General Fund disbursements for the enacted State Fiscal Year (SFY) 2003-04 Budget are estimated at $39.4 billion, a net decrease of $101 million from SFY 2002-03. Although the net year-to-year change reflects a decline in General Fund spending, the SFY 2003-04 Budget enacted by the Legislature provides for additional disbursements above the Executive's budget proposal in education, higher education, and health care and related areas.

Disbursements on an All Funds basis are projected to be approximately $92.8 billion, a net increase of $1.9 billion, or 2.1 percent, over the previous year. This increase is primarily attributable to additional federal disbursements for Medicaid, capital projects disbursements, and increased General State Charges costs.

Highlights of the enacted SFY 2003-04 Budget include the following:

• $700 million General Fund restoration of school aid plus $50 million of federal funds directed from the Federal Temporary Assistance for Needy Families (TANF) Program to complete the restoration of the Universal Pre-Kindergarten Program. This translates into a school year restoration of $1.14 billion in overall spending for Education programs, including universal pre-kindergarten, reduced class size, BOCES, special education, teacher programs, minor maintenance and repair of school buildings, and after school programs;
• $170 million in Higher Education to lower the Executive's proposed tuition increases at the State University of New York and the City University of New York to no more than $950 for resident students, deny the Executive's proposal to delay one-third of a student's Tuition Assistance Program award until graduation, and restore community college aid and funding for Opportunity Programs and other higher education programs;

• $1.048 billion, offset by $266 million in cost saving measures, for a net restoration of $782 million for Medicaid, Public Health, and the Health Care Reform Act (HCRA) to allay the nearly $1.4 billion reduction and program eliminations proposed by the Executive. An additional $10 million is provided in the enacted SFY 2003-04 Budget to restore funding for other health related programs, and over $6.4 million is added to restore funding to senior programs; and
• $30 million in Mental Hygiene to restore funding in order to keep open three adult psychiatric centers and three research institutions as separate and independent operations, all of which were slated for closure by the Executive. These restorations will assure the continued availability of essential mental health services to the local communities and continue the State's commitment to mental health and developmental disabilities research.

The enacted budget includes legislation authorizing $4.2 billion in bonds to be issued and securitized by the Tobacco Master Settlement Agreement and, if necessary, the General Fund. The enacted budget also includes a series of revenue actions totaling $2.95 billion to support restoration of critical education and health services. The financial plan also anticipates an additional $1.4 billion in fiscal relief from the Federal Government related to General Fund spending for Medicaid.

Overview

The Legislature approved several revenue enhancement measures to finance restorations to the Executive's SFY 2003-04 budget, which contained proposed cuts in education and health care, and to restore structural balance in future years. In total, the Legislature approved tax and revenue increases totaling $3.5 billion, an increase of $2.95 billion from the Executive Budget. In addition, the Legislature approved non-tax revenue increases, including fees, assessments and other actions totaling $565 million, which is $205 million below the Executive Budget submission.

Legislative Action on the Executive Budget Proposals

The Legislature accepted several of the Executive's proposals, with some minor changes, including the restructuring of the Insurance Tax, suspending the Sales Tax exemption for clothing and footwear under $110 (for one-year only), requiring withholding on non-resident partners, and decoupling from Federal expensing provisions for SUV's. The Legislature denied the Executive requests to establish a fourth Certified Capital Company program and to establish a tax credit for the rehabilitation of historic homes. The details of the changes to the Executive's proposals, as well as the Legislative revenue actions, are contained in the summaries that follow the tables below.

The Joint Legislative Budget contains a series of revenue actions totaling $3.5 billion, increasing available resources by $2.95 billion above the Executive Budget. These actions are necessary for implementing the State's 2003-04 Budget, which restored $1.9 billion in proposed cuts in education, health care, and higher education and to increase the year end fund balance to reduce projected out-year budget gaps.

Revenue Enhancements

Bank Tax Extender

Extends for two years provisions of the 1985 Bank Tax Reforms and of the 1987 and 1988 Bad Debt Decoupling legislation applicable to both the State and New York City. Also extends transitional provisions related to the Federal Gramm-Leach-Bliley Act for the State and New York City, which eliminated many of the prohibitions against the affiliation of banks, insurance companies and securities firms for a period of one year.

Restructuring of the Insurance Tax

Amends the Insurance Tax to move to a premiums only tax for non-life companies, imposed at a rate of 1.75 percent on accident and health premiums and 2.0 percent on all other non-life premiums. Life insurers will pay the greater of their current law liability or 1.5 percent of premiums. The Legislature modified the Governor's proposal by reinstating the ocean marine tax exemption.

Amendments to the Clothing and Footwear Sales Tax Exemption

Eliminates the year-round State and local Sales and Compensating Use Tax exemption on clothing and footwear for items that are under $110 during the period June 1, 2003 to May 31, 2004. Additionally, it provides an exemption from the State Sales and Compensating Use Tax for clothing and footwear under $110 during two, seven-day periods: 1) January 26, 2004 until February 1, 2004; and 2) beginning August 26, 2003 and ending on Labor Day. Localities may elect to exempt clothing and footwear from the local Sales and Compensating Use Taxes during the same two periods that applies to the State Sales Tax provided they pass a local resolution by July 16, 2003.

Temporary LLC/LLP Filing Fee Increase

Increases the filing fee required by certain Limited Liability Companies (LLCs) and Limited Liability Partnerships (LLPs) to $100 per member, with a minimum fee of $500 and a maximum fee of $25,000. Also imposes the minimum filing fee of $100 on single member LLCs. The fee increases sunset as of January 1, 2005.

Decouple from Federal Expensing of SUVs

Requires an additional modification at the State level for the amount deducted by a taxpayer at the federal level, except an eligible farmer, under Internal Revenue Code (IRC) 179 for a Sport Utility Vehicle (SUV) with a vehicle weight in excess of 6,000 pounds. A related subtraction modification is also provided for recapture amounts included attributable to the deduction at the federal level.

Non-Resident Withholding for Pass-Through Entities

Requires certain Partnerships, Limited Liability Companies (LLCs), S-Corporations and C-Corporations to withhold and pay estimated tax on income derived from New York sources on behalf of non-resident partners, members or shareholders. No estimated payment will be required for member, partner or shareholder tax liabilities of $300 or less, but a $50 penalty will be imposed for each member, partner or shareholder for which the entity does not remit the appropriate estimated tax unless it is due to reasonable cause.

Interest Rates on Tax Overpayments

Allows the Commissioner of Taxation and Finance to set the interest rate on tax overpayments at the sum of the federal short-term rate plus 3 percentage points. Current law sets the interest rates on tax overpayments at the above calculation, with a minimum rate at not less than 6 percent.

Abandoned Property Dormancy Periods

Establishes two years as the dormancy period for abandoned property arising from the demutualization of a mutual life insurance company.

Decouple from Federal Bonus Depreciation

Disallows federal bonus depreciation deductions from Entire Net Income for state tax purposes for property placed in service on or after June 1, 2003, and where such property qualifies for such deduction at the Federal level pursuant to I.R.C. Section 168(k). This disallowance does not apply in the Resurgence and Liberty Zones in Lower Manhattan.

Sales Tax On Cigarette Sales Within New York City

Includes the New York City cigarette excise tax in the sales tax base when computing the amount of State and local Sales and Compensating Use Taxes owed for purchases made in NYC.

Compensating Use Tax Provision

Requires the Tax Department to insert new lines on all relevant tax forms to report unpaid State and local Sales and Compensating Use Taxes.

Streamlined Sales Tax Project Provision

Enacts legislation agreeing to participate in the Streamlined Sales Tax Project (SSTP) discussions. The SSTP aims to reduce the tax collection burden on retailers by establishing a uniform set of rules, definitions, and procedures for sales taxes nationwide.

Payment and Collection of Taxes on Native American Nation or Tribal Lands

Directs the Commissioner of Taxation and Finance to promulgate rules and regulations to facilitate the payment and collection of sales and excise taxes for taxable goods sold to non-Native Americans, where such goods are purchased on Native American Nation or tribal lands.

Disallowance of Deductions for Passive Investment Companies

Requires that certain royalty and interest expenses resulting from transactions with related intangible holding companies be added back to Entire Net Income for state tax purposes if the holding company cannot show that the transactions are for legitimate business purposes.

Non-Resident Sales of Real Property

Requires non-residents to remit an estimated payment equal to the amount of tax liability attributable to the gain from a sale of real property in New York. No payment is required in cases where the property sold is the principal residence of the seller.

Six-day Liquor Store Licenses

Grant licensed alcohol retailers the option of selling liquor and wine products during any six days of the week, including Sunday. Such provisions expire five years after the effective date.

Sales Tax Rate Provision

Increases the State's Sales and Compensating Use Tax by one-quarter of one percent to four and one-quarter percent for the period June 1, 2003 to May 31, 2005.

Temporary Personal Income Tax Increase

Imposes a new rate of 7.5 percent in Tax Year 2003 for income of $100,000 or more for single taxpayers, $125,000 for head of household taxpayers, and $150,000 for married filing joint taxpayers. Adds an additional recapture provision for taxpayers with adjusted gross income starting at $150,000. The new rate imposed drops to 7.375 percent in Tax Year 2004 and to 7.25 percent in Tax Year 2005. Suspends the S-corporation differential paid under Article 9-A of the Tax Law for Tax Years 2003, 2004 and 2005.

Also imposes a new rate of 7.7 percent on income of $500,000 or more for all taxpayers for Tax Years 2003, 2004 and 2005 and adds a second additional recapture provision for taxpayers with adjusted gross income of $500,000 or more. The new rates are completely phased out beginning in Tax Year 2006.

Directs the Commissioner of Taxation and Finance to make the necessary adjustments in the withholding tables by July 1, 2003, and to take steps necessary to publicize to taxpayers the necessary adjustments to estimated tax payments.

Video Lottery Provisions

Extends the current sunset provisions authorizing the operation of Video Lottery Terminals (VLTs) at certain racetracks to ten years from first date of operation instead of the current sunset of December 31, 2007.

Increases the amount dedicated to education to 61 percent of net revenues. Reduces the administrative set aside to 10 percent for the Lottery Division. Provides the tracks with 29 percent to be shared with the breeders and to enhance purses. Provides that a separate sharing agreement may be made with the horsemen, but sets a statutory structure if an agreement cannot be reached.

Increases the hours of operation to 16 per day, provided that tracks cannot operate past 2:00 AM on any given day. Provides that temporary facilities may be used for no longer than an 18-month period.

Provides for an extension of the New York Racing Association (NYRA) franchise through December 31, 2013, contingent upon certification by the Lottery Division that VLTs are operational at the Aqueduct racetrack as of March 1, 2004.

Establishes a problem and compulsive gambling education prevention and treatment fund.