. (Statutorily)

Surcharge on Hazardous Waste Generators $18.4 million

Impose a surcharge on generators of hazardous waste. The increase would range from $4,000 to $360,000, depending on the amount of waste generated. (Statutorily)

Hunting and Fishing Licenses $5.9 million

Increase fees for resident and non-resident hunting and fishing licenses in order to maintain programs and keep the Conservation Fund solvent. The increase for different types of licenses will depend on the structure of the fees; not all fees will be increased. (Statutorily)

Department of Health

Hospital Mortgage Servicing Fee $4.0 million

Increase the operational fee for servicing mortgage loans that are charged to Health Care Facilities' financing with the Dormitory Authority from 0.2 percent to 0.3 percent of the principal. (Administratively)

Office of Parks, Recreation and Historic Preservation

Boat Registration Fees $1.3 million

Double boat registration fees. Current triennial fees range from $9 to $30. The proposal would increase fees from $18 to $60. (Statutorily)

Surcharge on Boat Registration Fees $0.6 million

Impose a surcharge on boat registration fees. The surcharge will range from $3 to $15, depending on the size of the boat. The surcharge will support boating access and maintenance projects across the State. (Statutorily)

Snowmobile Maintenance and Development Fees $1.3 million

Increase the snowmobile maintenance and development fee from $10 to $20 for residents and $20 to $30 for non-residents. (Statutorily)

Department of State

Various Regulatory Fees $2.6 million

Increase license fees for a number of occupations regulated by the Department of State. The occupations include barbers, non-barbershop stylists, notaries public, security guards, appraisers, real estate brokers or salespersons, private investigator, watch, guard and patrol agency. (Statutorily)

Lake George Park Commission Fees $0.3 million

Increase boat and dock fees on Lake George. The current fee structure, set in 1987 to support the costs of the Commission, is now insufficient. (Statutorily)

Department of Transportation

Penalty Schedule $3.0 million

Unifies four existing fine schedules into a single statewide fine schedule. New schedule eliminates disparities in weights and consequent penalties between different regions of the State. (Statutorily)

Overweight Truck Permits $1.5 million

Increase the number of annual permits that may be issued each year for overweight trucks. The number of authorized permits would increase from 17,000 to 21,000 beginning January 1, 2003 with graduated increases up to 25,000 by January 1, 2007. In addition, establish a new overweight truck permit for vehicles with seven or more axles. (Statutorily)

Measures Pertaining to Localities

Statewide Wireless Network

Cellular Surcharge $28.1 million

Increase the monthly cellular surcharge on all wireless devices from 70 cents to $1. The revenue from the increase would be directed to localities and to wireless providers to implement enhanced 911 service as required by the FCC. (Statutorily)

REVENUE REDUCTION PROPOSALS

• Enhancing the New York State Low-Income Housing Tax Credit Program enacted in SFY 2000-01. Under this proposal, an additional allocation of $2 million will be used to enhance provisions of the current ten-year program.

• Extends current law for three years, until September 1, 2005, the tax reductions under the New York State Real Estate Transfer Tax and the New York City Real Property Tax for conveyances of real property to existing Real Estate Investment Trusts (REITs). This proposal is expected to reduce State revenue by $0.4 million in the State Fiscal Year (SFY) 2002-03 and $0.8 million per year thereafter. In addition, New York City revenue would decrease by $0.8 million in SFY 2002-03 and $1.5 million per year thereafter.

• Offering a tax incentive package to encourage the remediation and redevelopment of brownfields to productive use. First, tax incentives will be provided for the cost associated with both site remediation of brownfields and the purchase of property used on a brownfield site. Second the redevelopment of brownfields between 10 acres and 100 acres will be given a credit for real property taxes paid. This credit applies to brownfields located outside of the MCTD and partially located within an upstate city. Finally, an enhanced real property tax benefit will be provided for upstate brownfields located outside of the MCTD, consisting of more than 100 acres. These incentives will have no impact on revenues in SFY 2002-03 and is expected to reduce revenues by $70 million when fully implemented.

SCHOOL TAX RELIEF PROGRAM (STAR)

The Executive proposal includes Article VII provisions that would do the following:

• Index the income eligibility ceiling for the enhanced STAR exemption to allow for a cost of living adjustment. Beginning with the 2003-04 school year, the income threshold will be adjusted by the Consumer Price Index used by the United States Social Security Administration to annually adjust Social Security benefits; and

• Modify the administration of the School Tax Relief (STAR) Program by addressing senior exemption eligibility requirements. The amendments would:
  • Simplify the process of renewing the "enhanced" STAR exemption by changing the time period for renewal to once every three years. Currently, in order to maintain their "enhanced" STAR exemption, seniors must file a renewal application annually;

  • conform the current process allowing seniors to designate a third party to be notified when "enhanced" STAR renewal applications are due to the proposed three-year renewal cycle and shift responsibility for third party notification from school districts to the local assessors;

  • clarify which income tax year is to be used for income qualifications;

  • clarify that to receive the enhanced exemption for property co-owned by siblings, the senior owner must be a resident of the premises;

  • start the streamlining of the reapplication process for the senior enhanced exemption by allowing the State Tax Department to verify income eligibility for the enhanced STAR exemption;

  • authorized an extension of the STAR application filing date where hardship exist that prevented the applicant from filing a timely application;

  • address general eligibility, procedural and technical STAR issues;

  • provide that a husband and wife may receive a STAR exemption only on one home unless they are legally separated;

  • permit an exemption for each primary residence on a parcel containing multiple homes;

  • clarify treatment of properties that lie in more than one municipality and mixed use properties in homestead assessing units; and

  • extend from two to three years following the initial estimate, the time period for revising the estimate of the annual amount to be paid to New York City for income tax receipts foregone.

Disbursements

General Fund

The Executive proposes General Fund disbursements for State Fiscal Year (SFY) 2002-03 of $40.2 billion, a decrease of $1.234 billion or 3.0 percent from SFY 2001-02.

General Fund disbursements for health and social welfare programs are projected to decrease by $571 million, or 5.8 percent, over SFY 2001-02. Medicaid disbursements are projected to increase by $22 million or 0.4 percent, while public assistance disbursements are expected to decrease by $429 million, which is a 44.2 percent decrease. Mental hygiene funding disbursements are expected to decrease by $78 million or 3.1 percent, and education disbursements, including support for both higher education and elementary and secondary education, are projected to decrease by $598 million or 3.6 percent.

Public protection spending is projected to decrease by $50 million or 1.9 percent, while environmental funding is anticipated to increase by $5 million or 2.1 percent. General Fund support for transportation is expected to decline by $4 million or 1.6 percent.

State Funds

State Funds include the General Fund, Special Revenue Funds (other than Federal Funds), Debt Service Funds, and Capital Project Funds. The Executive proposes that in SFY 2002-03, State Funds disbursements increase by $928 million for a total of $58.634 billion. This represents an increase of 1.6 percent over SFY 2001-02.

State Funds support for health and social welfare programs is projected to increase by $622 million or 5.1 percent. Mental hygiene disbursements are anticipated to decrease by $19 million or 0.7 percent, while support for education is anticipated to decrease by $102 million or 0.5 percent. STAR Property Tax Relief program disbursements are projected to increase by $120 million or 4.8 percent.

State Funds public protection funding is anticipated to decrease by $35 million or 1.2 percent, while disbursements for environmental programs are projected to increase by $90 million or 10.5 percent. State Funds support for Transportation is anticipated to increase by $227 million or 6.5 percent.

All Funds

The All Governmental Funds calculation of disbursement figure includes All State Funds plus any Federal Funds received by the State. SFY 2002-03 disbursements on an All Governmental Funds basis are projected to be $88.596 billion, an increase of $3.998 billion or 4.7 percent over SFY 2001-02.

All Funds disbursements for health and social welfare programs are projected to increase by $2.744 billion or 8.3 percent, which is greater than the rate of State Funds spending growth noted previously. Of this amount, $2.103 billion is related to increased Medicaid disbursements, which reflects a 9.8 percent increase. All Funds support for public assistance programs is projected to increase by $51 million or 1.8 percent.

SPENDING
($ amounts in billions)

Out-Year Impact of the Executive Budget

The Executive's proposed Financial Plan projects an out-year General Fund gap of $2.8 billion in SFY 2003-04 and $3.26 billion in SFY 2004-05, and projects out-year spending to grow at a rate of 5.8 percent in SFY 2003-04 and 5.9 percent in SFY 2004-05. The Executive largely attributes the growth rate in SFY 2003-04 to increased spending in education and Medicaid and also in part do to the impact of the World Trade Center disaster as well as the national economy.

Capital Program and Financing Plan

The Capital Plan recommends $5.05 billion capital spending in SFY 2002-03, an increase of 11 percent or $501 million over SFY 2001-02. Transportation spending accounts for $2.9 billion of the proposed capital spending for SFY 2002-03. The remaining capital spending projection includes $807 million for Environment and Recreation, $417 million for Education, $211 million for Public Protection, $201 million for Mental Hygiene, $291 million for Housing and Economic Development, and $191 million for all other categories of capital projects.

The Executive's proposed Capital Program and Financing Plan is to remain the same for the State Funds pay-as-you-go share of capital spending at 27 percent in SFY 2001-02 to 27 percent in SFY 2002-03. The Public Authority debt share of capital spending is increased to 37 percent, from 35 percent in SFY 2001-02 and reliance on Federal Funds for capital spending is reduced from 32 percent to 31 percent. General Obligation debt is projected to finance six percent of the total capital spending in SFY 2002-03, a decrease from six percent in SFY 2001-02 level.

STATE FINANCIAL PLAN - CASH BASIS
ALL FUNDS
State Fiscal Years 2000-01, 2001-02, 2002-03
($ amounts in millions)

STATE FINANCIAL PLAN - CASH BASIS
STATE FUNDS
State Fiscal Years 2000-01, 2001-02, 2002-03
($ amounts in millions)

STATE FINANCIAL PLAN - CASH BASIS
GENERAL FUND
State Fiscal Years 2000-01, 2001-02, 2002-03
($ amounts in millions)

STATE FINANCIAL PLAN - GAAP BASIS
GENERAL FUND
State Fiscal Years 2001-02, 2002-03
($ amounts in millions)

DISBURSEMENTS BY PROGRAM CATEGORY
ALL FUNDS - ($ amounts in millions)

DISBURSEMENTS BY PROGRAM CATEGORY
STATE FUNDS - ($ amounts in millions)

DISBURSEMENTS BY PROGRAM CATEGORY
GENERAL FUND - ($ amounts in millions)

• Establishes World Trade Center Memorial Scholarship Program

• Authorize the Office of Fire Prevention and Control to conduct annual safety inspections on all public and independent college and university campuses outside the City of New York, and provide for certain criminal penalties.

• Restructure and increase the boat and dock registration fees for the Lake George Park Commission.

• Conform New York State statute with the Federal Community Services Block Grant specifications and extend the Department of State's authority to administer the program.

• Facilitate the Department of Law's recovery of collection fees.

• Restructure the examination and licensing application fees for various disciplines administered by the Department of State.

• Amend State Correction Law related to the Sex Offender Registry to meet Federal guidelines and preserve full Federal Edward Byrne award.

• Provide General Purposes Local Government Aid to cities, towns and villages.

• Extend the Merit Time Program that allows non-violent inmates to earn a reduction of their sentences.

• Expand designated acceptable uses of surplus State armories that are transferred to local municipalities to include governmental purposes.

• Increase penalties and eliminate statutory provisions that limit the effectiveness of the Do Not Call Telemarketer Sales Call Program.

• Extend inmate filing fees requirements.

• Permit the use of cellular surcharge fees to support homeland security activities and permit counties to increase monthly cellular surcharge fees with additional revenue directed to local governments to accommodate E911 service.

• Establish a Retirement Incentive Program.

• Authorize deposits and temporary loans for various funds; bond cap changes; variable rate debt authorizations and other general fiscal management provisions.

• Extend authorization permanently for the Department of Environmental Conservation to collect fees for harvesting surf clams and ocean quahogs.

• Increase existing pesticide fees and permanently extend pesticide product registration authorization.

• Increase food processing license fees administered by the Department of Agriculture and Markets.

• Increase boat registration fees to support local navigation law enforcement activities, and establish a new boating access surcharge to support State and local boating access projects.

• Increase pet food registration fees and increase weights and measures fees.

• Delay the implementation of pet dealer licensing and inspection requirements.

• Increase sporting license fees to support fish and wildlife programs.

• Increase snowmobile trail maintenance and development fees to ensure adequate resources for snowmobile trail maintenance and development.

• Expand the purposes for which the Environmental Protection Fund (EPF) may be used and increase the reimbursement rate for EPF landfill grants and non-agricultural non-point source grants.

• Authorize the reform and refinancing of the State's Superfund Program and provide tax benefits to clean up and redevelop brownfields.

• Discontinue the Youth Opportunity Program (YOP).

• Restructure TAP awards to provide incentives for college graduation.

• Improve the competitiveness of the SUNY teaching hospitals and clinics by providing additional procurement and employment flexibility.

• Establish the New York Institute for Cultural Education (NYICE) to assume responsibility for the State Museum, State Library and the State Archives and provide for the transfer of these programs from the State Education Department.

• Implement school aid reforms, including the creation of Flex Aid.

• Enhance the utilization of juvenile detention resources by encouraging reductions in the length of stay for youth in detention facilities.

• Establish a new supplemental rental assistance program and clarify the authority of the Commissioner of the Office of Temporary and Disability Assistance to establish welfare shelter allowance levels.

• Establish a cost of living adjustment for the STAR income eligibility ceiling, triennial renewals and simplified income verification for seniors.

• Extend and conform the State Vehicular Drug Penalty Standards to Federal requirements.

• Conform the State Vehicular Blood Alcohol Standards to Federal requirements.

• Strengthen penalties for all DWI offenders to conform to Federal requirements.

• Revise and expand the heavyweight truck permit system administered by the Department of Transportation.

• Authorize certain expenses of the Department of Motor Vehicles to be funded by the Dedicated Highway and Bridge Fund.

• Provide the annual authorization for CHIPs and Marchiselli programs.

• Authorize assessments on utilities to be used for New York State Energy Research and Development Authority research costs.

• Transfer Federal Petroleum Overcharge funds to the Power Authority for its reciprocal transfer to the General Fund.

• Authorize certain expenditures of eligible expenses from utility assessment revenue.

• Authorize funding for the Cornell Supercomputer.

• Authorize the Urban Development Corporation to forgive loans made for construction of the HSBC Arena in Buffalo.

• Authorize the Urban Development Corporation to forgive loans made for construction of the Binghamton Municipal Stadium.

• Make permanent the Urban Development Corporation's general loan powers.

• Redirect CEFAP funds to assist in funding high-tech and biotech economic development programs.

• Establish the High Tech, Biotech Economic Development Program.

• Expand the Excelsior Linked Deposit Program.

• Authorize designation of Empire Zones.

• Establish the Empire Opportunity Fund.

• Extend the Quick Draw lottery game permanently.

• Repeal certain restrictions imposed on retailers in the operation of the Quick Draw lottery game.

• Allow three "Instant Cash" games at a 75 percent prize payout per year.

• Allow Motor Vehicle Fees to be deposited in the Dedicated Highway and Bridge Trust Fund.

• Amend sales tax law to apply existing sales tax rate reductions on transportation, transmission and distribution to utilities using the single retailer model.

• Make a technical correction to the Petroleum Tank Tax Credit.

• Allow Auto Rental Tax to be deposited in the Dedicated Highway and Bridge Trust Fund.

• Authorize the use of a new price index for calculating prepaid sales tax on cigarettes.

• Extend and strengthen alcoholic beverage tax enforcement provisions.

• Adjust the alcoholic beverage control license and permit fees based on changes in the alcoholic beverage producer price index.

• Enhance the Low-Income Affordable Housing Tax Credit Program.

• Make technical corrections to the College Tuition Deduction/Tax Credit to accomplish the original intent of the legislation.

• Authorize the Tax Department to share certain information with the State Comptroller to enhance enforcement of the Abandoned Property Law.

• Make a technical correction to the customer sourcing rules for financial services companies to include over-the-counter derivatives dealers, as the original legislation intended.

• Adjust electronic funds transfer (EFT) thresholds for remitting State withholding tax to be consistent with Federal EFT thresholds.

• Lower the sales tax electronic funds transfer (EFT) threshold from $1,000,000 to $500,000.

• Make technical changes to the Qualified Empire Zone Enterprise (QEZE) Program.

• Clarify current law to change the current credit ordering scheme for corporate taxes to eliminate confusion and misallocation of credits.

• Extend for three years the lower Real Estate Transfer tax rate imposed on transfers into Real Estate Investment Trusts.

• Direct all receipts from the 39 cent per pack cigarette tax increase to the Health Care Reform Act (HCRA) and authorize the funding of certain health programs from HCRA.

• Increase the maximum allowable deposit to the Rainy Day Reserve to five-tenths of one percent of General Fund spending and the permissible balance in the reserve to 5 percent of General Fund spending.

• Delete a provision governing the use of surplus revenues for tax reduction.

• Direct the State Department of Labor to calculate and publish a monthly composite index of business cycle indicators to measure the State's current economic performance.

• Authorize the State to withdraw funds from the Rainy Day Reserve if the composite index registers five consecutive monthly declines.

PUBLIC HEARINGS ON THE EXECUTIVE BUDGET
FOR STATE FISCAL YEAR 2002-03

All Hearings will be held in the Hamilton Room - Hearing Room B in the Legislative Office Building, Albany.