Governor Paterson seeks $136 billion budget, non-diet soda tax

NEW YORK (Reuters) - New York Governor David Paterson on Tuesday proposed a budget of nearly $136 billion for fiscal 2011, a 0.5 percent increase from the current year, that will partly close a $7.4 billion deficit by raising taxes on cigarettes and other items.

Paterson said his plan for the year that starts April 1 cuts about $3 billion of spending on education, healthcare and state agency budgets.

“Since I became governor, I have been warning that New York state is facing an inevitable reckoning,” Paterson said, citing a string of recent 8 percent spending increases.

“The mistakes of the past, the squandering of surpluses, the papering over of deficits, the relying on gimmicks to finance unsustainable spending increases has led us to the breaking point,” he said.

He proposed raising $1.1 billion by hiking taxes and fees, including a $465 million excise tax on the syrup that sweetens soft drinks, a $1-per-pack cigarette tax that would raise $210 million and a $216 million levy on healthcare providers.

Justifying the soda and cigarette tax hikes, Paterson said the state spends $16 billion a year on healthcare for smokers and people with obesity-tied diseases, such as diabetes.

Though New York governors for years have tried unsuccessfully to collect cigarette and fuel taxes from Native American reservation stores, Paterson ordered state officials to reverse course and finalize new rules to do so.

Allowing groceries statewide to sell wine would give New York $92 million from a new franchise fee, while cracking down on tax cheats would produce $221 million, the governor estimated.

Like most states, New York’s tax revenue has fallen during the recession. Last year, state legislators agreed to raise income taxes on wealthy individuals -- a step Paterson rejected on Tuesday -- but rejected his tax on non-diet sodas.

For the plan, which includes a new natural gas severance tax in 2013, see: here

One-time items, the use of nonrecurring revenues which credit analysts frown on, totaled $565 million in Paterson’s new plan.

Some $50 million would be raised by letting the lottery invest some of its prize fund receipts in AAA-rated municipal bonds instead of Treasuries, “to realize a one-time benefit due to difference in market rates,” the plan said.

The biggest one-time item was $261 million from the federal Temporary Assistance for Needy Families program for the general fund.

New York state and its authorities are some of the nation’s biggest issuers of municipal debt, but Paterson said he would have to cut $1.8 billion over five years from the capital plan that is paid for by issuing bonds. Otherwise, the state may breach the cap on outstanding debt by fiscal 2013.

Paterson proposed cutting $1.6 billion of aid for schools, $1.4 billion of which would be achieved with a one-time adjustment to the formula used to divide state dollars among the schools. Wealthier school districts would be hit harder.

To cut $823 million of healthcare spending, inflation-based increases for Medicaid would be abolished, managed care premiums would be lowered, and insurers would need to get approval before raising rates.

New York City would lose nearly $300 million of so-called “Aid and Incentives for Municipalities” funding. Erie County would also lose these dollars but other municipalities would take 2 percent to 5 percent cuts in this state aid.

A property tax relief plan would also be ended for New York City dwellers whose annual incomes top $250,000 and people whose homes are worth at least $1.5 million.

State and city universities, including community colleges, would lose $208 million, and tuition aid would also be cut.

Making the state government run more efficiently by using more bulk purchasing, among other measures would save $709 million, Paterson estimated. Unionized state workers would be pressed for $250 million of concessions, including a salary deferral and a delay or cut in a 4 percent salary increase.

Editing by Kenneth Barry