Public Hearing: Review Existing Tax Policy and Discuss Reform Initiatives

1 JOINT HEARING BEFORE THE NEW YORK STATE

SENATE STANDING COMMITTEE ON FINANCE 2 AND

SENATE STANDING COMMITTEE ON INVESTIGATIONS AND 3 GOVERNMENT OPERATIONS

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PUBLIC HEARING:5

REVIEW EXISTING TAX POLICY AND 6 DISCUSS REFORM INITIATIVES 7 ----------------------------------------------------- 8

Senate Hearing Room 9 250 Broadway - 19th floor

New York, New York 11501 10

October 4, 2013 11 10:00 a.m. to 2:00 p.m. 12 13 PRESIDING: 14 Senator John A. DeFrancisco

Chairman 15 NYS Senate Standing Committee on Finance 16 Senator Carl L. Marcellino

Chairman 17 NYS Senate Standing Committee on

Investigations and Government Operations 18 19 PRESENT: 20 Senator Martin Malavé Dilan 21 Senator Martin J. Golden 22 Senator Liz Krueger (RM)

NYS Senate Standing Committee on Finance 23

Senator Diane J. Savino 24

Senator David J. Valesky 25 1

SPEAKERS:PAGE QUESTIONS 2

Diana Furchgott-Roth 5 8 3 Director of Economics 21 & Senior Fellow

Manhattan Institute 4

Mario Cilento 17 27 5 President

NYS AFL-CIO 6

Michael Simas 43 50 7 Executive Vice President

Partnership for New York City 8

Jonathan Horn 67 74 9 CPA 75 80

New York State Society of 10 Certified Pubilc Accountants 11 Nancy Lancia 87 91

Assistant Vice President, 12 Government Affairs

Securities Industry & 13 Financial Markets Association 14 Michael Slattery 96 106

Senior Vice President 15 Real Estate Board of New York 16 Richard Russo 120 129

Senior Vice President & Chief of Staff 17 Brooklyn Chamber of Commerce 18 Dean Zerbe 132 144

National Managing Director 19 Alliantgroup 20 21 ---oOo--- 22 23 24 25 1 2 SENATOR DeFRANCISCO: Thank you all for 3 coming. 4 We try to make these meetings start on time, 5 and go efficiently, and we think that they've been 6 very, very effective in gathering information as to 7 what things the State of New York should start 8 thinking about with respect to change in tax policy. 9 We started in Albany, about month ago, and 10 this is the last of our five hearings here in 11 New York City. 12 And, with respect to -- to show respect for 13 the speakers, all of whom are very successful 14 individuals, who have other things to do other than 15 talk to us, we're going to get right away into this. 16 But the one thing I wanted to mention, which 17 is very significant, that this is not simply an 18 exercise we're going through to just gather more 19 information and get it put on a -- in a file and 20 thrown on a desk. 21 Fortunately, the Governor, last week, came 22 out with an indication that he's interested in doing 23 broad-based tax cuts. 24 So, it seems that if we've got two legs of 25 the three-legged state government interested in 1 doing this, there's a very good chance that some of 2 the recommendations can be actually made part of the 3 tax code. 4 So, with that said, Carl, my co-chair, 5 Carl Marcellino, who conducted the meeting yesterday 6 in Long Island, where I was, do you have any remarks 7 at this point? 8 SENATOR MARCELLINO: Nothing but to reiterate 9 what Senator DeFrancisco just said. 10 Thank everybody for being here. 11 And what we're interested in is suggestions. 12 We all know we are the highest-taxed state in 13 the nation. 14 We're number one. 15 It's not a position that we like. 16 We'd like -- much rather be someplace much 17 below number one in the nation on taxes, but we need 18 your suggestions. 19 So if you could do that, and if you could 20 limit the fact that we are number one in taxes, we 21 all know that, we agree with you; we want to stop 22 it. 23 The Governor has indicated he wants to change 24 that, that dynamic. 25 So we're looking forward to hearing those 1 suggestions as to just how we can go about doing 2 that. 3 Thank you. 4 SENATOR DeFRANCISCO: All right, the first 5 witness is Diana Furchtgott-Roth, director of 6 Economics 21 and senior fellow at the 7 Manhattan Institute. 8 Would you please step forward. 9 DIANA FURCHTGOTT-ROTH: Well, thank you very 10 much for holding this hearing, and thank you very 11 much for inviting me to testify. 12 This is such an important issue for New York. 13 And since you tell me you're interested in 14 solutions, and you don't want to hear about how 15 New Yorkers are the highest-taxed state in the 16 nation, and pay some of the most estate taxes, then 17 perhaps I should just submit my testimony for the 18 record and move directly to suggestions. 19 Basically, briefly, to summarize my 20 testimony, most academic economists, almost all of 21 them agree, that high marginal tax rates are a 22 disincentive. 23 When it comes to state taxes, it's even 24 worse, because people have the option of moving to 25 other states. 1 And I'm not sure if previous witnesses have 2 discussed the position of women in the economy, but 3 high marginal tax rates definitely are a 4 disincentive for women to work, because they are 5 taxed at the husband's marginal tax rate. 6 And here where we're trying to break the 7 glass ceiling, and we're trying to get more women 8 into the workforce, and there are books written by 9 Sheryl Sandberg called "Lean In," it is really sad 10 that women, who often go in and out of the workforce 11 because of their role as mothers and caretakers, 12 they are disadvantaged, particularly with high tax 13 rates. 14 So to move on to suggestions, I'm the author 15 of a study on the advantages that Pennsylvania 16 gained from hydrofracking in the Marcellus Shale. 17 I looked at the number of wells drilled, by 18 county, in the Marcellus Shale, and then I imputed 19 that to New York State, to those counties in 20 New York State above the Marcellus Shale. 21 And my result was, that if New York were to 22 have a hydrofracturing at an average rate of 23 Pennsylvania county wells, which is 52 wells per 24 county, New York State would be about $4 billion 25 better off, over 4 years, in revenue. 1 So you have high taxes; you need to find 2 alternative sources of revenue. 3 This is revenue that is under your feet, that 4 is waiting to be pulled out, waiting to be taxed. 5 In other words, it's potential income that 6 you could be taxing, both in terms of the revenue, 7 both in terms of selling leases to companies in 8 order to explore, both in terms of a tax-base for 9 manufacturing that might come into the state, 10 attracted by low-cost energy. 11 I also have another suggestion, which is 12 increasing the parking fees from the parking meters 13 in New York City. 14 They are substantially below the price of 15 parking garages. 16 So people who park on the street benefit 17 because these parking spaces are priced too low. 18 If you were to raise the price of these 19 parking meters to market levels, and market levels 20 approximate what is paid in garages, and that, of 21 course, varies, depending on what part of the city 22 that you are in, that could raise a lot of revenue; 23 And, it would also reduce traffic congestion, 24 which, as everybody knows, is also a substantial 25 problem in New York. 1 So with that, I would like to say that 2 lowering taxes would stop the flow of residents out 3 of New York State. 4 And I'm not sure if other witnesses have 5 talked about Tax Foundation data, and I present that 6 in my testimony, showing the number of people who 7 have left New York State, in the amount of adjusted 8 gross income lost by State. 9 Between 2000 and 2010, it was 45.6 billion in 10 net AGI, so that's AGI that left New York, and about 11 1.2 million people. 12 So, lowering tax rates would have the effect 13 of attracting people back to New York State, and, 14 thereby, increasing the revenue that you get from 15 taxes, because it would broaden your tax base again. 16 So with that, I'd like to submit the rest of 17 my testimony for the record, and I would be very 18 happy to answer your questions. 19 SENATOR DeFRANCISCO: Yes, this same topic 20 has come up over and over, and some of the 21 suggestions that were made, I would like your 22 thoughts on it, as far as trying to keep people in 23 the state of New York, is lowering the marginal tax 24 rate, is one of them. 25 But, also, the estate-tax penalty that 1 New Yorkers have over just about every other state, 2 if not probably the highest effect on getting people 3 to leave. 4 DIANA FURCHTGOTT-ROTH: Yes, and I have a 5 table, Table 6, on estate tax, by state, New York 6 compared to others. 7 As you all know, there's the 1 million 8 exemption in New York tax, at 16 percent. 9 And it's interesting that most large 10 percentage of people who leave New York, we can see 11 where they go. 12 They go to low-estate-tax or no-estate-tax 13 states, such as, in particular, Florida and Texas. 14 So that would have a very beneficial effect 15 on keeping people here, and on making New York State 16 their state of residence, for people who like to 17 spend half the year out of the state, so they have 18 the amenities of New York but do not have to pay 19 New York taxes. 20 SENATOR DeFRANCISCO: Now, if you had -- if 21 you were the divine ruler, knowing what you do about 22 the problems in the state of New York, and let's put 23 one more assumption in there to make it even easier, 24 that there was a new revenue source, in the billions 25 of dollars as fracking would be, what would the 1 priority uses of that money be? 2 What taxes should come first priority as far 3 as tax cuts or reform? 4 DIANA FURCHTGOTT-ROTH: I would lower the 5 top -- the estate tax, and also the top marginal 6 rate on income. 7 I would lower the top marginal income-tax 8 rate. That would be the first thing that I would 9 look at. 10 That, and the estate tax, I would try to 11 split the revenue evenly between those, so I could 12 lower both of those. 13 SENATOR DeFRANCISCO: Okay. 14 Anyone else have questions? 15 SENATOR MARCELLINO: Sure, just one. 16 Would it be -- so it's fair to say, just to 17 round this up, that you would favor a broad-based 18 tax cut as opposed to tax credits -- targeted tax 19 credits? 20 DIANA FURCHTGOTT-ROTH: Right, I would favor 21 a broad-based tax cut, and I believe that this would 22 have the ability to pay for itself, especially, as 23 you would see, you would stem the flow of people who 24 are leaving. 25 You would attract more people to come in, 1 especially from your neighboring states, New Jersey 2 and Connecticut. 3 What you really want to do is get ahead of 4 New Jersey and Connecticut, you see, because then 5 people from neighboring states will come here and 6 bring their tax base here. 7 Because, right now, New Jersey, New York, and 8 Connecticut have approximately the same tax rates, 9 and you could really suck a lot of their income out, 10 just the way that Governor Perry in Texas is sucking 11 business out of California. 12 You want to be the next Texas, and suck the 13 business out of Connecticut and New Jersey, and 14 those residents, too. 15 SENATOR MARCELLINO: Thank you. 16 SENATOR DeFRANCISCO: So Governor Christie 17 would have to get leaner then, if we did that? 18 DIANA FURCHTGOTT-ROTH: Right, exactly, he 19 would have to get leaner, and he would have to 20 compete with you. 21 Exactly. 22 You want to be the person that he has to 23 compete with. 24 SENATOR DeFRANCISCO: Senator Valesky. 25 SENATOR VALESKY: Thank you. 1 Thank you for your testimony. 2 Just a quick follow-up on Table 6 here: 3 estate tax, by state. 4 We've heard that the issue -- the issue of 5 the estate tax has been brought up at all of the 6 hearings that we've done, as I'm sure you would 7 imagine. 8 And I know that many states, I believe 9 anyway, are moving away from estate taxes entirely. 10 So, in Table 6, are these the only states 11 that retain an estate tax, or did you choose these 12 states from others to compare with New York? 13 DIANA FURCHTGOTT-ROTH: No. 14 No, these are the only states that have 15 estate taxes. 16 SENATOR VALESKY: That even have an 17 estate tax? 18 DIANA FURCHTGOTT-ROTH: Yes, exactly. 19 SENATOR VALESKY: Okay, okay. 20 DIANA FURCHTGOTT-ROTH: There are a few 21 states that have estate taxes. 22 And, by the way, New Jersey is worse than 23 New York, because New Jersey is one of the two 24 states that has both an estate tax and an 25 inheritance tax, along with Maryland. 1 So not only are you -- is the estate tax, 2 but, also, then the heir is then taxed on top of 3 that. 4 So you're not quite as bad as New Jersey in 5 that regard. 6 SENATOR VALESKY: Okay. 7 Thank you. 8 SENATOR DeFRANCISCO: All right, we've been 9 joined by Senator Golden and Senator Dilan; 10 And, we have been joined by Senator Valesky; 11 The Senator -- the ranking member of the 12 Finance Committee Senator, Senator Krueger. 13 Does anyone else have any questions? 14 SENATOR KRUEGER: I have one. 15 SENATOR DeFRANCISCO: Senator Krueger. 16 SENATOR KRUEGER: Based on your proposal that 17 we just want to keep lowering our rates to be lower 18 than our neighboring states, haven't sort of the 19 range wars between states on marginal tax rates been 20 tried over the years and not really proved to be 21 significantly successful in generated new economic 22 activity? 23 What we do then is, we steal a few companies 24 from one state border to another state border, and 25 then somebody else steals one back. 1 That doesn't seem, in the research, to have 2 really grown economic activity. 3 Why would your proposal be any different than 4 that? 5 DIANA FURCHTGOTT-ROTH: So what you find, and 6 this is documented in a study called "Rich States, 7 Poor States," you find that states with lower taxes 8 are attracting people from high-taxed states. 9 You find a movement of people from low-tax to 10 high-tax states, and that increases the revenue 11 base. 12 It might not increase overall economic 13 activity in the United States, but it would enable 14 New York to be better off. 15 And you want to be the best off of -- well, 16 first of all, any state, you want to be the state 17 everybody wants to come to. 18 And that's why, particularly, I suggested 19 hydrofracturing as a way of lowering energy costs, 20 because that would enable companies to locate here, 21 create jobs, and make New York State the 22 manufacturing center that it used to be. 23 There's definitely potential for added 24 economic activity in New York with the low -- 25 potential low energy prices, because companies are 1 coming from all over the world to the United States, 2 energy-intensive companies. 3 And New York has great potential to tap that 4 market, so that would add to economic activity in 5 the United States, as well as New York State. 6 New York State is very, very fortunate to 7 have the resources that it has, in terms of 8 Marcellus Shale. 9 SENATOR KRUEGER: A follow-up question, 10 Senator? 11 SENATOR DeFRANCISCO: Yeah, sure. 12 SENATOR KRUEGER: Thank you. 13 So you're hypothesizing that if 14 New York State allowed Marcellus Shale 15 hydrofracturing, that, somehow, we would actually be 16 significantly lowering the cost of natural gas 17 available in the state of New York? 18 DIANA FURCHTGOTT-ROTH: You would -- 19 SENATOR KRUEGER: That would then be cheaper 20 energy for companies? 21 I mean, because there seems to be a glut of 22 natural gas on the market right now. 23 So, are you proposing we could set up a 24 system where we significantly reduce the cost of 25 natural gas just by drilling here? 1 DIANA FURCHTGOTT-ROTH: Well, it would give 2 access to companies to have a particular natural gas 3 source, just the way that Royal Dutch Shell is 4 locating in Pennsylvania, and, some French companies 5 are locating in Louisiana. 6 Companies have been shown to prefer to locate 7 close to the source of the gas -- 8 SENATOR KRUEGER: So I don't understand -- 9 DIANA FURCHTGOTT-ROTH: -- for their 10 transportation. 11 SENATOR KRUEGER: -- is natural gas cheaper 12 in Pennsylvania than across the New York State 13 border? 14 Are they selling it at a cheaper rate in 15 Pennsylvania than New York? 16 DIANA FURCHTGOTT-ROTH: Natural gas is about 17 the same, but, being close to the point of 18 distribution has advantages for very large 19 energy-intensive companies. 20 They prefer to be close to the source of the 21 distribution. 22 SENATOR KRUEGER: Thank you. 23 SENATOR DeFRANCISCO: Anyone else? 24 Thank you very much for taking the time. 25 We appreciate your testimony. 1 DIANA FURCHTGOTT-ROTH: Okay, well, thank 2 you. 3 SENATOR DeFRANCISCO: The next speaker, from 4 the AFL-CIO of New York State, Mario Cilento, 5 president. 6 Mr. President. 7 MARIO CILENTO: Thank you. 8 Thank you, Senators. 9 Thank you -- first of all, thank you very 10 much for allowing me to present some testimony today 11 on behalf of the working men and women of this 12 state. 13 And thank you for all of the good work you do 14 on behalf of the citizens of this state. 15 I want to start with, you know, we know there 16 are two commissions that have been discussed over 17 the last few weeks and months, and we're pleased 18 with that. 19 The more discussion we can have before we 20 make any changes to our tax system or our tax policy 21 is really very important. 22 And the discussion we have today, and that 23 you've been having over the last few weeks, is 24 vital, because, before we make any drastic changes 25 to our tax structure, we have to understand, 1 I think, the implications, or the possible 2 implications, of them. 3 Now, I think a lot of the -- a lot of 4 attention recently is on -- certainly in our state, 5 and across the country, is on income inequality. 6 And, you know, we have the highest gap between the 7 haves and have-nots in the history of this country, 8 right here in our state. 9 And I think that's why it's so important 10 today that we speak -- when we speak of tax policy 11 or economic development, that we start the 12 conversation from the point of view of working men 13 and women, because, after all, they are the ones who 14 pay the taxes, they are the ones who provide the 15 services we rely on to live, and they are the ones 16 who will suffer if any tax policies result in job 17 loss. 18 So I think the first question we have to ask 19 today is, you know, we already have several 20 billion dollars in corporate tax breaks currently 21 taking place. 22 And I think the Senator just pointed this 23 out, if those tax breaks were really the answer 24 after all of these years, we wouldn't be here today. 25 We wouldn't have the problems that we have. 1 We wouldn't have a $1.7 billion deficit that 2 we're looking at going into 2014-15. 3 Now, I want to say, targeted tax breaks can 4 work. Strategic tax breaks will work. 5 I think the film- and motion-picture-industry 6 tax break has been infinitely successful. There's 7 no one who would argue with that. 8 We're pleased. 9 We have thousands upon thousands of 10 entertainment-industry unions and members, and then 11 the residual businesses. 12 So that's been successful, but it's really 13 exception to the rules. 14 So I think the focus today for us, and for 15 every day you talk about tax policy, is simply this: 16 We have to understand that there is a link 17 between any tax reform, and then the ability of the 18 State to provide capital needs and vital public 19 services that we all use. 20 We just have to talk about that link, because 21 we've already endured cuts to education, to local 22 governments, to state operations. We're closing 23 hospitals. We have problems, of course, with SUNY 24 downstate, and mental-health facilities. 25 We know we have a crumbling infrastructure. 1 Look at the Tappan Zee Bridge. 2 And then we want to talk about the 3 possibility, "the possibility," of more money being 4 taken out of the economy. 5 So I think what we have do is consider the 6 current and future needs of the state when we have 7 these discussions, because, report after report 8 is -- have been explicit: 9 Roads, highways, bridges, all need major 10 repairs and improvements, and we need massive 11 investment, we know, to ensure a safe and reliable 12 transportation; 13 We know extreme weather the last few years 14 have caused our dams, our sewers, our drainage 15 systems, to need investment; 16 Schools are testing even more and have higher 17 standards than ever before; yet, we've lost 18 35,000 teachers over the last few years; 19 Public colleges need repairs; 20 Public hospitals, nursing homes, 21 mental-health hospitals, are all being closed; 22 We're closing prisons and juvenile justice 23 facilities which impact public safety. 24 And the list goes on and on, and that's all 25 well-documented. 1 So those cuts, coupled with other reductions 2 that working men and women have had to face the last 3 few years, whether we've reduced pension benefits, 4 increased health-care costs, made changes to 5 collective-bargaining rights, for some, quite 6 honestly, it's not enough. 7 And the truth is, that those reductions still 8 haven't solved the problem; they've made them worse. 9 Again, we have a $1.7 billion deficit that 10 we're looking at in a few months from now. 11 Now, I have to say this, and I think I've 12 touch on it: 13 We've had multi-year state budget shortfalls 14 that have been exacerbated by the most recent 15 recession. 16 And, again, they haven't worked, and I think 17 we're kidding ourselves if we think that, all of a 18 sudden, we're gonna have a different outcome with 19 the same policies. 20 So, we know, we can say, unequivocally, 21 unless we talk about how we're gonna generate 22 revenue to make up the losses in the economy, we're 23 gonna reduce further state revenue and reduce state 24 aid to schools, for roads, for bridges, for 25 health care, and local government. 1 And I guess the question we all have to ask 2 ourselves as a state is, Are we comfortable with 3 that? 4 Are we really comfortable? 5 Where is the revenue going to come from to 6 maintain just those services? 7 I'm not talking about adding workers at this 8 point. 9 I'm just talking about, $1.7 billion deficit, 10 coupled with, you know, very big losses in future 11 income in this state. 12 How do we pay for those services? 13 How do we pay for the services that we've 14 come to expect as a society? 15 Now, I think, we talk about tax policy, and 16 that's good, but, we have to talk about tax policy 17 and how it helps to create good, long-term, fair, 18 family-oriented, sustaining generational jobs. 19 I think we're gonna have to just, I don't 20 want to say ignore, but we're gonna have to just 21 take it with a grain of salt, when we have so-called 22 "taxpayer advocates" that say, lowering corporate 23 taxes and tenant taxes, in general, without any 24 policy to talk about revenue generation, I think we 25 just have to put those aside and say, again, 1 "it hasn't worked." 2 We're not making this up, we've been here. 3 We've all been in these positions for a while. 4 Our priority needs to be generating revenue. 5 You know, people -- we talked -- I think the 6 last speaker talked about people leaving the state 7 for taxes. 8 Everyday working men and women don't leave 9 the state because they can't pay their taxes. They 10 leave the state because we lose jobs. 11 That's the problem. 12 And, you know, the only way to have a true 13 economic recovery is to have long-term economic 14 prosperity, and the only way you do that is by 15 generating revenue. 16 And you don't generate revenue by cutting 17 taxes and having less money in the tax system. 18 You don't. 19 When you have more money in the tax -- in 20 local tax bases, you have money to pay your public 21 employees, not to necessarily even increase, but 22 maintain your public-sector workforce. 23 Those workers, in turn, pay taxes. There's 24 money now in the local economy which spurs 25 private-sector investment. 1 When you spur private-sector investment, they 2 will create private-sector jobs. 3 If you have more money in the public sector 4 and the private sector, you have much more of an 5 opportunity to create public and private-sector 6 investment in infrastructure, to create jobs in our 7 construction industries. They're all interrelated. 8 And I just ask you, that we can't repeat the 9 mistakes that we've made in the past, whether it was 10 IDAs, whether it was Empire Zones. 11 You know, IDA money is there, it's local tax 12 money. We have to spend the money wisely and 13 strategically. 14 The last report in 2011 said that 46 percent 15 of the companies that received IDA money, either, 16 didn't create a single job, lost jobs, or didn't 17 even promise jobs. 18 Now, I think somebody's got to ask us, How do 19 we give tax money out to prospective businesses that 20 don't even promise jobs? 21 That's -- and I'm not saying that we -- we're 22 necessarily opposed to giving these companies jobs, 23 we're not. 24 What we're saying is, if you're going to get 25 $5 million in tax breaks, and you say you're gonna 1 create 1,000 jobs, create the 1,000 jobs. 2 If you don't, if you create half the jobs, 3 give half the money back, not to punish that 4 employer, but to give it to the next employer on the 5 list so they can create the other 500 jobs that 6 they're supposed to get. 7 There should be a number; a number that's 8 commensurate between the tax money we give out and 9 the job numbers that we expect to create. 10 We're fine with that. 11 I think that's -- and the number would be 12 different in New York City, as it would be in 13 Buffalo, or the Hudson Valley, and elsewhere. 14 So I think that's what we have to really take 15 a look at. 16 I think we have to eliminate loopholes and 17 tax credits that hurt workers, in terms of, you 18 know, those that permit investment income to be 19 taxed at lower rates. 20 The minimum wage reimbursement credit is 21 something we have to look at. 22 I'll just end with this, I'm going on, but, 23 we have to remember, taxes, in and of themselves, 24 aren't good or bad; you know, it's what we do with 25 the tax revenue, in terms of the services, that's 1 the question. 2 We can't ask, What taxes should be cut? 3 We have to be -- because we have to be 4 prepared to sacrifice if we do cut. 5 And so I just -- I implore you today, to look 6 at this issue from the point of view of working men 7 and women, because we spent an awful lot of time 8 looking at it from the perspective of those who are 9 doing very well in our state. 10 And I think it's time we focus on those who 11 have been disadvantaged for a long time. 12 And, I'll just leave with you this: 13 We have to ask ourselves, what kind of 14 standard of living and quality of life do we expect, 15 as New Yorkers, as taxpayers, and as human beings? 16 And the more we cut, I have to say that, you 17 know, I think that we have to focus on the fact that 18 we need a standard of living and a quality of life 19 that we can all be proud of; and that's in terms of 20 being educated, having public health, and being safe 21 in our environments. 22 And I thank you for the time today, and I'll 23 be more than happy to answer any questions. 24 But, thank you very much. 25 1 SENATOR DeFRANCISCO: Any questions? 2 Senator Krueger. 3 Senator Savino has now joined us. 4 Senator. 5 SENATOR KRUEGER: Thank you. 6 Thank you very much. 7 I -- I actually find myself highlighting 8 from -- for -- taking from your statement, the 9 issue, you used the one example of the IDAs, and the 10 fact that almost 50 percent of the deals done 11 through IDAs, which means, by the way, for people 12 who are not familiar with this model, we allow tax 13 exemptions, even zeroing-out of taxes in some 14 situations, at the state and local level, in 15 exchange for a commitment to create economic 16 activity and jobs. 17 But you're highlighting that 50 percent, or 18 46 percent, I believe is what your testimony said, 19 didn't create any new jobs, or even hold jobs. 20 And I just think it's really important to 21 explain that that means that the state of New York 22 lost the tax revenue, the locality lost the tax 23 revenue, but we didn't gain anything in job 24 creation. 25 And of course it means, because always means, 1 if somebody doesn't pay their taxes, somebody else 2 is going to pick it up by paying more taxes. 3 And that is a theme that I have been 4 particularly fixated on recently, actually, ever 5 since I read a report that came out a few months 6 ago, showing that $7 billion in business tax credits 7 and exemptions exist in New York State. 8 I'm not sure that any of us could even list 9 them all, because we don't even keep track of them 10 in one centralized way, so I can't ask you the 11 question that I would like to ask you: Do you know 12 how many jobs were created with that $7 billion in 13 last -- in lost tax revenue to the state? 14 MARIO CILENTO: Right, well, that's the 15 question. 16 I mean, we don't have the transparency or any 17 oversight or any accountability. 18 That's what we're asking. 19 And if you have that, and then you want to be 20 able to give tax money to employers, then you can at 21 least hold them accountable. 22 And then, as I said, strategic tax cuts are 23 fine. 24 I mentioned the entertainment industry. 25 Fine. 1 But if you don't have the answer, I don't 2 have the answer; yet, we're talking about taking 3 more money out of the economy. 4 So, I -- you know, I think it speaks for 5 itself, what you say. 6 SENATOR KRUEGER: And, so, I just -- again, 7 it wasn't as much of a question as an appreciation 8 that the point you were making in your testimony, 9 I think is a critical point for this Committee and 10 for both of the tax commissions that the Governor 11 has now created; that you -- when you're talking 12 about tax policy, you have to be looking at equity, 13 fairness, "Is it working?" -- which requires 14 transparency and accountability. 15 And if the State of New York just started 16 with, "What are we spending that $7 billion on, and 17 what are we getting for it?" I can guarantee you, we 18 would find a huge amount of that money being badly 19 spent, because it is being spent, because, when you 20 don't collect it, it's the same thing as spending 21 it. 22 It's being badly spent now. 23 And if New York State had, I would argue, the 24 lion's share of $7 billion in tax exemptions and tax 25 credits back in our coffers, to make better 1 decisions about, we could be talking about more 2 equitable across-the-board business tax reductions, 3 and prioritizing only those credits/incentives that 4 actually succeed in generating economic activity. 5 So, it's not as much as question as an 6 editorial comment on why I think your testimony is 7 so important for -- 8 MARIO CILENTO: Thank you. 9 SENATOR KRUEGER: -- not just this Committee, 10 but the commissions that are exploring these 11 questions in more depth as we speak. 12 So, thank you very much. 13 MARIO CILENTO: Thank you, Senator. 14 SENATOR DeFRANCISCO: Senator Savino. 15 SENATOR SAVINO: I don't have a mic, so I'm 16 just going to speak loudly. 17 MARIO CILENTO: We can hear you, Diane. 18 SENATOR SAVINO: Thank you. 19 Well, first, I want to thank 20 Senator DeFrancisco for coming down and hosting this 21 hearing, and Co-Chair Senator Krueger. And I thank 22 Senator Marcellino -- [inaudible]. 23 But, anyway, I thank everybody for coming. 24 I want to just pick up on a couple of points 25 that you made, Mario, and I think it's very 1 important that you help us look at some of these 2 policies that we've adopted over the years, our 3 economic-development policies, our tax-exemption 4 policies; what works, what doesn't work; what drives 5 people out of the state. 6 And I think it's important that we look at 7 that. 8 But one of the things I think that's missing 9 from this argument, that would help us as we go 10 forward, is, one of the things that's contributing 11 to people leaving the state of New York, whether 12 that be businesses or whether that be individuals, 13 and it's complicating our situation, is wage 14 stagnation. 15 There has been, you know, stagnant wages for 16 the better part of a decade. 17 And, so, when everything else goes up, wage 18 stagnation contributes to the sense that New York is 19 becoming increasingly less affordable for everyone. 20 And so I think we need to -- you guys may be 21 able to help us, in the AFL-CIO -- look at the 22 patterns of, not just stagnant wages, but wage 23 depression, and whether or not there's a connection 24 with some of these policies that we tried to 25 implement. 1 MARIO CILENTO: Well, you know, we will do 2 that. 3 And, again, wage -- you know, wage deflation 4 is an issue, but at least that assumes someone has a 5 job. 6 We're talking about the possibility of 7 actually eliminating further jobs by further tax 8 cuts. 9 But, yes, Diane, we will certainly work 10 together with you on that. 11 SENATOR DeFRANCISCO: Senator Marcellino. 12 SENATOR MARCELLINO: Mario, thanks for 13 coming. I appreciate your testimony, I appreciate 14 your time. 15 You represent the working men and women -- 16 or, at least your organization represents the 17 working men and women of the state, and to a point, 18 and by extension, in the country. 19 So, we appreciate your concerns. 20 If our deficit projected coming, I'll accept 21 your number for now, because I don't know anything 22 to the contrary, but, I'll accept your $1.7 billion 23 deficit. 24 We were $10 billion about 3 1/2 years ago. 25 So, I think we've made some progress in that 1 direction by relieving the deficits that were here, 2 you know, a while ago. 3 We had, of course, the national -- I don't 4 know, what do you want to call it? -- a recession, 5 the country, and caused all kinds of problems, 6 economically, to everybody in the country. 7 But, I'm just interested in, when you talk 8 about, we need more jobs, and we need more revenue, 9 for the working men and women, so that they can work 10 and contribute to the economy, which they want to 11 do, how do we get them here? 12 How do we compete with a Texas, which is 13 growing, by all accounts, by leaps and bounds? 14 How do we compete with a New Jersey, which 15 has a -- you know, a cut, or, a Connecticut nearby, 16 other states that don't have an income tax, or, 17 other incentives that they're offering to them? 18 I had the governor of Florida open up an 19 office in my district, and he came up here and lured 20 a company that we had helped, from Cold Spring 21 Harbor Labs, put them in an incubator on Long Island 22 at Farmingdale University, and he lured them with 23 their $90,000-a-year jobs, and took them out of the 24 state and took them to Florida with him, because he 25 promised them the moon, and they left. 1 They couldn't stay here; we couldn't compete 2 with that. 3 How do we keep the jobs here? 4 How do we -- 5 MARIO CILENTO: Well, I think the first thing 6 is, we have to make sure that we're not -- you know, 7 we mentioned something about Rick Perry setting a 8 tone? 9 I don't think this state is well-served if 10 Rick Perry sets the tone for how we're gonna do 11 business in this state, because we don't need a race 12 to the bottom. 13 I think what we have to do is, you know, 14 we'll use IDAs an as example, what we're saying is, 15 we have some strategies in place. And, again the 16 entertainment-industry tax credit has been very 17 successful. 18 At least, there, there's some oversight, and 19 there's an accountability, and there's a track 20 record of success. 21 We can use the same model, Senator, as -- so 22 that we see the jobs that the companies that receive 23 the tax breaks from this state, are actually 24 producing what we expect of them. 25 You see, we want to invite these companies 1 into the state; but they, in turn, have a 2 responsibility to us, for that tax break, or for 3 that tax money, to create those certain number of 4 jobs. 5 We're not saying, as movement, that we don't 6 support that. 7 What we're saying is, we're throwing a lot of 8 money away without the legislation necessary to 9 account for the accountability and the clawback 10 provisions. 11 So, look, I agree with you that we have to 12 bring as many industries into this state as 13 possible, and that's why we talk about long-term 14 industries. 15 See, what we want to do is, we don't just 16 want to bring industries or employers into this 17 state that are here for the 5-year tax break, and 18 then after the tax break expires, they go away. 19 That's not a way to build a long-term 20 economic recovery and prosperity. 21 So, we're with you on that. 22 What we're saying, is that we need to figure 23 out a way to keep them here after the tax breaks 24 expire. 25 And, if they meet the goals that we set out 1 for them, well, then, we can figure out a way to 2 keep them here. 3 Maybe additional -- I don't want to go so far 4 as to say additional tax breaks, but something along 5 the line of incentives to keep them here. 6 And I think it works for them. 7 But I can't -- I can't abide by the premise 8 that we have to -- we have to go down a Rick Perry 9 or a race to the bottom, in terms of, we're gonna 10 keep jobs here. 11 Because we can always create minimum-wage 12 jobs. That is not going to help the economy in the 13 long term. 14 You know, we'll always be grateful for any 15 jobs we can create in this state, we will. 16 But, a real way to make sure we don't have 17 future deficits, and a real way that we make sure 18 people don't leave the state, is by having 19 long-term, sustainable generational jobs that are 20 here year after year after year. 21 Thank you, Senator. 22 SENATOR DeFRANCISCO: Let me follow up on 23 that. 24 I think Carl's original question was: How do 25 you get those jobs here? 1 I don't think we disagree at all with the 2 concept that we have to have long-term, sustainable 3 jobs, so let me start this at this point: 4 You had mentioned, clearly, that you can't 5 make these cuts without a sustainable new revenue 6 source. 7 MARIO CILENTO: Uh-huh. 8 SENATOR DeFRANCISCO: The first speaker 9 mentioned hydrofracturing. 10 Is that something that you and your 11 organization would believe would create jobs, and 12 would be something that we should consider? 13 MARIO CILENTO: We have -- you know, we have 14 3,000 local unions as part of state AFL-CIO, and we 15 have organizations on both sides of that issue -- of 16 that particular issue. 17 But there are certainly issues that we -- we 18 support the casino-gaming initiative, which we 19 understand will bring 17,000 construction jobs, and 20 then 7,000 permanent jobs from thereafter. 21 And that's exactly it. 22 That is exactly it: bringing in 23 industry-oriented jobs that will stay here, and 24 sustain from generation to generation. 25 So I think there's common ground here. 1 I think it's a way of, how do we take the tax 2 money that we're giving away in certain instances, 3 and how do we use it strategically? 4 I don't think there's that much of a 5 difference on that. 6 SENATOR DeFRANCISCO: All right, so your 7 organizations are divided on that issue of 8 hydrofracturing? 9 MARIO CILENTO: On that particular one, yes. 10 SENATOR DeFRANCISCO: On casino gaming, 11 that's your -- 12 MARIO CILENTO: We support, yes. 13 We support it -- 14 SENATOR DeFRANCISCO: The other particular 15 proposals that you could come up with, that would 16 create that additional revenue source? 17 MARIO CILENTO: Well, you know -- we're 18 looking at a lot of things, and we can certainly 19 talk about it after this hearing, in terms of that. 20 SENATOR DeFRANCISCO: Okay, that's fine. 21 MARIO CILENTO: We're more than willing to do 22 that. 23 SENATOR DeFRANCISCO: Okay. 24 Now, I guess the targeted tax cuts: you 25 indicated the success of the film tax credit, you 1 indicated the lack of success by the IDAs. 2 So there are targeted issues that people 3 agree and disagree about, as far as whether they're 4 effective or not. 5 The most recent targeted issue -- plan was 6 the Start-Up NY, or Tax-Free New York, whatever the 7 current name is. 8 Did your organization have a position as that 9 was developing? 10 MARIO CILENTO: Well, yeah, we had a position 11 that, you know, we were troubled by the fact that 12 there wouldn't be any taxes on those who work in 13 those facilities. 14 And, that, for us, was an issue, because, 15 you're going to have, as you know, those making, 16 I believe, up to $200,000 a year, who aren't going 17 to be paying taxes; yet, you'll have someone working 18 next to them making $50,000. 19 And I think we understand, all of us in 20 society, that you're gonna have to pay your taxes. 21 And I think that was a step that went a bit 22 too far. 23 And we're on record as saying that. 24 SENATOR DeFRANCISCO: Okay. 25 MARIO CILENTO: We don't mind -- again, we 1 don't mind paying the taxes if we're gainfully 2 employed. 3 SENATOR DeFRANCISCO: Okay, that's fine. 4 And it also, I thought -- I voted against it, 5 quite frankly, because I also thought that the poor 6 person who happens to be working down the block as 7 an administrator, or as someone who's a computer 8 person, and a new company comes in and they offer 9 you ten years of free taxes, that employer is going 10 to be disadvantaged in trying to keep their best 11 employees. 12 So -- okay. 13 MARIO CILENTO: I agree. 14 SENATOR DeFRANCISCO: Now, with that said, 15 there's good and there's bad, all these different 16 types of targeted tax credits. 17 Do you believe that, if we were going to cut 18 taxes and we had this revenue source -- I understand 19 your main premise -- but, are broad-based taxes the 20 preferrable tax cuts, the preferrable way to go? 21 MARIO CILENTO: Look, it depends on where -- 22 on how you get there, I guess, for -- but most 23 importantly, is there going to be a zero-sum game? 24 I mean, if you're gonna take -- if we're 25 going to be working under the premise that a tax cut 1 is gonna take a certain amount of money out of the 2 economy, the question we have to answer before I can 3 answer that question is, Where are we going to be in 4 terms of generating revenue? 5 How do we make the money back? 6 I mean, that's where the discussion lies. 7 If there's a plan -- I would say, that if 8 you're gonna have a plan to cut taxes, there should 9 be a plan to say, Well, we're going to make up that 10 revenue elsewhere. 11 And if not, what are the contingencies? 12 Are the contingencies going to be, lower 13 wages? lower benefits? Are they gonna be actually 14 job loss, in and of themselves? 15 And I think that's where the conversations 16 really lie. 17 And I think -- again, these are things that 18 we can discuss. 19 SENATOR DeFRANCISCO: Okay. 20 And the other question is this: 21 Do you subscribe, or do you believe in the 22 proposition, that if a company is successful, and 23 has a better bottom line, whether it's because of a 24 superior product, or a lower tax rate, or lower 25 energy cost, that that company is more apt to hire 1 people? 2 MARIO CILENTO: Sometimes. 3 I mean, I don't know if you can deal in 4 absolutes. 5 I mean, I've seen companies in this state 6 making tens of millions of dollars and fight their 7 employees for every wage and benefit. 8 I can tell you, you know, we can go on and on 9 and on. 10 Whether it's Verizon -- we had Con Edison, a 11 public utility, last year making hundreds of 12 millions of dollar, the CEO making millions of 13 dollars, and they locked out their workers. 14 So I think -- I'd hate to speak to you in 15 absolutes. 16 You know, I think on a case-by-case basis, 17 I can't tell you that a company is successful, you 18 know, in terms of their bottom line, because there's 19 a lot of different ways to look at it. 20 SENATOR DeFRANCISCO: Okay. 21 Thank you. 22 Anyone else? 23 Thank you very much. 24 MARIO CILENTO: Appreciate it very much. 25 1 SENATOR DeFRANCISCO: The next speaker, 2 Partnership of [sic] New York City, Michael Simas, 3 executive vice president. 4 MICHAEL SIMAS: Good morning, everyone. 5 My name is Mike Simas. I'm the 6 executive vice president of the Partnership for 7 New York City. 8 The Partnership represents the city's 9 business leadership, including its largest 10 private-sector employers and leading entrepreneurs. 11 We work together with government, labor, and 12 the non-profit sector to promote economic growth and 13 maintain the City's position as a global center for 14 commerce and innovation. 15 We appreciate your inviting us here to 16 testify today, and thank the Chairs for convening 17 the hearing to discuss the critical issue of tax 18 reform and job creation in New York. 19 This year, the Partnership released the 20 New York City Jobs Blueprint, which identifies 21 challenges to the city and state over the next 22 decade, and provides a road map to accelerate job 23 growth and expand opportunity for New Yorkers. 24 The blueprint outlines a set of goals that 25 includes tax reform to support business growth and 1 reduce reliance on a small set of high earners, 2 strategic and more coordinated investment in 3 high-quality jobs, and some property-tax reforms. 4 The blueprint confirms New York City's steady 5 economic growth over the last decade. 6 At a half trillion dollars, we have the 7 largest city economy in the world. 8 This is largely driven by the concentration 9 of financial-service companies and global 10 headquarter operations here, which employ hundreds 11 of thousands of New Yorkers, and are a magnet for 12 new businesses look to sell into the dense market. 13 While financial services still makes up 14 40 percent of our economic output, the economy is 15 diversifying, which is good. 16 Over the last ten years, the fastest-growing 17 industries in the city have been high-tech and 18 tourism. Unfortunately, these growth-sector 19 companies are not scaling in New York. 20 Another challenge is our heavy reliance on 21 high earners to pay the city's state bills through 22 personal income taxes. 23 The people making decisions to move companies 24 to New York and start them here face a 54 percent 25 marginal tax rate. 1 It's the highest level in 27 years for 2 high earners in the city. 3 So what do we do? 4 Tax policy has the ability to reinforce our 5 existing assets, accelerate growth and emerging 6 economic drivers, and continue to attract 7 high earners and the talent here that can help pay 8 the bills. 9 We need to focus on three things: 10 Support the financial-services firms and 11 corporate-headquarters' operations that make 12 New York a global economic powerhouse by simplifying 13 and conforming tax laws and regulations, and 14 decreasing the costs for compliance; 15 Support our new-growth industries that will 16 help diversify the city's economy by reducing the 17 cost on them to scale here in the city. 18 This cost is largely driven by rent and 19 electricity, which are double the national average. 20 27 percent of those costs are made up of state and 21 local taxes; 22 And, then, keep New York competitive in 23 attract talent by eliminating the high-earner 24 surcharge, which disproportionately impacts us here 25 in New York City. 1 New York City is home to the highest 2 concentration of Fortune 500 headquarters in the 3 country, which draw new businesses to the city and 4 employ hundreds of thousands of New Yorkers. 5 Financial jobs are critical to the tax base 6 and have a large multiplier effect than other 7 sectors. 8 In fact, financial services directly employs 9 a half million people across the state, with average 10 wages of more than $200,000, and securities-related 11 activities account for 14 percent of the state's tax 12 revenues. 13 Competitions for these firms is fierce from 14 the emerging business and financial centers in Asia, 15 as well as domestic cities, like Austin, Miami, and 16 Seattle. 17 Tokyo and Beijing both have doubled the 18 number of global headquarters that we have here in 19 New York now. 20 Tax law must continue to encourage their 21 attention in growth. It's critical that corporate 22 taxes in the state be modernized and simplified. 23 Just as important, is conformity at the city 24 and state level to further decrease the burden of 25 compliance. 1 The corporate-tax-reform proposal drafted by 2 the Department of Tax and Finance in 2011 is a great 3 place to start. 4 Another example we hear about often is the 5 need to increase the 14-day rule for withholding 6 New York State taxes. 7 Increasing that threshold to 30 days would 8 allow greater flexibility in the movement of people 9 that global businesses here in the city require. 10 It's not just the large corporations 11 shouldering the burdens of New York's high costs. 12 New York has become the most expensive place in the 13 country to build a business as well. 14 Office rent and electricity costs are double 15 the national average, as I said before. 16 Almost 30 percent of these costs are 17 attributable to taxes, adding up to the highest tax 18 burden in the nation for New York City-based 19 businesses. 20 The startup culture is certainly present here 21 in the city, but the companies are not expanding 22 here. 23 Between 2003 and 2010, the city saw no net 24 growth in the number of firms with 50 or more 25 employees. 1 We have a lot of activity in one-to-four 2 employees, the startup space, and then when they go 3 to grow here, it's not just not happening in 4 New York. 5 So we're starting to see these companies 6 here, but because companies in high-growth mode need 7 all available resources to invest in people, 8 New York is less attractive as a job-expansion 9 location for them than other alternatives, like 10 Austin. 11 The state should explore tactics, such as 12 establishing a commercial-rent tax credit for those 13 expanding to create new jobs here. 14 The state could also look at increasing 15 exports to drive job growth. 16 The New York City metro area had 17 $31.2 billion in international exports in 2010, 18 representing only about 5 percent of our GDP. 19 Doubling exports, so they get up to 20 10 percent of GDP, would add about 162,000 new jobs 21 in tradeable sectors in the next decade. 22 Other states have incented this activity 23 through tax law. 24 Further, the elimination of taxes, like the 25 18-A assessment on utility bills, should be 1 accelerated. 2 That plays into that 30 percent cost on rent 3 and electricity. 4 Because of rising expenses, it is also 5 becoming increasingly difficult to attract and 6 retain people in New York. 7 Our tax base is overly dependent on a 8 relatively small number of high earners who tend to 9 be highly mobile and are being wooed away by other 10 tax-friendly states. 11 The top 1 percent of earners in 12 New York State generates, roughly, 43 percent of all 13 personal-income tax receipts. 14 When combined with New York City's personal 15 income taxes, their effective tax rate is 16 12.7 percent, the second highest in the nation. 17 According to the Tax Foundation's recent 18 study, the state had a net loss of $45 billion in 19 personal income from 2000 to 2009, 16.2 billion more 20 than any other state. 21 Over the decade, New York lost a net of 22 13.3 billion to Florida, the most popular 23 destination for tax filers leaving New York. 24 These losses came before last year, when 25 New York's cumulative tax rate crossed the 1 50 percent mark. 2 It's uncertain, but I think it's safe to 3 believe that those numbers will continue to get 4 worse as we move forward. 5 The millionaire's tax should be rescinded or 6 guaranteed to sunset, to give some certainty to 7 these job creators. 8 New York City's home to 42 percent of the 9 state's population, but we generate 56 percent of 10 its entire economic output in nearly half of all 11 private-sector jobs. 12 The strength of the city's economy is 13 directly tied to the success of the state. 14 We look forward to working with the 15 State Legislature and the Governor's Office on 16 helping to bring about necessary tax reforms to 17 ensure New York maintains its place as a global 18 leader. 19 SENATOR DeFRANCISCO: Senator Savino. 20 SENATOR SAVINO: Thank you. 21 I just want to go to the point that you made 22 about tax filers moving to Florida. 23 Isn't it true, though, that the majority of 24 them are retirees who are leaving New York State 25 because they're, basically, house-rich and 1 cash-poor, and they have a set income, and their 2 property is worth more; and so they sell it, and 3 then they take that to Florida, where they can live 4 where housing is far more affordable? 5 MICHAEL SIMAS: I think you're seeing that's 6 the case. 7 And I think you're seeing more and more 8 working New Yorkers moving to Florida, and other 9 places as well, or thinking about -- a lot of the 10 people impacted by this are the founders and 11 co-founders of the startup companies that we really 12 want to grow here. 13 They're on that marginal line, and they're -- 14 we're hearing of them moving to Memphis or Texas or 15 Florida or other places, because their employees are 16 actually asking to be located there, because the 17 costs here are too high. 18 It's difficult to determine exactly who's 19 moving based on the tax-filing numbers. 20 The number from the Tax Foundation is in the 21 aggregate. 22 We've tried to find data on exactly who 23 moves, and it's proved pretty challenging, but we'd 24 love to work on that with you and figure out if we 25 can figure out exactly where folks are headed. 1 SENATOR SAVINO: Because, certainly, it's the 2 housing costs that are driving people south more 3 than anything. 4 Also, the quality of retirement communities, 5 we do not invest enough in retirement communities. 6 That's also one of the reasons we're losing 7 55-and-over population to New Jersey. 8 They're doing it; we're not. 9 SENATOR DeFRANCISCO: Anyone else? 10 Well, Senator, first, Krueger. 11 SENATOR KRUEGER: Thank you. 12 Among your various proposals, you talked 13 about a commercial-rent tax credit. 14 How would that work? 15 MICHAEL SIMAS: We proposed in our jobs 16 blueprint, we understand the need for revenue, 17 especially at the city level, for the 18 commercial-rent tax credit. It's a huge chunk of 19 revenue. 20 So what we'd like to look at is an 21 opportunity, if you're scaling here, creating jobs 22 that we want in New York, create some ability to 23 eliminate that burden if you're gonna grow here, 24 moving forward. 25 So, not eliminating the burden that exists 1 today, and taking that pool of capital out of the 2 state revenue, but looking ahead, if you've got 3 growth-sector firms in the areas we want to incent 4 to grow, high-growth areas, tech and otherwise, they 5 shouldn't be burdened when they get to a size of 6 scale, in New York City, with additional taxes for 7 growing jobs here. 8 Right now, they're going to Pennsylvania. 9 They're building engineering practices in Israel, 10 Austin, and other places. 11 We should do everything we can to keep those 12 people here. 13 So I think it would be -- have no revenue 14 impact in the immediate future, and then the hope 15 is, that you get some of the firms to grow and 16 create more jobs here, beyond the one-to-four 17 employees that we're seeing right now. 18 SENATOR KRUEGER: At a previous hearing, it 19 was the Albany hearing, a group called 20 Unshackle New York made a proposal that would 21 zero-out business taxes for companies, I guess, 22 north of, I guess, New York City. Long Island and 23 Westchester would still have taxes, but the rest of 24 state wouldn't. 25 What do you think the impact would be of that 1 proposal were it to become law? 2 MICHAEL SIMAS: I think New York City 3 employers and residents already pay a 4 disproportionate amount towards the state's 5 revenues. 6 And, we should concentrate on continued 7 growth here, and make sure that the playing field is 8 level. 9 I haven't seen their proposal or looked at 10 it, but I would imagine that the impact of producing 11 revenue to support it would disproportionately 12 impact the city's employers. 13 SENATOR KRUEGER: You would expect that the 14 taxes go up for the remaining part of the world that 15 was supposed to pay the tax base? 16 SENATOR GOLDEN: New York City. 17 MICHAEL SIMAS: Statewide? 18 SENATOR KRUEGER: If the state lost the 19 revenue from X percentage of the geography of the 20 state, would the rest of the businesses be expected 21 to pick up that revenue loss? 22 MICHAEL SIMAS: Again, I haven't seen the 23 proposal, but I'd imagine the state's revenue 24 requirements would remain the same and you'd have to 25 find a way to make up the revenue loss. 1 I think if you look at the impact of revenue 2 across the state, the majority of it, and the 3 high-earners tax, for example, I think 80 percent 4 comes from New York City. 5 So, we're already disproportionately paying 6 more than our fair share, when you look at the 7 state's revenue obligation, so I would imagine it 8 would increase that burden. 9 But, I haven't seen the proposal. 10 SENATOR KRUEGER: Thank you. 11 SENATOR MARCELLINO: That "14 percent" number 12 that you talked about as being the amount of money 13 coming to the state, from the financial-services 14 industry, isn't that, in fact, a drop? 15 MICHAEL SIMAS: Financial -- I don't have the 16 exact number of -- 17 SENATOR MARCELLINO: I thought it was -- 18 I thought, at one point, it was over 20 percent? 19 MICHAEL SIMAS: Oh, I'm sure it was. 20 And projections, moving forward, I think are 21 likely to continue to remain flat. 22 There's a lot of restructuring going on in 23 the industry post Dodd-Frank, things we have no 24 control over here at the city or state level. 25 I think the industry's totally redefining a 1 lot of what its business is here in New York, and 2 I think the result will be less revenue for the 3 state and city, moving forward. 4 That's why it's so important to look at 5 diversifying the city's economy in some of these 6 growth sectors that we see around tourism and high 7 growth in tech. 8 Life sciences is another place we can invest 9 more money, and grow, because we're going to be -- 10 we're hugely reliant on financial services now, and 11 I think the revenue is likely to not increase, 12 moving forward. 13 SENATOR MARCELLINO: The population decline, 14 looking at the Census recently completed, indicated 15 that we lost population in the state, a significant 16 number, to the point where we actually lost, 17 I believe, two congressional seats in the House of 18 Representatives, which is not good for the state, in 19 generating it. 20 And from what I understand, in talking to 21 people in the education -- higher-education fields, 22 we've have educated people, and they move; the 23 younger people are leaving to follow the jobs in 24 other states where the income is level. 25 I mean, if housing is cheaper in other areas, 1 that's an attraction for businesses to bring their 2 jobs down there. 3 And, we're not competing well with that. 4 So, in my mind, we've got to do something 5 that holds businesses here. 6 Financial services, definitely, we want them 7 here. 8 MICHAEL SIMAS: And other corporate 9 headquarters, beyond financial services, I mean, 10 they drive the market here in the city, and create 11 the verticals that new tech firms sell into. 12 So when you're creating those new companies 13 that employ more middle-waged people, they're here 14 because the market's here. 15 They're selling to make big 16 financial-services firms more efficient, and want to 17 grow in New York because that's where the market is. 18 But we've lost 100,000 middle-waged jobs in 19 the city in the last 6 years. 20 It's a huge problem that we've got in the 21 city, that we've got to resolve, through the cost of 22 housing, fixing our town pipelines so people are 23 being educate for the available jobs that exist. 24 It's a bigger problem than tax reform, 25 unfortunately, but it's a key piece of it. 1 SENATOR MARCELLINO: "A key piece"? 2 MICHAEL SIMAS: Yes. 3 SENATOR MARCELLINO: One follows the other; 4 if we can find a way of -- find a better way, a 5 fairer way, of getting the revenue the State needs 6 to perform its functions, and to take care of the 7 people that live here the way we're supposed to. 8 And as Mario said before, and the previous 9 speaker before him, we need to maintain quality of 10 life. 11 We need a certain amount of money for that. 12 That should be drawn from the -- from our 13 resources in a fairer way, I think. 14 And, this -- these two Senate hearings -- 15 these two Committees, the Finance, and the 16 Government Ops and Investigations, my Committee and 17 John's Committee, have been traveling around the 18 state, I believe the only established body doing 19 that, hearing testimony from all parts of 20 New York State, and all levels of populations, so 21 that we can come up with recommendations that would 22 provide a fairer way to generate revenue, because we 23 all know we need it; it's just how we get it. 24 But, thank you very much for your testimony. 25 I appreciate it. 1 MICHAEL SIMAS: Thank you. 2 SENATOR DeFRANCISCO: Senator Golden. 3 SENATOR GOLDEN: Thank you, Chairman. 4 I've listened to some previous testimony, and 5 your testimony, and we've seen and heard about the 6 financial services, Dodd-Frank Bill, how that's 7 impacted our city. 8 We see companies coming in from -- or, states 9 coming in from around the country and trying to lure 10 our companies out of here. 11 The wholesale cigarette industry, trying to 12 get them to North Carolina. The 13 woodworking/manufacturing being lured to Canada and 14 to New Jersey. 15 The film tax credit was based on losing those 16 jobs, and bringing those jobs back into the city of 17 New York, and it has been tremendously successful. 18 Where we seem to be lacking, and we have to 19 find a way of motivating, and you pointed out, 20 manufacturing, to a degree, I think has to be 21 explored, and how we can increase manufacturing here 22 in the city and state of New York. 23 And the digital tax credit, to be able to 24 give these biotech firms and these tech firms that 25 are starting here, that start in the early stages. 1 And, unfortunately, when they start to get to 2 that stage where they actually create something 3 that's really, you know, good, and is going to be 4 able to produce real revenues, they're lured, again, 5 out of the state of New York. 6 We have to find a way of putting up a digital 7 tax credit, my belief, and manufacturing credits and 8 biotech credits. 9 Where do you stand on that, and how does the 10 Partnership view that? 11 MICHAEL SIMAS: Sure, I think we'd love to 12 look at proposals to better incent and diversify the 13 city's economy in all of those spaces: life 14 sciences, digital and new media, and new 15 manufacturing. 16 Our investment fund; we've got a $120 million 17 investment fund that invests in a lot of these areas 18 to diversify the city's economy. 19 What you hear most, what we hear a lot, from 20 the entrepreneurs starting these firms, is when they 21 go -- they may have 120 people in New York, and they 22 want to grow their sales-and-marketing operation by 23 60 employees, and when they look at doing it here, 24 the costs are really prohibitive. 25 So that cost-to-scale, which is why we point 1 out the commercial-rent tax credit, and the costs 2 around electricity and rent, are a huge impact. 3 That what's we hear most often, and the 4 complexity of taxes here in New York. 5 I think anything additional to incent their 6 growth here is probably a good idea, and we'd be 7 happy to explore that further. 8 SENATOR GOLDEN: Now, back up: What would do 9 you with the 18-A tax? 10 MICHAEL SIMAS: We would eliminate it as soon 11 as possible. 12 SENATOR GOLDEN: Eliminate it completely, 13 right down to -- 14 MICHAEL SIMAS: Oh, we'd roll it back to 15 where -- the surcharge, roll back the surcharge, 16 I think, which was the intent. It's now been 17 extended a few years. The phaseout is, I think, 18 over the next five years. 19 So, accelerating that phaseout I think would 20 be an important component, and important message. 21 SENATOR GOLDEN: If you could give us some 22 incentives on how we could go better with the 23 digital tax credit here, biotech tax credit, and 24 manufacturing credit, if you could submit that to 25 the Chairman and this Committee, we'd appreciate 1 that. 2 MICHAEL SIMAS: Sure. 3 One thing on manufacturing, I mentioned 4 exports in the testimony. 5 Some other states have incented export 6 activity through tax law. 7 That might be a good place to look. 8 Tradeable sectors; so, firms that are selling 9 their goods outside of the five boroughs, generate 10 the most economic return for the city. 11 If we can really generate job growth around 12 exports, by doubling the exports in the city, you 13 can really start to move the needle on jobs, and a 14 lot of those would be in the manufacturing space. 15 SENATOR GOLDEN: Thank you. 16 SENATOR DeFRANCISCO: Anyone else? 17 I just have a couple. 18 MICHAEL SIMAS: Sure. 19 SENATOR DeFRANCISCO: You know, I guess I'm 20 more simple-minded, because I don't know -- I really 21 don't know how to pick what companies are going to 22 be successful, and what companies are not going be 23 successful; and who to give credits to, and who not 24 to give credits to. Whether it's the same industry, 25 one could be successful; the other could not. 1 That's why my feeling is, and I want to get 2 your thoughts, is that, if you lower the cost of 3 doing business, whether it's lower energy, whether 4 it's lower marginal tax rate, whether it's lower 5 whatever else the companies have to pay, that -- 6 then the market will determine who's successful. 7 And if you make more money, it's not a bad 8 thing. If you make more money, you can hire more 9 people. 10 Now, as between credits and broad-based cuts, 11 because you can't do everything, does the 12 Partnership have a position as to which are 13 preferrable? 14 MICHAEL SIMAS: Some credits, if you can show 15 the value of the credits, the film tax credit is a 16 great example. It's got a multiplier effect for the 17 state and generates revenue. 18 Others, you'd have to look at them; for the 19 credit, what activity you're looking to incent. 20 But I agree with you, that for growth-sector 21 industries, they're looking for the easiest, most 22 simple way to comply with tax law, in the fastest 23 way possible. 24 These are firms that don't have HR and 25 counsels and big legal departments to help them 1 grapple with two sets of tax laws if you're in 2 New York City. Dealing with State, two sets of 3 audits. 4 I think those are the biggest challenges for 5 the growth firms, specifically. 6 I think, on the corporate side, it's 7 critically important that we modernize and reform 8 the corporate tax law, combine the bank and 9 corporate tax. 10 Finance's proposal is a good way to start 11 doing that. 12 I don't know that that will cost a lot of 13 money. 14 I think you can do that in a revenue-neutral 15 way, and it will have a great impact on corporations 16 and headquarter operations in the city, helping them 17 comply in a way that's much less costly. 18 SENATOR DeFRANCISCO: And that's the 2011 tax 19 proposal by the -- 20 MICHAEL SIMAS: Exactly. 21 That's a starting point. 22 A lot of people have put a lot of time into 23 that proposal. 24 SENATOR DeFRANCISCO: Good. 25 MICHAEL SIMAS: And I think it's something 1 that the tax commission is also looking at. 2 We've submitted comments to that commission, 3 that include our thoughts on that proposal as well, 4 which we're happy to get to the Committee. 5 SENATOR DeFRANCISCO: And one last point, in 6 response -- Senator Savino left temporarily, but in 7 response to her comment that the high cost of 8 housing is what's pushing people out of here: 9 I live in Central New York. That's 10 somewhere, as former-Mayor Koch said, is where they 11 have all the cows. And then he didn't even become 12 governor. 13 But in any event, we have very -- we have 14 very, very low housing costs. 15 "Very, very low housing costs." 16 And people around my age, around 50 -- no. 17 People around my age are establishing 18 residency in Florida for two reasons: 19 One, they've accumulated some wealth, and 20 they don't want to pay the government a substantial 21 amount of money. They'd rather give it to their 22 kids; 23 And the second one is for the income tax. 24 No matter how small it is, if they've got a 25 house in Florida, some of which are much more 1 expensive -- all, about, which are much more 2 expensive than the houses they have in Syracuse, 3 they are going six months and a day. 4 So I would like to just put on the record, 5 that -- and from the other testimony that we had, 6 it's not housing costs statewide that are causing 7 it, but, there are other issues -- other reasons. 8 I assume the Partnership is for repealing the 9 estate tax, or phasing it back? 10 MICHAEL SIMAS: We haven't looked at that 11 specifically, but I'm happy to. 12 Our focus is really on the surcharge that 13 impacts our area disproportionately. 14 And we think that is a real impact on the 15 city's competitiveness, and it's gotten much worse, 16 thanks to the federal government, over the last 17 12 months. 18 We're in a much worse competitive position 19 compared to states around us, and across the 20 country, than we were 15 months ago, and we haven't 21 done anything to impact that. 22 SENATOR DeFRANCISCO: Thank you very much. 23 I really appreciate it. 24 MICHAEL SIMAS: Thank you. 25 1 SENATOR DeFRANCISCO: The next speaker is 2 John Horn, CPA, from New York State Society of 3 CPAs. 4 JONATHAN HORN: Thank you, Senator. 5 On behalf of the more than 29,000 members of 6 the New York State Society of Certified Public 7 Accountants, I would like to express our 8 appreciation for being invited to speak and give 9 testimony at today's hearing, and also our 10 appreciation of the Committee's efforts in 11 addressing these important issues. 12 My name is Jonathan Horn. I'm a sole 13 practitioner, and a member of the State Society's 14 New York Multi-State and Taxation -- Local Taxation 15 Committee, as well as a member of the Societies for 16 Relationship with the IRS and Taxation of 17 Individuals Committee. 18 While we certainly appreciate many of the 19 big-picture ideas that have been brought up at the 20 hearings that you've held throughout the state 21 already, as CPAs, we spend a great deal of time 22 navigating New York's voluminous tax code. 23 Personally, I've spent over 20 years doing 24 so. 25 As a result, we wanted to spend our time here 1 today primarily focused on simplification of the 2 administrative and operational areas of concern as 3 it relates to the New York State Tax Code. 4 We believe the items were raised here today 5 for further discussion can act as a great starting 6 point for enacting real changes in the tax code. 7 The New York State Society of CPAs is 8 committed to continue to work with this body, and 9 with other bodies, such as the Governor's two 10 tax-reform commissions, to provide further technical 11 assistance beyond what we speak about today. 12 CPAs have firsthand knowledge of how the tax 13 code changes business outcomes. 14 In a survey of New York's CPAs conducted by 15 the State Society last year, more than 85 percent of 16 the respondents stated that the tax code was 17 hindering the growth of small business. 18 CPAs here in New York perform a variety of 19 functions for individuals and businesses, but we 20 find ourselves in the front line when changes to the 21 tax code are made. 22 In a most obvious sense, we're the ones who 23 must apply and explain these new rules to our 24 clients. 25 Additionally, when the business climate 1 itself changes as a result, our practices feel the 2 impact directly. 3 Before we get into the alphabet soup of tax 4 forms and policies we believe deserve further 5 scrutiny, we believe we should lay out some basic 6 ideals that should provide the basis of a good tax 7 code. 8 First and foremost, there is a timeliness and 9 fairness component that should act as the overall 10 theme of the state's tax code. 11 "Timeliness" component ensures that taxes are 12 being levied during a time frame that ensures the 13 highest level of compliance. 14 "Fairness" allows for similarly situated 15 taxpayers to be treated in a similar manner. 16 We have seen over the years that many good 17 tax-policy writers have had a common source to gauge 18 when a system is good. 19 They often refer to Adam Smith's 20 "Inquiry into the Nature and Causes of the Wealth of 21 Nations," published in 1776, where Smith identifies 22 four maxims for a good tax system. 23 I would like to paraphrase them, because 24 they're still valid today: 25 Everyone ought to support the government 1 through taxes in proportion to their abilities; 2 Tax payments ought to certain and not 3 arbitrary, with the time of payment clear and plain; 4 Every tax ought to be levied at the time or 5 in the manner in which it is most likely to be 6 convenient for the contributor to pay it; 7 Every tax ought to be contrived as the most 8 "take out and to keep out" of the pockets of the 9 people, as little as possible, over and above what 10 it brings into the public treasury of the state, 11 and, of course, what's necessary. 12 Over the years, many organizations and 13 agencies have used these maxims as foundation for 14 tax codes and [unintelligible] proposals. 15 The society itself, when it crafted our own 16 federal tax proposal in 2005, used these, and 17 another set of principles developed by another 18 professional organization, which lists ten items -- 19 that's ten -- yes, ten items which are the 20 principles: 21 Equity and Fairness: Similarly situated 22 taxpayers should be treated similarly; 23 Certainty: Taxes should specify when the 24 taxes should be paid, how it is to be paid, and how 25 the amount to be paid is to be determined; 1 Convenience of Payment: Should be done in a 2 timely manner likely to be convenient; 3 Economy and Collection: Cost to collect the 4 tax should be kept to a minimum for both the 5 government and the taxpayer; 6 Simplicity: Tax codes should be simple so 7 the taxpayers understand the rules and comply with 8 them correctly in a cost-efficient manner; 9 Neutrality: The effect of the law on a 10 taxpayer's decisions as to how to carry out a 11 particular transaction, or whether to engage in a 12 transaction, should be kept to a minimum; 13 Economic Growth and Efficiency: Tax systems 14 should not impede or reduce the productive capacity 15 of the economy; 16 Transparency and Visibility: Taxpayers 17 should know that a tax exists, and how and when it 18 is imposed upon them and others; 19 Minimum Tax Cap: A cap should be -- tax 20 should be structured to minimize noncompliance; 21 And, finally, Appropriate Government 22 Revenues: The tax system should enable the 23 government to determine how much revenue will likely 24 be collected, and when. 25 We're appearing here today to primarily speak 1 on the simplification of the tax code. 2 Simplification of taxes is actually a complex 3 phenomenon. 4 The paradox in this statement is the battle 5 to be fought and won when redesigning the code. 6 "Simplification" is a word that means 7 different things to different people. 8 The differences are significant, not subtle. 9 Simplification takes on totally different 10 meanings based on each constituency's perspective. 11 It can lead to lower taxes through higher 12 compliance rates. 13 Taxes collected are equal to taxes imposed 14 multiplied by the compliance rate. 15 It follows, that the higher the compliance 16 rate, the lower the tax rate required to produce the 17 same funding for the state. 18 It stands to reason that simplifying the 19 process for taxpayers to help to get increased 20 compliance. 21 New York State is currently having a 6- to 22 7-month delay in processing paper-filed returns, 23 primarily delinquent and amended state returns. 24 This hinders effective settlement of 25 collections in audit cases. In most cases, 1 taxpayers hear nothing during that period. 2 Processing times should be improved, 3 communications and delays to the taxpayers should be 4 made promptly, and the State could collect our money 5 a lot faster can. 6 We can start with some consolidation 7 proposals that would streamline tax filing and 8 collection. These would reduce processing time and 9 costs, and increase the time [unintelligible] filers 10 can make their payments. 11 To begin, we believe the State could 12 eliminate the separate filing and payment for the 13 Form IT-204-LL. 14 And I believe [unintelligible] the 15 attachment, that you have to see. 16 It's a tax form for partnerships, LLCs, and 17 LLPs. 18 It's a form that's filed in -- it's now filed 19 by the end of February. It used to be filed by the 20 end of January each year. 21 The State should look into the possibility of 22 allowing the filing and payment to be included with 23 the entity's primary tax return. 24 It could be accomplished without causing a 25 negative impact to the state's budget by having it 1 done prospectively. 2 For example, the reports which currently are 3 going to be -- will be due to be filed in 4 February of 2014 could have been filed with the 5 returns filed this past filing season, and the 6 payment made at that time. 7 Additionally, the State should eliminate -- 8 examine the possibility of eliminating the separate 9 filing and payment for the Metropolitan Commuter 10 Transportation Mobility Tax, at least for individual 11 filers. 12 It could be included simply on the IT-201 13 return, and allow for estimated payments, which 14 already are come combining city and state, and 15 Yonkers for Yonkers residents. 16 SENATOR DeFRANCISCO: How about as an 17 alternative, just to eliminate the tax? 18 JONATHAN HORN: Uh, Senator, we're not here 19 to address specific pros and cons of taxes. 20 I mean, personally, we can discuss that 21 later, but, at least simplifying the administration 22 of it would be a great help. 23 SENATOR DeFRANCISCO: Okay. 24 SENATOR SAVINO: [Unintelligible.] 25 SENATOR DeFRANCISCO: Okay. 1 Just trying to correct what went wrong. 2 JONATHAN HORN: And along the same veins, 3 there is the temporary general business corporation 4 MTA surcharge which applies to corporations. 5 Again, a separate form, separate filing, 6 CT-3M, -3 -- -4M, which is filed with the CT-3 and 7 -4; separate check required; separate payment, 8 separate estimate payments, could be easily 9 combined. 10 Now we'd like to highlight some tax-policy 11 issues we believe deserve further scrutiny in order 12 to increase the fairness, transparency, and 13 simplicity of the New York State Tax Code. 14 We believe that the use of a single 15 sales-factor apportionment should be allowed for all 16 business entities, whether incorporated or not, for 17 all tax types. 18 The method of allocation is the direction all 19 taxing authorities throughout the country are moving 20 towards, and we believe it's time for New York to do 21 full implementation. 22 As has been done with the corporate 23 changeover to single sales factor, a phase-in period 24 would be allowed to minimize the impact. 25 We believe the State should consider allowing 1 a consolidated federal filer -- 2 That's corporations that are filing a 3 consolidated federal return for the control issues. 4 -- to automatically elect combined filing, 5 for New York purposes, for the exact same group of 6 affiliated entities regardless of other factors. 7 New York has a list of factors to determine 8 whether you can file combined in New York. 9 They've been changed recently. They're not 10 in line with the federal, which creates complexity, 11 and disagreements often. 12 There are other areas where double-taxation 13 can be eliminated for dual-state residents. 14 As you may know, residents who conduct 15 business in more than one state currently face a 16 myriad of tax regulations and rules. 17 We believe improvements in this area can 18 increase compliance. 19 For example, we believe the State should 20 fully implement the Northeastern States Tax 21 Officials Association (NSTOA) agreement, which was 22 signed in 1996 by New York State, but never 23 implemented by legislative action. 24 The agreement provides a taxpayer the ability 25 to receive a credit for taxes paid on all their 1 income which is subject to multiple states' 2 taxation, such as New York and Connecticut. 3 Currently, investment income, as a primary 4 example, could be subject to tax in both states 5 without any offsetting credits in either state. 6 We feel the taxation -- creation of a 7 safe-harbor rule for domicile cases, say, for the 8 prior three years, the taxpayer averaged more than 9 200 nights in another state, they would be 10 considered to be domiciled in that state. 11 Senator, as you mentioned, many of your 12 residents, your colleagues, are moving down to 13 Florida and spending six months and a day? 14 They still could be challenged by the State 15 as to whether they established domicile. 16 Such a rule would clarify, that as long as 17 they spent 200 nights in Florida, they were clearly 18 domiciled in Florida. 19 It would streamline filing, payment, and 20 audit efforts. 21 The State spends a lot of time auditing 22 taxpayers which really don't need to be audited. 23 Additionally, the State should look into 24 establishing a safe-harbor rule to prevent 25 non-resident owners of true vacation homes from 1 being considered statutory residents. 2 The State should examine the possibility of 3 eliminating and reducing the current double-taxation 4 of S corporation income for New York City residents, 5 by allowing a credit similar to the current UBT 6 credit. 7 The form of business, whether you're filing a 8 Schedule C or an S corporation shouldn't matter. 9 The current system unfairly affects federal 10 S corporations with New York City resident 11 shareholders who operate in New York City. 12 We believe the State should eliminate the 13 mandatory first-installment rules for corporate 14 taxes, and adopt the standard four-quarter estimated 15 installment system which applies to individuals and 16 at the federal level. 17 As a result of the economic downturn, or an 18 unexpected event, such as "Superstorm Sandy" last 19 year, businesses often are required to make large 20 advanced payments even though they know that their 21 tax liability for the year is going to be 22 significantly lower. 23 It negatively impacts their cash flow, and 24 sometimes their ability to continue to operate, 25 even. 1 Finally, we believe the State can improve 2 their ability to collect delinquent liabilities by 3 making the process for requesting and approving 4 installment-payment agreements more streamlined and 5 transparent. 6 This is where a taxpayer owes the State a 7 tax, there's no question about the liability, but 8 they simply are unable to pay in one payment. 9 The IRS, using their recent Fresh Start 10 initiatives, have shown that providing a fair and 11 simple way to establish a monthly payment plan 12 improves collection of outstanding liabilities and 13 brings those taxpayers into future compliance. 14 These changes should include, creating 15 specific forms or online application procedures, as 16 well as establishing and regularly updating clear 17 standards on the allowable expenses. 18 Preferably, these standards would be 19 reflective of the differences in the cost of living 20 between the New York metro area, major upstate urban 21 areas, and the more rural sections of our state. 22 We understand the Committee's desire for 23 changing the state's tax code. 24 Simplification of the system must be brought 25 about at a fair and equitable price for all 1 New Yorkers. 2 Simplification must balance the taxpayer and 3 our government's sense of simplification against 4 transactional complexity that is appropriate to the 5 tax benefit granted and the policy goals sought. 6 In essence, we need to be brave enough to 7 start afresh, and wise enough not to change what is 8 already working. 9 Thank you. 10 SENATOR DeFRANCISCO: Thank you. 11 Are there any questions? 12 Senator Krueger. 13 SENATOR KRUEGER: Jonathan, thank you very 14 much. 15 Your testimony is very technical and 16 detailed, and I know because of time limitations, 17 I can't take the Panel's time to go through the many 18 questions I have, other than to ask you to revisit 19 your testimony, and share with the Committee, on 20 each of the recommendations: 21 Is it neutral impact to the State? 22 Is the State losing if we do this? 23 And, what the estimate would be, is the State 24 gaining money? 25 I mean, in some of your proposals you're 1 saying, let companies apply their taxes -- actually 2 pay their taxes earlier; and, some, it's let them 3 wait and delay. 4 Why did the State sign a multi-state tax 5 agreement, and then never implement? 6 Did we just never get around it to, or did 7 somebody realize that it was going to cost the state 8 of New York too much? 9 Maybe I'll leave that one as a question: Do 10 you know the answer to that? 11 JONATHAN HORN: Well, I can tell you, there 12 was legislation brought up at the time. 13 I believe it passed one Chamber. I believe 14 it passed the Senate. 15 It failed -- it was never brought for a vote 16 in the Assembly. 17 SENATOR KRUEGER: Since '96? 18 JONATHAN HORN: Well, it was done -- in '96, 19 and since then, there's been no effort to bring it 20 back. 21 SENATOR KRUEGER: Did other states who signed 22 the agreement actually implement in their states? 23 JONATHAN HORN: I believe Connecticut -- 24 I know for a fact that Connecticut and Massachusetts 25 have enacted the enabling legislation, but as part 1 of the pact, the credits only occur if both states 2 involved have enacted the enabling. 3 So, in other words, Connecticut will not give 4 the credit to a joint New York-Connecticut filer 5 until New York. 6 SENATOR KRUEGER: So you're making a lot of 7 recommendations that sound like they're logical, and 8 would simplify the process, and improve, and 9 decrease costs for businesses in getting their taxes 10 done right. 11 So, I really would appreciate the follow-up 12 on, you know, why some of these things don't seem to 13 move, or, are -- we -- you know, are they a 14 significant cost to the state? 15 Are they a revenue-neutral proposal? 16 Et cetera. 17 JONATHAN HORN: They're -- okay, we will, 18 and -- we actually have had discussions on most of 19 these items with the original reform commission of 20 the Governor about a month and a half ago. 21 And a number of them are revenue-neutral. 22 A number of them, actually, are 23 revenue-positive to the state. 24 A number of them, at initial blush, are 25 revenue -- revenue-deficient. They would reduce the 1 revenue to the state, but we believe that, in many 2 of these instances, because of the simplification, 3 it would make taxpayers more compliant. 4 Things like, the domicile cases, people go 5 out of their way to run through hoops to try to do 6 it. 7 If they knew, if there was a clear rule, 8 whatever, you would have fewer people -- you'd have 9 fewer people -- fewer expenditures being, by the 10 State, by attorneys, by CPAs, to try to beat the 11 rules. 12 You know, and that goes back to one of four 13 points: If you have simplicity, fairness, and 14 transparency, you're going to get better compliance 15 in the tax code. 16 And I don't believe there's ever been a study 17 done at the state level, similar to what's been done 18 at the federal level, in terms of what the tax cap 19 is, which the "tax cap" is defined as the difference 20 between what should be collected, based on what the 21 tax code says, and what actually does get collected. 22 But my guess is, that the state tax cap, 23 percentage-wise, is probably equivalent to the 24 federal tax cap, which would probably translate out 25 to something like a billion dollars as being lost to 1 the state by tax cap. 2 SENATOR KRUEGER: For the record, Jonathan is 3 a neighbor and friend. 4 So thank you very much for your testimony. 5 JONATHAN HORN: You're very welcome. 6 Glad to see you. 7 SENATOR DeFRANCISCO: Senator Marcellino. 8 SENATOR MARCELLINO: I just wanted to thank 9 you, John, because you're -- we've had testimony 10 from CPAs at just about every location that we've 11 been at. 12 And I personally have found it most 13 enlightening, and very positive, in the sense that 14 you come to us with a practical knowledge, working 15 with your clients, and what would help your clients. 16 Might even take money out of your pocket if 17 we simplified the tax code. 18 JONATHAN HORN: Absolutely. 19 SENATOR MARCELLINO: You're kind of 20 testifying against your own best interests, but 21 that's okay. We appreciate -- we appreciate that. 22 Aside from the simplification of the code, 23 which I agree with you, we should do that -- 24 "how?" is another story -- but we should definitely 25 do that. 1 What is a key -- what is a key problem, what 2 is a key tax, that we do, that we impose on your 3 clients, that, if eliminated, would make life a lot 4 easier? 5 JONATHAN HORN: Uhm -- 6 SENATOR MARCELLINO: You can choose more than 7 one. 8 JONATHAN HORN: All of the above? -- no. 9 To be honest, I mean, I would -- I would be 10 speaking personally now, because State Society 11 doesn't have a position on specific taxes, but, the 12 combination -- the unusual situation involving the 13 different entities in the state and the city. 14 In New York City, where we have the 15 unincorporated business tax, and S corporations, 16 which are taxed everywhere else as pass-through 17 entities, but, in New York City, they're corporate 18 entities, and, you don't get a credit, so you've got 19 a double-taxation. 20 S corporations were designed to be 21 single-taxation entities. 22 So, that's a pretty good one. 23 The MTA tax, not because of the tax itself, 24 but as we talked about, the compliance. 25 You know, dealing with it, it's just -- it's 1 a major, major issue for individuals. 2 For employers, it's not so much. 3 That's -- it's a simple change. 4 You know, Paychex and ADP made a change to 5 their computers, and it's done; but, for a sole 6 proprietor, for a partnership, it involves 7 significant amounts of time and effort and filing, 8 which often far exceed the cost of the filing. 9 The LLC filing, there, I mean, especially 10 when you've got single-member LLCs that are 11 required to file and pay a $25 fee, and I'll be 12 honest with you, I don't charge $25 to do anything. 13 So my client is paying me, maybe three, four, 14 five times what the tax is in order for me to 15 prepare the form. 16 That's just "ludicrous," if you'll excuse my 17 use of that word. 18 SENATOR MARCELLINO: Better than some words 19 that I could have thought of, but that's okay. 20 Thank you very much. 21 JONATHAN HORN: You're welcome. 22 SENATOR DeFRANCISCO: And I want to thank you 23 as well. 24 This is very comprehensive, specific 25 testimony. 1 And, in addition, we're provided with an 2 addendum, as of this morning, that I will get to all 3 of the members, that have about 30 recommendations 4 for simplification, some of which you talked about, 5 but others that were not in the original remarks. 6 But, thank you very much. 7 JONATHAN HORN: Thank you, Senator. 8 And that list is, some of them are really 9 technical and into the weeds, so we didn't want to 10 waste time going through them today. 11 SENATOR DeFRANCISCO: You mean the ones that 12 you told us were not technical aren't in the weeds? 13 Thank you. 14 SENATOR KRUEGER: Thank you. 15 SENATOR DeFRANCISCO: Next speaker, 16 Nancy Lancia, assistant vice president, government 17 affairs, Securities Industry and Financial Markets 18 Association. 19 NANCY LANCIA: Good afternoon, Senators. 20 Thank you very much for the opportunity to 21 allow SIFMA to provide testimony and comments to 22 your Committee. 23 I applaud you for having these hearings. 24 I think it's wonderful that you've traveled 25 throughout the state, listened to all variety of 1 groups for all their recommendations, and, hope we 2 can assist you in the process, going forward. 3 SIFMA members include hundreds of security 4 firms, banks, and asset managers. These companies 5 are engaged in communities across the country, and 6 in New York in particular, to raise capital for 7 businesses, promote job creation, and lead economic 8 growth. 9 Our goal is to suggest tax reform that makes 10 New York more competitive and advantageous place to 11 do business. 12 According to the SIFMA's "The State, The 13 City, The Street" [sic] report, which I'm providing 14 as an exhibit, employment in the securities industry 15 directly affects the overall number of jobs in 16 New York City and in New York State. 17 State Comptroller's Office estimates that 18 1 in 7 New York City jobs and 1 in 12 New York State 19 jobs are directly or indirectly associated with 20 Wall Street. 21 It is also true that public policy is, 22 particularly, financial regulatory reform remains a 23 significant factor, affecting the future of the 24 securities industry. 25 The threat of further taxation, as well as 1 pending federal legislation, has brought fundamental 2 uncertainty to the industry and in business 3 planning. 4 As the Volcker Rule and other regulations 5 under Dodd-Frank are being shaped, the impact of 6 these changes on both profits and employment in the 7 securities industry remains uncertain. 8 SIFMA supports reforms that address the tax 9 effort required of New York workers and businesses, 10 which continues to be one of the highest in the 11 nation, and contributes to more intense competition 12 from other international and financial hubs. 13 The tax effort is the 7.1 New York State 14 corporate tax, the 8.85 percent New York City 15 corporate tax, plus the MTA surcharge of 16 1.53 percent, for a total of 17.48 percent. 17 To alleviate the tax effort, SIFMA's 18 advocated modernization; updating the rules to 19 accommodate technological advances; market changes; 20 passage of two federal laws, Gramm-Leach-Bliley and 21 Dodd-Frank; and simplification, combining the 22 two separate sections of the tax code, Article 32 23 and Article 9-A of the general franchise tax, into 24 one set of rules. 25 Combining Article 32 and 9-A and other 1 modifications were proposed in the tax department's 2 2011 corporate tax reform plan. 3 This proposal reflects a productive dialogue 4 between businesses and the government, and provides 5 certainty, clarity, and less burdensome rules. 6 We ask that the Committee consider that draft 7 as they're going forward. 8 It provides reductions in the amount of 9 returns filed; eliminates certain tests, the 10 substantial intercorporate transaction test, for 11 example; and simplifies the net operating-income 12 loss rules, and, the expense attribution rules. 13 In addition to the aforementioned 14 efficiencies and benefits for taxpayers provided by 15 corporate tax reform, we request that you consider 16 some of the following recommendations: 17 Eliminating the stock-transfer tax; 18 Reducing the corporate-tax income rate; 19 Encourage New York City conformity with 20 New York State rules; 21 Federal conformity on federal bonus 22 depreciation; 23 Simplify the MTA surcharge; 24 Finally, we encourage the Committee to 25 consider making the investment tax credit permanent. 1 The ITC encourages business to expand office 2 facilities, hire personnel, for New York State. 3 The ITC has the effect of lowering the 4 effective tax rate paid by businesses with 5 significant operations in New York State. 6 SIFMA appreciates the incentive that -- that 7 the incentive has been renewed over the years. 8 And thank again -- thank you for the 9 opportunity to provide our views on tax reform. 10 On behalf of SIFMA, I look forward to working 11 together with you on this important endeavor. 12 SENATOR DeFRANCISCO: Are there any 13 questions? 14 Senator Krueger. 15 SENATOR KRUEGER: Thank you. 16 Similar to my statement about the earlier 17 testifier, you're coming to us with a fairly long 18 list of 13 recommendations for changes in tax 19 policy. 20 Can the organization, obviously not today, 21 off the top of your head, give us estimates of what 22 this would be a loss in tax revenue, a gain in tax 23 revenue, a neutral, proposal on each of those? 24 Because, as I think one of my colleagues said 25 earlier, anytime you make a decision in tax policy, 1 whether it's simplification or reform or reduction, 2 you really need to understand what the ramifications 3 are on the revenue streams for the state. 4 SENATOR DeFRANCISCO: And let me, before you 5 answer, I think we should be in the position to do 6 that, our finance people, because I don't know that 7 she would have access to all of these numbers as 8 being only one industry. 9 So, if you can, that's great, but I think we 10 should be doing it as well. 11 NANCY LANCIA: I think, actually, a lot of 12 our recommendations are consistent with a draft the 13 tax department put out, which I believe they're 14 going over the numbers very carefully, and 15 methodically, to make sure they're accurate, and 16 have a good idea of what -- this package is intended 17 to be revenue-neutral, that they've been working on. 18 And I think they're looking at our 19 recommendations, along with a lot of other groups, 20 to go for that. 21 But one of the recommendations is 22 revenue-neutral, which is the stock-transfer tax. 23 That is a tax that's collected and instantly 24 remitted. 25 To me, you would be eliminating a lot of 1 burden on the part of the State, so that would maybe 2 save in terms of administrative burden on that end; 3 but also to taxpayers who have to hire attorneys and 4 CPAs to administer that. 5 And I think a lot of the ideas and 6 suggestions we have are along the lines of 7 eliminating some of the burdens. 8 And also, towards modernization -- 9 modernization, we have two different tax codes for 10 one industry, so there's duplication of returns that 11 need to be completed and filed. 12 This would --the recommendations that are in 13 the corporate-tax-reform proposal would eliminate a 14 lot of that, and I think there would be efficiences 15 gained by both the State and taxpayers. 16 And I think that is a lot of why we support 17 those set of reforms. 18 SENATOR MARCELLINO: Just looking briefly, 19 and I haven't read it, but, much of what 20 Senator Krueger is asking for, I believe is here, is 21 it not? 22 NANCY LANCIA: There are some numbers, data, 23 on employment from -- we issue that report every 24 year, but that is probably going to be the numbers 25 from the spring, forward, and it looks like there 1 was improvements in employment. 2 I think there's a lot of data on how the 3 market is doing. 4 Also about some of the federal rules that we 5 are learning, and -- that are really not complete. 6 Dodd-Frank is, I think, 39 percent of those rules 7 have been completed, so there's still a lot more to 8 come, and to adjust to and plan for. 9 SENATOR DeFRANCISCO: Any questions? 10 SENATOR KRUEGER: No, thank you. 11 SENATOR DeFRANCISCO: Anyone else? 12 I -- whoa, whoa, whoa, whoa, whoa, not so 13 fast. 14 NANCY LANCIA: Oh, sorry. 15 [Laughter.] 16 SENATOR DeFRANCISCO: Not so fast. 17 NANCY LANCIA: Okay. 18 SENATOR DeFRANCISCO: I just have a question. 19 I know how important the financial industry 20 is to the revenues of the state of New York. 21 And, what do you see, as far as the risk of 22 other states coming in, luring some of the industry 23 to their states, and, thereby, affecting our 24 revenues? 25 NANCY LANCIA: That's -- that's hard to 1 determine. 2 I think there's, uh -- I think New York has a 3 lot to offer the industry. There's a lot of -- a 4 lot of the industries located here in the U.S.; 5 however, companies are definitely changing, and 6 looking for talent, and looking for places probably 7 that are less costly, to maybe put some operations. 8 It's really hard to quantify that. 9 SENATOR DeFRANCISCO: All right, well, 10 because I know a few years ago, when 11 Governor Paterson was in office, there was some type 12 of tax that was being suggested on -- additional tax 13 on brokerages. 14 SENATOR KRUEGER: That was a hedge-fund tax. 15 SENATOR DeFRANCISCO: A hedge-fund tax. 16 And then the governor backed off of that, 17 because -- I believe, because he thought maybe there 18 would be more adverse effect. 19 But I just didn't know whether there's 20 currently any substantial pressure that you've been 21 seeing of companies leaving more than they might 22 otherwise just consider it. 23 NANCY LANCIA: I don't know about that 24 per se. 25 However, I do know that the process of 1 completing and calculating the taxes are burdensome 2 for those outside New York and inside New York. 3 And I think, to the degree that the mid -- 4 Committee can make recommendations along the lines 5 of what I've suggested, and others that have 6 suggested recommendations, to consider that, and 7 really, you know, modernize the tax code and make it 8 easier for folks to comply with. 9 SENATOR DeFRANCISCO: In other words, being 10 more proactive rather than waiting for something bad 11 to happen? 12 NANCY LANCIA: I think so. 13 SENATOR DeFRANCISCO: I got you. 14 Okay, thank you very much. 15 Next speaker, Mike Slattery, 16 senior vice president, Real Estate Board of 17 New York. 18 MICHAEL SLATTERY: Good morning, and thank 19 you for the opportunity to testify. 20 We're here to speak about the real-property 21 tax system, both in the state and the city. 22 The property-tax system is a problem 23 statewide, and an acute and complicated problem in 24 New York. 25 The real-property tax system is an ad valorem 1 system, which means it's a system of tax based upon 2 value. 3 For instance, if a commercial building whose 4 market value is $500,000, it should be levied the 5 same amount of the taxes as a single-family home 6 whose market value is $500,000. 7 Two problems in the -- outside of 8 New York City that we're aware of, has to do with 9 the failure to regularly revalue property, as well 10 as the use of fractional assessments. 11 Market values change over time. 12 So, for example, over a 5-year period, that 13 $500,000 commercial building could rise in value to 14 a million dollars, and that single-family home could 15 stay the same in terms of value. 16 If the -- if there's no revaluation of that 17 property, what happens is, as the tax gets levied, 18 they're still are paying the same amount of tax, 19 but, over time, that commercial building is now 20 twice as valuable, and, in principle, basically, 21 paying a lower tax than the single-family home is, 22 effectively. 23 In terms of the fractional assessment, it 24 gives a kind of a false impression to real-estate 25 taxpayers that their real-property taxes are not 1 being levied on a portion of the value of their 2 property. 3 When such fractional assessments are uniform 4 across all properties and municipalities, it simply 5 results in a higher tax rate which needs be applied 6 to raise the amount of taxes the municipality needs. 7 So, for example, if the value of property in 8 a municipality is $100 million, and they want to 9 raise a million dollars in taxes from the property 10 tax, they have to assess that property at 1 percent. 11 If they decide that they want to have a 12 fractional assessment system, and only assess -- 13 have an assessed value of that property of 14 $50 million, in order for them to raise that same 15 million dollars, it just has to have a new rate of 16 2 percent. 17 So that what it does is, it doesn't change 18 the outcome in terms of the taxes paid; it just 19 makes it a little more confusing to the taxpayer to 20 think they're getting a break. 21 This is also a more complicated problem for 22 businesses who have locations in different 23 municipalities throughout the state. 24 Not every state has a fractional assessment 25 rate that's the same, so that as they do business in 1 one municipality and another, they're continually 2 looking at what the fractional rate is here as 3 opposed to someplace else. 4 It becomes just complicated to really 5 understand what's going on in terms of tax liability 6 for their properties in the various municipalities 7 throughout the state. 8 It just needs to be simplified. 9 New York City is a lot more complicated, more 10 incomprehensible; however, it has one benefit, and 11 that is, that it does revalue property every year, 12 so that's not a problem that New York City 13 encounters. 14 Just to kind of give you a sense of the 15 incomprehensibility of it, one, New York City has 16 four tax classes: 17 Class 1, which is single-family homes; 18 Class 2, which is multi-family residential 19 property, which is co-ops, condos, and residential 20 rentals; 21 Class 3, which is utilities; 22 And, Class 4, which is basically everything 23 else, but that includes office buildings, hotels, 24 theaters, industrial properties, and the like. 25 And, they have fractional assessment system 1 as well. Class 1 properties are assessed at 2 6 percent of their city's market value, and the 3 other three classes are assessed at 45 percent of 4 their market value. 5 In addition to this, there are also 6 assessed-value increases, for Class 1 are capped, so 7 that the assessed values can't go up by more than 8 6 percent a year, and 20 percent over 5 years; 9 Class 2, and 4, have a different kind of 10 system, and that is a system where the increases, 11 based upon market value, are phased in over a 5-year 12 period. 13 However, for a segment of Class 2 properties 14 which are -- include 10 units or less, there is an 15 8 percent cap, and a 30 percent cap over 5 years. 16 So as you can see, it is a little confusing 17 to begin with. 18 And the methodologies that they use to value 19 those properties differ over time. 20 The single-family homes are valued based upon 21 a sales mechanism. 22 The Class 2s and Class 3 -- 2s and 4s, 23 excuse me, are valued based upon what's called a 24 "capitalization of income" approach. You basically 25 take the income from the properties, multiply it by 1 a cap rate, to give you a value. 2 And Class 3 is, basically, valued by a cost 3 approach. Whatever the cost to produce those 4 utilities are, that's what the value is. 5 However, in Class 2, as I mentioned, there's 6 also co-ops and condos, and those properties are 7 actually valued based upon a 8 capitalization-of-income approach as well, except 9 they have no income. 10 And so it becomes a little bit difficult to 11 find what would be comparable properties to value 12 these properties. 13 And this requirement is mandated by state 14 law, which requires that these properties be valued 15 on -- with comparable rental properties. 16 So, for example, it's hard to find comparable 17 rental properties that are like Park Avenue co-ops, 18 or Fifth Avenue co-ops, so, it become as little 19 difficult. 20 Let me go to the inequities as a result of 21 this kind of system that's in place now. 22 The share of the market value for property in 23 New York, according to the City: 24 For Class 1 single-family homes is, roughly, 25 46 percent in this fiscal year, and their tax-levy 1 burden is 16 percent; 2 Class 2s, with the multi-family housing, its 3 market value is 23 percent, and their tax levy 4 burden is 36 percent; 5 "3" is basically paying -- value is 6 3 percent, and they're paying 6 percent; 7 And Class 4 is about 26 percent, and their 8 share of the tax is, roughly, 41 percent. 9 So right there, the system is creating its 10 own inequities. 11 And what's been happening, in part as well, 12 is that there has been a cap imposed on class-share 13 changes over time, so that no class has a 14 significant bump up from one year to the next. 15 However, what's been happening as well over 16 the last 15 to 17 years, is that that 5 percent cap 17 has been lowered every year by the Legislature, at 18 the request of the City, in order to shield Class 1 19 homeowners from tax increases. 20 So that -- and according to an IBO study, 21 based upon a request that we made, the Class 1 has 22 benefited as a result of these changes by an 23 additional $600 million, and Classes 4 and 3 have 24 been, respectively, additionally burdened by about 25 490 million and about 350 million, respectively. 1 These systems are -- create their own 2 inequities. 3 We think caps are a good thing, but it's the 4 same problem with lack of revaluation. 5 If you have a single-family home that was 6 built, and cost $500,000 at the time it was built, 7 it's now subject to a cap. 8 So five years later, the property is now 9 valued at a million dollars; and a new property gets 10 built in the same neighborhood on the same block, 11 and now it's valued at a million dollars. 12 Well, they're not assessed the same anymore. 13 That old property which was built 5 years ago 14 has now been benefiting by the cap, so that, 15 according to the City, its new assessed value is now 16 $36,000; but the new million-dollar home that is 17 built today is going to be assessed at $60,000. 18 So they are now paying very different taxes 19 for very comparable property in very similar 20 locations. 21 Likewise, in Class 2, we see, based upon a 22 report by the Furman Center, that it looked at the 23 value -- recent sales of co-ops in Manhattan. 24 And it identified, roughly, 50 co-ops in 25 New York, not all in Manhattan, in 46 buildings, in 1 which the sale price for those properties were 2 greater than the city's market value for the entire 3 building, so that an individual co-op is being 4 valued more than an entire building. 5 So the -- and the other burden that gets 6 imposed as well on these properties, is that, 7 because of that inequitable treatment, we find 8 residential rental buildings, rent-stabilized, and 9 even those that have affordable housing in them, 10 paying a very significant amount of their income to 11 property taxes. 12 Based upon a survey that we've done with some 13 of our members for 80/20 properties, which are those 14 which have 20 percent affordable, their tax, at full 15 taxes, would be about a third of their gross income. 16 33 percent of their gross income would go to 17 property taxes. 18 And this kind of inequity is also true in 19 Class 4 properties, with office buildings, where the 20 City is part of its methodology. It decides that 21 it's not going to allow as a capital expense, any 22 capital improvements that are made to the property, 23 so that the net operating income now is inflated 24 because of the failure to deduct an expense. 25 In addition, the City has a practice where it 1 will also, if your expense, and it could be a 2 third-party expense, is greater than what their norm 3 is, they also reduce your expense to a norm -- 4 your -- the norm. 5 So as a result, your net operating income, 6 which is the basis for your tax, is greater than it 7 should be, and the properties are at a higher value, 8 and then, ultimately, are paying a greater share of 9 their tax levy. 10 I think those are reflected in the general 11 numbers that I mentioned earlier. 12 I can tell by the look on your faces that 13 it's an incomprehensible, and that's part of the 14 problem with the system; that, you know, it's hard 15 to explain to taxpayers what's happening. 16 And the irony here, is that the people who 17 have complained the most about the property-tax 18 system and the burden that it places on them, are 19 single-family homeowners, and the co-op and condo 20 owners. 21 So, that, as we have a system that is 22 structured, that provides a benefit to a certain 23 class of property owners; and yet, that benefit is 24 not being recognized. 25 What we think, in terms of this system, is 1 that we need to have a system that is clear, 2 understandable, transparent, and fair. 3 Thank you. 4 SENATOR DeFRANCISCO: Senator Marcellino. 5 SENATOR MARCELLINO: Thank you. 6 I'm a teacher, and I made my living teaching 7 school, but I also am a licensed real-estate broker, 8 so I have the Cohen Deck [ph.] and the 9 Smith Windows [ph.], and so on; maintained a few 10 things, and paid a few bills on the side. 11 You talked about multiple classes. 12 Good or bad? 13 MICHAEL SLATTERY: I think the -- they have 14 kind of outlived their usefulness. 15 I think what we've tried to identify here, 16 and has been a kind of a concern, is that we need a 17 system that is fair. 18 And what we -- when I say "fair," is that 19 people need to know that the values are correct, and 20 how they are being taxed. 21 And -- and that's a different question than 22 what the burden is for individual properties, 23 individual homeowners, and the like. 24 I think we shouldn't confuse the question of 25 what's the fair property tax burden on a business, 1 on a homeowner, on a co-op owner, with how we value 2 their property. 3 And I think what's been happening in our 4 system, is that we've conflated these issues, and 5 we've kind of embedded in the system certain 6 benefits to certain property owners, created a 7 system which allows for additional burdens to be 8 shifted on other property owners. And, it's 9 intended to do that question of a fair distribution, 10 but it does it in a way that no one understands the 11 system, and everyone thinks they're being 12 mistreated. 13 SENATOR MARCELLINO: When you have a system 14 where, I don't think it's any big secret, but, many 15 localities will shift -- rather than raise the tax 16 on the Class 1 homeowner, will shift it to a 17 utility, and push it there, or, shift it to the 18 commercial property owner, and, you know, deal with 19 it that way, so the single-family or the 20 apartment-dweller will not raise the -- you know, 21 get all upset with their -- with the tax increases. 22 I represent two different counties -- parts 23 of two different counties. 24 In one county, Nassau County, we reassess on 25 an annualized basis, by court order. 1 There's a freeze imposed now, but, there's 2 been an assessment, which has created some confusion 3 with property owners. 4 On the other side, I -- you know, in 5 Suffolk County, a portion of Suffolk County, which 6 allows towns to reassess, which is typical, I think, 7 throughout the rest of the state. 8 In Nassau, it's the County that reassesses; 9 in Suffolk, it's the towns that reassess. 10 So, you have a different setup going here: 11 One side gets reassessed on an annual basis. One 12 side hasn't been reassessed since George Washington 13 traveled their neighborhood. 14 How often should there be a reassessment? 15 MICHAEL SLATTERY: That's a tough question to 16 answer in one -- in some respects. 17 One is, that -- again, New York does it 18 annually. 19 For towns, the question does become a 20 question of cost, and that sometimes reassessments 21 are not inexpensive. 22 And, you know, in some places, what they will 23 do, is that they will only reassess when there 24 becomes a discrepancy between what the value is in 25 the town and what the new market value is, something 1 that kind of triggers a reassessment, because, over 2 a period of time, that that inequity becomes so 3 great that it needs to be readdressed, and that 4 results in a shifting burden from back and forth. 5 And in the last, you know, six years, 6 I'm sure that towns that have been following that 7 methodology probably went through maybe two, or even 8 three, reassessments. 9 But, it certainly needs be at some -- you 10 know, either some mechanism that accounts for 11 changes in market value, or, with some regularity, 12 that there is a -- at least a fair distribution of 13 the burden based upon the value of the property, and 14 how it changes over time. 15 SENATOR MARCELLINO: The issue that I see is 16 the -- I think you touched on it earlier, you could 17 have two properties -- one new, got reassessed; one 18 older, hasn't been for quite a while -- paying very 19 different taxes; tax inequities. 20 You have groups that will send around letters 21 to people in the neighborhood: Join us, we'll file 22 a tax certiorari for you, and we'll lower your 23 taxes. 24 We've got that. 25 And then whoever guarantees the tax rate, a 1 county in one case, and a town in another, is then 2 liable for making up the difference. 3 So how do we -- 4 MICHAEL SLATTERY: Well, a couple of things. 5 One, in the example about the tax certiorari, 6 and the example that I provided, where there were 7 two properties, you know, one new, one old, with the 8 same value, that new property is not going to be 9 able to win a case of, you know, inequitable 10 treatment, in terms of valuation, because the 11 value's right. 12 He -- the problem is, that he's paying more 13 than his neighbor, who's value is also correct, so 14 that becomes a structural inequity that certiorari 15 can't address. 16 And, again, I recognize, you know, and 17 I speak more from New York City where the issue that 18 you talk about is very different, where, for 19 example, you may have a large company that is a 20 predominantly major taxpayer in a municipality, and 21 it challenges its valuation, and wins. 22 And the impact on the municipality, because 23 of that lost tax revenue, is significant. 24 Again, I -- those locational issues are 25 important, and I don't have a solution for that, but 1 that's certainly something that one needs to be 2 mindful of. 3 But I think, though, fundamentally, it's 4 that, we -- if we want to, you know, create 5 different treatment, where we want to give a benefit 6 to a homeowner, or tax a business at a different 7 level, we should do that openly and transparently so 8 that, one, the additional burden is acknowledged as 9 additional burden, the benefit gets recognized by 10 the homeowner as a benefit. 11 But the question of what the value of the 12 property is, isn't distorted by a system that is 13 trying to do two things: kind of create a benefit, 14 shift a burden, and then confuse the system in terms 15 of valuation. 16 Because I don't think that's very good for 17 anyone. 18 SENATOR MARCELLINO: Thank you very much for 19 your testimony. 20 I appreciate it your input. 21 MICHAEL SLATTERY: Thank you. 22 SENATOR MARCELLINO: Next -- 23 SENATOR SAVINO: I have a question. 24 SENATOR MARCELLINO: You have a question? 25 Go ahead. 1 I'm sorry, Diane. 2 SENATOR SAVINO: Thank you, 3 Senator Marcellino. 4 And thanks for your testimony, and the 5 report. 6 You reference in here some of the information 7 that's been in a "Daily News" series on property-tax 8 assessment to the city of New York -- 9 I'm going to talk about the city of New York. 10 -- and this inconsistent, incomprehensible 11 tax -- taxing system. 12 In fact, I think yesterday they outlined the 13 two mayoral candidates, the major-party candidates, 14 and how their homes are taxed compared to a similar 15 house in a poor neighborhood that pays a higher 16 property tax. 17 So, it's a very complicated issue for us. 18 The city council -- or, the city of New York 19 is the only tax they're allowed to raise without our 20 authority in Albany; but, yet, and still, over the 21 past few years, property taxes on New York City 22 homes have been rising, without any action on the 23 part of the City. 24 And what the City tells us in the Legislature 25 is, is that it's -- there's an automatic 1 reassessment that's built into state law; the State 2 regulates this. 3 Although, I can't find this anywhere. 4 So I'm not sure, what triggers these 5 increases that are happening, in the absence of 6 legislative authority by the city, and the state 7 doesn't do it? 8 MICHAEL SLATTERY: Well, it -- when -- you 9 know, when your property tax, you know, levy, you 10 know, goes from, you know, $18 billion, to 11 $20 billion, you know, over a couple of years, it's 12 pretty hard to say that you're not raising property 13 taxes. 14 You know, just because values rise doesn't 15 necessarily mean the tax has to rise. 16 I think the -- what they may be alluding to 17 is that, for -- and this is another added complexity 18 into the system; that is, Class 2 properties and 19 Class 4 properties, although they don't have a cap 20 on their value, they have a 5-year phase-in of their 21 equalization increases. 22 So, if their value goes up from one year by 23 20 percent, that 20 percent is phased in over 24 5 years, so the following year, there's a 4 percent 25 increase, and not a 20 percent increase. 1 And what they say about the built-in phase-in 2 is that, that's what I think they're referring to, 3 so that, even if that property doesn't change in 4 value over the next four years, they're still going 5 to see an increase in their property tax because of 6 the valuation that's being -- you know, coming in 7 online or being phased in. 8 With single-family homes, it's a little 9 different, and that is because you cap the 10 properties at 6 percent a year. 11 To take the example of that million-dollar 12 home that went from $500,000 to a million dollars, 13 it can only go up, you know, as I said, 20 percent 14 over 5 years. 15 Well, now, when that 5-year period ends and 16 they're now allowed to increase it 6 percent, it's 17 gonna see a 6 percent increase. 18 And it may be -- you know, it will see a 19 6 percent increase again, until it hits that 20 20 percent cap. 21 And what may be happening during that 5-year 22 period, is that the market is in the tank, is what 23 we saw in 2008, and going forward. 24 So what's happening with the -- what the cap 25 does, is it kind of creates, if you will, a 1 short-term benefit, but a long-term liability. 2 And you kind of identified one of the 3 problems, you know, with the cap, in that it kind of 4 distorts your perception of what's going on with the 5 valuation. 6 You think, you know, you're getting a break 7 because you're being capped, but when your market is 8 moving up, that's great; but when the market is 9 moving down, it's not so good. 10 And I -- you know, I didn't mention, but, 11 it's not just simply property to property; it's also 12 a neighborhood to neighborhood, you know, that some 13 neighborhoods are rising faster than other 14 neighborhoods. And if the neighborhood is rising 15 faster than the cap, then they're getting a benefit, 16 and their taxes are going to be lower than they 17 would have been otherwise. 18 And that probably is the case for at least 19 some of our mayoral candidates. 20 But in neighborhoods where the value isn't 21 running greater than the cap, then those values are 22 pretty close to where the market is, and they're 23 receiving no benefit as a result of that cap. 24 So, those are, again, the inequities that 25 these kind -- the system creates, and, you know, as 1 you note, it's confusing. 2 And as I said, the complaint has been largely 3 from homeowners who, you know, as we see, you know, 4 they're, roughly, 50 percent of the value and only 5 15 percent of the tax, but they think they're 6 carrying the larger share of the burden. 7 SENATOR SAVINO: Right. 8 MICHAEL SLATTERY: And, so, we shouldn't have 9 a system that is -- you know, creates that kind of 10 obfuscation. 11 We should let them know what it is. 12 And if -- you know, if they were to 13 understand that, yes, you know, you're valued at a 14 million dollars, but we're only -- you know, you're 15 only paying 1 percent of that, compared to, say, 16 business, which is valued at a million dollars and 17 may be paying 3 percent of that, then -- well, the 18 business knows that it's taking a big hit on the 19 burden, but at least the homeowner knows he's 20 getting a break. 21 And right now, if you look at the New York -- 22 if you look at the New York City real-tax system, 23 the tax rate, you know, and people will say, 24 "What's the tax rate?" 25 Well, the tax rate for Class 1 is, like, 17, 1 where, for a Class 4, it's 10. 2 So if you just look at the rate, you say, 3 Wow, they're really killing the Class 1 owners. 4 But no one looks at the fact that they're 5 only being assessed at 6 percent of their value. 6 And then when you look at the end result of where 7 the levy is compared to the value, you see that the 8 tax rate is very confusing, because now you're 9 seeing, as a result that, "1," which is 50 percent, 10 is only paying 15, and, "4," which is 40 percent -- 11 you know, 40 percent of the levy is only 25 percent 12 of the value. 13 It shouldn't be that way. 14 And we -- and there's been a lot of tinkering 15 with the system to correct it. 16 And -- and -- and I should say, in response 17 to the questions from Senator Marcellino, the issues 18 in the small towns and the small municipalities, you 19 know, outside of New York, are different, you know, 20 in terms of how they play out, in terms of a 21 challenge that really could have a devastating 22 impact on a budget, or a cost for having a revalue. 23 Those are not insignificant issues. 24 But, I think everyone does deserve, all 25 taxpayers deserve, a fair understanding of how this 1 tax is levied. 2 And remember, it's a tax that, you know, 3 states, you know, the government, basically tells 4 you how much it's worth, and what you have to pay. 5 So it's not like the income tax, where you 6 know if you made so much money, you're gonna pay a 7 little bit more. 8 SENATOR SAVINO: Right, and I think you hit 9 on the one point, that -- what's very confusing to 10 people is, they get that statement from the 11 New York City Department of Taxation and Finance, 12 and it shows that your property values have dropped 13 6 percent in the past, you know, year; and, yet, 14 your property tax has gone up. 15 It drives people crazy, but you make -- 16 it's -- the simplification of the system would 17 make -- would help. 18 One other point I want to ask about: 19 One of the other property-tax incentives that 20 the City used for several years, which kind of drove 21 development, especially in Staten Island, was the 22 421-B, which was the 8-year property-tax abatement 23 for new development and new construction. 24 That has expired. 25 And I'm just wondering, have you guys 1 analyzed whether or not it was valuable? Should it 2 be renewed? 3 There's been some requests from the 4 building-industry associates that we restore it, to 5 spur development. 6 MICHAEL SLATTERY: Yeah -- I mean, a couple 7 of things: 8 One is, I think development in Staten Island 9 certainly declined after the, you know, expiration 10 of that program. 11 So I think, in some ways, the program is an 12 inducement to development. 13 And, you know, we are still a city that has 14 not produced enough housing. We still can't, you 15 know, meet our affordable housing needs, and it's a 16 significant and serious public-policy issue, you 17 know, as is the issue of tax exemptions. 18 But I think, you know, where the -- 19 certainly, where the tax exemptions have certainly 20 drawn a lot of attention, the issue of the 21 complexity and the confusion of the property tax has 22 not gotten the same level of attention, and that's 23 probably much more pervasive. 24 And the -- you know, our housing problems, 25 you know, again, don't get the attention it 1 deserves. 2 SENATOR SAVINO: Thank you. 3 SENATOR DeFRANCISCO: Thank you very much. 4 MICHAEL SLATTERY: Okay, thank you. 5 SENATOR DeFRANCISCO: Appreciate it. 6 The next speaker is Richard Russo, 7 vice president of the Brooklyn Chamber of Commerce. 8 SENATOR SAVINO: Yeah, Brooklyn! 9 RICHARD RUSSO: Good morning, 10 Chairs DeFrancisco and Marcellino, members of the 11 Senate Standing Committee on Finance, and Senate 12 Standing Committee on Investigations and Government 13 Operations, and guests. 14 I'm Rick Russo, senior vice president and 15 chief of staff of the Brooklyn Chamber of Commerce 16 in Brooklyn, New York. 17 The Brooklyn Chamber of Commerce is a 18 membership-based business-assistance organization 19 which represents the interests of over 1400 member 20 businesses, as well as businesses across the borough 21 of Brooklyn. 22 The Brooklyn Alliance, the not-for profit 23 economic-development organization of the chamber, 24 works to address the needs of businesses through 25 direct business-assistance programs. 1 Thank you for inviting me to testify on tax 2 policy and reform initiatives. 3 A tax code that is fair, simple, and 4 conducive to economic growth is in the interest of 5 all businesses, large and small, and New Yorkers in 6 general. 7 I commend you for holding these public 8 hearings to allow key stakeholders to weigh in on 9 the issue of tax policy. 10 New York State has one of the highest tax 11 burdens in the United States, and this has 12 undoubtedly truncated economic development and 13 regional competitiveness. 14 Capital naturally gravitates to markets that 15 yield the highest return, and it's evident that 16 businesses look elsewhere to develop and expand 17 because of this daunting reality. 18 In Washington, Congress has floated the idea 19 of comprehensive tax reform, yet partisan gridlock 20 has presented a barrier to a resolution. 21 As such, states and localities must take the 22 initiative to make their respective codes and 23 climates easier to comprehend, less onerous, and 24 more favorable for businesses. 25 Further reform of the tax code will level out 1 the regional playing field and restore New York's 2 unrivaled track record of innovation and economic 3 competitiveness. 4 Over the last decade, we've seen an economic 5 renaissance in Brooklyn, with new industries and 6 businesses of all shapes and sizes sprouting up all 7 over the borough. 8 The Brooklyn Navy Yard, for example, has 9 shown unprecedented development that has 10 reinvigorated manufacturing and facilitated the 11 development of other industries. 12 Brooklyn is also the home to other economic 13 hubs, including Industry City and East Williamsburg 14 Industrial Park, that are unmatched in any other 15 borough, or anywhere throughout the state. 16 According to a recent Center for an Urban 17 Future report, Brooklyn has experienced the biggest 18 increase in its share of the city's employment base 19 since 2000. 20 In 2012, Brooklyn accounted for 15.6 percent 21 of all private-sector jobs in the city, up from 22 14.45 percent in 2000. 23 Between 2000 and 2012, Brooklyn had a net 24 gain of 76,536 jobs, which is an 18.8 percent spike. 25 I'm positive that we can continue to build on 1 this growth through innovative tax strategies. 2 Ideally, Brooklyn can be the, quote/unquote, 3 East Coast Silicon Valley. 4 When combined, the New York State and New 5 York City income tax rate is over 15 percent, one of 6 the highest in the country. 7 This has a negative impact on the economy, as 8 some businesses opt to move their operation outside 9 of the five boroughs to states that are perceived to 10 be more tax-business-friendly, such as Florida, the 11 Carolinas, and Virginia. 12 This is not only a loss for businesses, who 13 then miss out on the opportunity to benefit from the 14 state's infrastructure and quality human resources, 15 but also for New York State, which, in turn, suffers 16 from higher unemployment rates, decreased economic 17 activity, and decreased resources to fund essential 18 public programs and services. 19 These tax burdens are compounded by federal 20 tax and other regulatory obligations. 21 In many cases, tax liabilities collected by 22 businesses are actually passed on to shareholders, 23 employees, and consumers; meaning, that these 24 burdens are shouldered by many, resulting in a slump 25 in economic activity. 1 In order to ensure that local businesses are 2 successful, and to attract new investment 3 opportunities to New York, an extensive and periodic 4 review of New York's tax system is needed to cater 5 to the changing needs of businesses, and to truly 6 embrace the slogan "New York, Open for Business." 7 And I'm happy to see that New York State 8 Senate engaged in precisely that. 9 Tax impliance [sic] adds up, and requires 10 that small businesses bear significant monetary 11 costs to comply. 12 As most business use accountants, hire 13 preparers, and/or purchase tax-preparation software, 14 each year, businesses spend countless hours and 15 enormous sums of money complying with the tax code. 16 A recent study by the IRS found that 17 U.S. small businesses spend a combined 1.75 billion 18 hours, and, roughly, $15.7 billion in out-of-pocket 19 expenses, nationwide, preparing and filing tax 20 returns. 21 Moreover, tax-code confusion generates 22 enormous amounts of telephone calls to city and 23 state tax offices each year, overburdening the 24 agencies, and comprising government's ability to -- 25 and comprising government's ability to provide 1 high-quality taxpayer services. 2 An efficient tax law that requires minimal 3 effort to comply is in the best interests of 4 governments, businesses, in New York State. 5 The constant in the tax code should be 6 simplification. 7 Making taxes simpler will raise compliance 8 rates by reducing both inadvertent and intentional 9 nonpayment of taxes in a legal tax evasion. 10 To some extent, nonpayment of taxes results 11 due to arcane tax laws and the confusion they cause. 12 Clarifying and simplifying tax rules can help 13 businesses understand the tax code better, and would 14 likely make tax laws easier to administer and 15 enforce. 16 This simplification can generally be 17 implemented through a thorough review, evaluation, 18 and paring back of current exclusions, exemptions, 19 deductions, and credits, generally known as 20 "tax expenditures." 21 While some tax expenditures can serve the 22 purpose of encouraging business growth and 23 development in many instances, they unintentionally 24 distort the tax code and cause uncertainty for 25 businesses. 1 Moreover, tax expenditures require periodic 2 reauthorization, and at times, the reauthorization 3 of a particular tax expenditure may be rather 4 ambiguous, making business decisions all the more 5 difficult. 6 Nonetheless, there are indeed incentives that 7 effectively promote certain behavior and investment. 8 Those specific productive tax expenditures 9 should be strengthened, and most importantly, made 10 permanent, to eradicate uncertainty, and 11 short-sightedness tax expenditures can sometimes 12 create. 13 The tax code should be viewed as an 14 economic-development vehicle, not just a method of 15 raising revenue. 16 In addition, we should have an intuitive tax 17 code that picks up on key trends and facilitates 18 development in a way that is equitable and 19 efficient. 20 Consideration should be given to enhancing 21 New York State research and development, the 22 R&D-related tax credits, to foster advanced 23 manufacturing and the production of innovative 24 evolving technologies. 25 At the national level, the R&D credit is one 1 of the most productive credits available to 2 businesses. 3 While it costs taxpayers, roughly, $8 billion 4 a year, it generates over $21 billion in investment. 5 Nurturing these emerging markets through the 6 tax code could have wide-ranging positive economic 7 gains, especially in areas of the state like 8 Brooklyn, where old industries thought long-gone 9 have re-emerged, and where new industries seem to 10 surface every day. 11 U.S. multi-national companies defer profits 12 and reinvest abroad to avoid U.S. tax burdens, 13 whether federal, state, and/or local. 14 Roughly, $1.5 trillion is locked down abroad 15 in foreign-earned capital. 16 Even though repatriation is predominantly a 17 federal matter, New York legislators shouldn't 18 ignore the reality that a significant number of 19 these multi-national companies are headquartered in 20 New York City, and repatriated capital could come 21 back to New York State. 22 Congress has not yet produced a solid plan to 23 deal with the issue of repatriation. 24 As such, this is a perfect opportunity for 25 lawmakers in Albany to devise a way to reduce the 1 collective tax burdens faced by local businesses 2 which might incentivize repatriation back to 3 New York. 4 Conversations with large firms that have 5 profits locked overseas could produce meaningful 6 plans to bring these moneys back to New York State 7 for investment and job creation. 8 In conclusion, New York State needs a tax 9 code that makes it easier for businesses already 10 here, and also appealing enough to attract outside 11 investment. 12 A simplified tax code that eases burdens, 13 requires minimal effort to comply, and fosters 14 growth trends in the market should be the goal of 15 the Legislature. 16 Last month, Forbes ranked New York 21st in 17 their annual business-climate rankings. 18 The state received high marks for current 19 economic climate, quality of life, and its potential 20 for growth, but New York ranked 46th out of 50 for 21 its high taxes and business costs. 22 This alone is a major deterrent for 23 businesses looking at New York to invest and a 24 justified reason for New York business to seek 25 alternatives. 1 It's that fundamental. 2 The best and the brightest entrepreneurs 3 gravitate to New York for the limitless business 4 opportunities, and we shouldn't give that talent a 5 reason to look elsewhere, especially when 6 Upstate New York is on the precipice of a strong 7 economic rebound, and when downstate areas, like 8 Brooklyn, are nationally recognized as a hotbed for 9 business investment and ingenuity. 10 Curtailing high taxes and using the tax code 11 officially and creatively can bring the whole state 12 forward. 13 The Brooklyn Chamber of Commerce applauds the 14 New York State Senate for holding these important 15 hearings, and developing tax strategies to reshape 16 the economic landscape so that New York will be 17 really, quote/unquote, open for business. 18 Thank you so much. 19 SENATOR DeFRANCISCO: Thank you. 20 Senator Golden. 21 SENATOR GOLDEN: Thank you, Mr. Chairman. 22 And thank you, Brooklyn Chamber, for being 23 here today. 24 That's more along the lines that I had asked 25 earlier at -- on one of the previous -- those that 1 gave testimony, on how we can balance this system. 2 We see our film tax credit has worked, and 3 has driven over 130,000 jobs into our community. 4 We also show a need, the requirements, of 5 bringing taxes down across the board so that all 6 businesses can do well; and, of course, homes and 7 housing and -- can expand here in the city and, of 8 course, across the state. 9 But one of the focuses that I see in New York 10 is the research and development (R&D). 11 And you're looking, I would presume, not just 12 in manufacturing, but as well as the digital tax 13 credit, where we see a tremendous a increase in 14 biotech and industrial in Brooklyn, along those 15 lines. And, of course, biotechnology. 16 What are you -- any other future plans that 17 you may have, or that you could suggest to this 18 Committee, we'd like to see them, and, if you can 19 briefly go over some of them. 20 RICHARD RUSSO: Sure. 21 I would respectfully request that we come 22 back to you with some outlined details on that. 23 There are great clusters now of 24 entrepreneurial tech companies in downtown Brooklyn, 25 and in Dumbo, the entire waterfront beltway. 1 And, so, we're really excited about what's 2 happening. 3 There's unprecedented growth in the tech 4 industry, so we're looking to -- you know, the 5 chamber serves as a great communication portal, and 6 a great technical-assistance organization, on so 7 many levels, with the business-solutions program, so 8 we're able to, you know, be a helpful entity on so 9 many levels of a business's growth. 10 We're seeing a lot of home-based businesses 11 that, even now, coming forward to retail situations, 12 and beyond. 13 SENATOR GOLDEN: We don't seem to be able to 14 grab those companies. When they start off, they 15 have one or two, they start with these incubators, 16 and they move on, and they don't stay. 17 We have to find a way of getting those 18 companies to stay. 19 And I'm just wondering if you have any 20 thoughts on how we can do that? 21 RICHARD RUSSO: Well, just making it easier 22 to do business here. 23 It really comes down to that. 24 Again, I would like to go back, and come back 25 with some specifics. 1 But, we're doing everything we can to provide 2 technical assistance to help retain businesses, so 3 they do remain. 4 And, it would be helpful to have a more 5 simplified tax [unintelligible]. 6 SENATOR GOLDEN: Like the MTA tax, the 7 18-A tax assessment, brought taxes down, overall, as 8 well as did tax credits into certain industries that 9 would be able to bring jobs, maintain jobs, and have 10 a future here in this great city, that's something 11 that Brooklyn Chamber, obviously, would be looking 12 to do; correct? 13 RICHARD RUSSO: Exactly. 14 SENATOR GOLDEN: Thank you. 15 RICHARD RUSSO: Thank you, Senator. 16 SENATOR SAVINO: Thank you. 17 SENATOR DeFRANCISCO: Thank you. 18 RICHARD RUSSO: Thank you. 19 SENATOR DeFRANCISCO: Now the last, very, 20 very patient speaker who has been here since the 21 outset, Dean Zerbe -- 22 Is that the right pronunciation? 23 DEAN ZERBE: That's exactly right, Senator. 24 SENATOR DeFRANCISCO: -- national managing 25 director of Alliantgroup. 1 DEAN ZERBE: Senator, thank you very much, 2 both Chairmen, for having me here today. 3 I greatly appreciate it. 4 I think I'll be able to fill in some of the 5 blanks, Senator Golden, that you were raising of 6 good questions on there. 7 I think a very important hearing. 8 I think there's a lot of bipartisan solutions 9 out there that the Committees can being looking at, 10 in terms of tax policies that can encourage jobs and 11 encourage economic growth. 12 Just as a quick background on Alliantgroup: 13 Alliantgroup is a firm that works with 14 thousands of companies across the country, including 15 hundreds of companies in both the city and in 16 Upstate New York, assisting them in terms of 17 benefiting from tax policies that are out there at 18 the federal and the state level. 19 We've been, the last ten years, provided over 20 $2.5 billion in tax revenues back to these small and 21 medium businesses, which has led, directly and 22 indirectly, to over 50,000 jobs. 23 And as a personal note, I'm national managing 24 director, as you mentioned. 25 And I was, eight years, senior counsel on tax 1 counsel for the U.S. Senate Finance Committee, where 2 I grappled with many of the issues that you are 3 today, and worked on a bipartisan basis, to, 4 hopefully, forge solutions. 5 So, I thank you for the time here. 6 I'm going to kind of cut through it quickly; 7 I know I am the last speaker. 8 And, happily, having both my degree in film 9 and degree in tax from NYU, I'm happy to be back 10 here at a place where my speaking is considered a 11 normal pace. 12 [Laughter.] 13 DEAN ZERBE: So, I'll go through it all, but 14 go through it pretty quick here for you. 15 SENATOR MARCELLINO: [Unintelligible]. An 16 NYU grad is always welcome. 17 DEAN ZERBE: Excellent, thank you, Senator. 18 SENATOR KRUEGER: [Inaudible.] 19 DEAN ZERBE: That's exactly what I say. 20 That's what I tell them in Oklahoma, yeah. 21 So, the way I think of it, Senators, is when 22 you're looking at jobs and you're looking at 23 economic growth, you really want to focus on two 24 things: 25 Startups: You want to look at startups -- 1 Exactly what you were talking about, Senator. 2 -- in terms of the biotech, and those vast 3 areas; particularly startups in the tech industry is 4 what you want to look at. 5 Why? 6 Good jobs, good pay, and the multiplier 7 effect of jobs is enormous in the tech industry. 8 So that's number one. 9 The second is, for all the businesses out 10 there in New York that are doing manufacturing, and 11 across the board, you want to look at technological 12 growth, innovation. 13 Why? 14 Because it's through innovation, making that 15 new product, making that new product better, 16 advancing the product, that's how companies stay in 17 business, keep their doors open, and grow. 18 We don't have 8-track-player makers anymore. 19 We don't have electric typewriter-makers. 20 You've got to have that new new thing. 21 But the other part of it is understanding, 22 it's making that process better. 23 In other words, if you're making it greener, 24 quicker, cleaner, cheaper, that matters for a 25 business as well, too. 1 So those are the things you want to 2 encourage. 3 What comes to mind, "New York Times" had an 4 article the other day, if you saw it, about the 5 textile industry in North Carolina coming back. 6 Why? 7 Because they're improving, enormously, how 8 they are manufacturing textiles in North Carolina. 9 You never think of it, but that's innovation. 10 That's a good example of thinking 11 "innovation." 12 And, so, that's what you want to think about 13 is, startups; and, then, what can you do to be 14 encouraging innovation and technology? 15 When I think of innovation and technology, 16 I just want to take a pause, and it's really the 17 good point you had, Senator DeFrancisco, just a 18 little bit different, but I encourage you to think 19 broadly. 20 When you're thinking of tax policy, think 21 broadly; meaning, I think there's a tendency to 22 sometimes say, Well, we're going to pick a winner in 23 technology. We really like this technology, and we 24 really like that technology. 25 That's great, but I would encourage you, 1 overall, as best you can, to think broadly in terms 2 of tax policy: Can we do things across the board 3 that are going to help them? 4 Why is that? 5 Because it's so difficult to see what's 6 around the corner, to see what's gonna happen 7 tomorrow. 8 3D-printing, nanotechnology; who would have 9 thought that would be it. 10 So you want a tax policy that's broad enough 11 to cover that. 12 The other part is, I find that, too often, 13 policymakers will underestimate where technology is. 14 And, again, that's why I gave the example of 15 textiles. 16 Who would have thought textiles would be 17 a-cutting edge on technology, but it is. 18 So I think that's where you want to be in 19 terms of it. 20 And, also, it goes to a lot of the points 21 you've heard from folks here. 22 The more you kind of have tax policy that, 23 you'll hop on one foot, wear a pink dress, and put a 24 bow in your hair, and you'll get a tax break, it's 25 really the devil for small and medium businesses to 1 get the benefit. 2 And that's what you do when you start saying, 3 Well, I really like this technology, or, I really 4 like this one; that makes it tougher for businesses, 5 and particularly small and medium. 6 It's what I do all my days, is, basically, 7 working with small and medium businesses who 8 self-censor, quite frankly, thinking they're not 9 eligible for it. 10 So it's nice when it's across the board. 11 So, startups; technology; what's the policies 12 out there? 13 Previous speaker had it exactly right; you 14 have the R&D credit at the federal level, very 15 broadly supported. 16 President Obama is a big fan of it. 17 Republicans are a fan of it. 18 Probably one of the few things that everyone 19 can agree on in Washington. 20 So that's been a very popular policy out 21 there, and it's very broad in terms of technology. 22 It covers everything across the board, in 23 terms of, if it doesn't try to, again, pick winners 24 and losers, as we were talking about, 25 Senator DeFrancisco. 1 Here's the problem with the federal R&D 2 credit, that they're trying to fix: 3 They're -- they -- it is not available for 4 startups. Because startups don't pay income tax, 5 they can't benefit. 6 So it's this oddity of the law, that the most 7 innovative firms we have out there, the startups 8 can't benefit from the R&D credit. 9 Now, Senator Coons from Delaware, a Democrat, 10 is working with Senator Rubio, Republican from 11 Florida, on a bipartisan bill to change that, to 12 make it refundable. 13 So that's where they are. 14 Go to New York: New York has -- and I know 15 you all know way better than I do -- they have the 16 QETC. New York's had the QETC. 17 The historical QETC has been terrific, and 18 I can tell you that from working with hundreds of 19 firms in Upstate New York, throughout the entire 20 state -- twenty-seven, in fact, in your district, 21 Senator Krueger. 22 They're tremendously benefiting from the 23 QETC, so you had this real winner of a policy out 24 there. 25 Why? 1 It was broad in technology, and it was 2 available for -- refundables were available for 3 startups. 4 Two things happened, then. 5 As you all know, it expired at the end of 6 2011, but before that, the Department of Taxation, 7 on its own, greatly limited -- and I'll talk about 8 that at the very end, but just for now -- greatly 9 limited the scope of it. It went much more into a, 10 Well, you know, just these folks are the folks that 11 are going to benefit. 12 So, what went from a great policy, went from, 13 of course, a policy that's defunct, but even before 14 that, it was, you hit those folks. 15 So that was the problem you had. 16 So the solution I have for you -- 17 And, Senator, to your points, and I think a 18 lot of you, as I listened to your concerns and 19 issues, which have been first-rate, it's been worth 20 listening to everything, Senator, here, Senator, and 21 understand how you all see it, Chairman. 22 -- is to bring back the QETC. Ensure that 23 it's broad; that the Department of Taxation doesn't 24 have the wiggle-room to say, Well, I like you. 25 I don't like you. 1 Very broad, and make it refundable. 2 Now, I understand very well, Senators, that 3 you all have limitations out there, and limitations 4 of dollars. 5 And I think, Senator Krueger, you're right 6 about saying, Hey, we need to make sure these things 7 work. 8 I think this is a policy that has had a 9 proven track record of working. 10 40 other states have state R&D credits. 11 Texas just added one on as well themselves, 12 too, because they've seen the benefit for it. 13 But as you're looking at it, I think the way 14 to do it is to say, Fine, we're going to cap it at, 15 say, this amount, 200, 250k for a startup, and, say, 16 400 or 500k for an existing company. 17 That's the better way to go, as opposed to 18 saying, Well, we only want to help this one type of 19 industry. 20 As you're looking at limited dollars, I think 21 that's the smarter way to go. 22 And I think, you know, you should have 23 studies, and taking a look at it, and making sure 24 that it's being done properly, in terms of that. 25 So I think that will get you, in terms of, 1 good jobs, including encouraging startups, across 2 the board. Helping your existing companies continue 3 to innovate, continue to do that new thing. 4 Retaining college students in here, and good jobs, 5 and technical jobs. 6 So I think, you know, it's a winner across 7 the board in terms of it. 8 So I think, kind of a hard solution for you 9 is there, but is right before you. 10 Now, I know, Senator Golden, you've actually 11 put legislation in there on it, and so I applaud you 12 for that. 13 Let me just finish up with one quick coda on 14 the thing I mentioned to you, is this Department of 15 Taxation effort that unilaterally reduced the scope 16 of it, so that left about 150 companies out in the 17 lurch. 18 A lot of companies that applied for it under 19 the old rules, that applied, had gotten it 20 previously, had counted on this, had really been put 21 in a bad way. 22 And I want to thank you, Senator Golden, and 23 you, Senator DeFrancisco, and I know others have 24 been involved, too, enormously, for ringing the bell 25 at the Department of Taxation, to say, We need to 1 come up with a fair and justifiable solution -- 2 equitable, I beg your pardon, solution for this. 3 And I think that's exactly right. 4 We're in good discussions with them. 5 I'm hoping we'll be there, but we're not 6 at -- we still need you all to help pull the oars, 7 because we're not on the shore yet. 8 I'm hoping we'll get there, because I think 9 it's very important for these companies. 10 But I would just step back and say, I bring 11 this up also, because it has ramifications that are 12 enormous for your work here today. 13 No matter what policies you come up with, if 14 there is a sense that the rules of the road can 15 change, that folks can do it retroactively, without 16 notice, without approval, without public comment, 17 wow, all the good work you all are trying to do 18 really is in a bad way, because tax advisers will 19 say, Well, let me tell you, who knows what they'll 20 do. 21 So I think it's very important for your work, 22 overall, but, I commend you for this work. I think 23 it's very important. 24 I think, particularly in this area, there's 25 solutions that, across the aisle, should be widely 1 agreed to. 2 We're happy to give you anything we can do, 3 Senator, to help with our experience and knowledge, 4 firsthand, of working exactly these issues with 5 small and medium businesses, and happy to help in 6 any way. 7 And I thank you for the chance to testify. 8 And I guess I'll ask for my testimony to be 9 entered for the record, and appreciate the time and 10 energy. 11 SENATOR DeFRANCISCO: Thank you for your half 12 hour of testimony in nine minutes. 13 Excellent. 14 DEAN ZERBE: Yes, sir. 15 [Laughter.] 16 SENATOR DeFRANCISCO: That was very, very 17 appreciated. 18 Anyone have any questions? 19 Senator Krueger. 20 SENATOR KRUEGER: Thank you. 21 So film and tax policy? 22 DEAN ZERBE: Yes, ma'am. 23 I'm the only graduate with both a degree in 24 film and a degree in tax policy, yes. 25 SENATOR KRUEGER: That's great. 1 Okay. 2 SENATOR DeFRANCISCO: It's schizophrenic, 3 or... 4 DEAN ZERBE: No, it's my great gift. 5 I make tax funny, which turns out to be a 6 [unintelligible]. 7 Yes. 8 SENATOR KRUEGER: If you make a funny film 9 about taxes, that would be fabulous. 10 DEAN ZERBE: Yeah, that would be -- that 11 would be quite impressive. 12 SENATOR KRUEGER: So you closed up on talking 13 about what New York did with the QETC. 14 I just want to clarify what my understanding 15 is. 16 DEAN ZERBE: Yes, ma'am. 17 SENATOR KRUEGER: When we sunset the Empire 18 Zone program -- 19 DEAN ZERBE: Right. 20 SENATOR KRUEGER: -- I was in favor of 21 sunsetting that, for the record. 22 And, yes, QETC had become a tool within the 23 Empire Zone package, so I'm just double-checking, 24 when you mean that, certain companies were eligible, 25 certain weren't, it was because you had to be 1 approved for Empire Zone credits in order to draw 2 down the QETC? 3 DEAN ZERBE: No, ma'am, it's a little bit 4 different than that. 5 And I'll send you, exactly, so I've got it 6 right, but here's what it is: 7 In other words, you had a lot of folks in the 8 queue, waiting to be approved, and they're still in 9 the queue. 10 But while they're waiting in the queue; in 11 other words, say they had applied in 2010, come 12 along in 2012, the -- in September of 2012 the 13 Department of Revenue said, Well, you know, for all 14 these years, it's been X, Y, and Z that can benefit 15 very broadly. But now we're going to change it, 16 it's just Z. 17 And who was really hurt by this was the 18 manufacturing industries, and, quite frankly, in 19 green technologies. 20 Architect engineers doing green building 21 design were really hurt by that, so they're still in 22 the you couldn't. 23 So I think a little different than your 24 situation, but it was done without any notice, it 25 was done retroactively, because they're here. No 1 public comment. 2 And I would just say, kind of maybe giving 3 you a broader perspective, wow, that kind of a 4 retroactive action, particularly without anything in 5 terms of a rule-making, a very different kettle of 6 fish than I ever see out there, broadly, at the 7 federal level, or even at the state level. 8 So, we're working with them. 9 Like I said, the center would certainly be 10 thrilled to have you join your voice, Senator, to 11 get into a better place. 12 I'm hoping we will do, but that's the posture 13 where we are, if that help, yes, sir -- yes, ma'am. 14 SENATOR KRUEGER: I would love to see more 15 material about that, because I was not aware of 16 this, as you've just laid it out. 17 DEAN ZERBE: Yes, it's very sad for the 18 businesses involved. 19 I mean, you know, a lot of them counted on 20 this. 21 They had actually been approved, often, a 22 year, and two years, they said: Great. Year 3, I'm 23 going hire that new person, I'm gonna get that new 24 machine. This is terrific. 25 And then told, Well, thanks, you know, but 1 here's the new rules, and away we go. 2 It's' been very, very unfortunate for them; 3 yes, ma'am. 4 SENATOR KRUEGER: Because you were listening 5 earlier, since you referenced, you know, I'm, uh -- 6 I tend to come at this more of a, let's try to do 7 broad-based, fair equity, and not try to cherry-pick 8 that we know which companies, you know, will be 9 successful, and that we can, you know, be selective 10 in who we give better tax deals to. 11 But then you were talking about the R&D 12 credit, having been proved to be a fairly successful 13 one. 14 And you kept talking about, particularly for 15 startups. 16 Define for me what should be the cutoff of 17 when you're not a startup anymore. 18 DEAN ZERBE: I think that's a good -- that is 19 a good question. 20 You've got it in the QETC, uhm -- yeah, and 21 just, you know, at the federal level, 22 [unintelligible], R&D, of course, doesn't do much of 23 anything for startups, because they're not making an 24 income situation, and New York's been different in 25 that way. 1 In the New York law, you've got it for 2 100 or fewer employees, and there are certain other 3 tests, in terms of the level of income you've been 4 making, and the sales you've been making. 5 So, I think those are probably fairly good 6 rules of the road that you've had in place, that, 7 I think, they've felt that they're within the 8 startups. 9 And we can certainly look and see what other 10 states have done to define this. 11 There's only a handful of states that have 12 had this, and they've all been very successful. 13 Minnesota, Louisiana, and yourselves, and 14 I think there's one or two others that come to mind, 15 but I'll be happy to look at other language, at 16 least that you can think of. 17 But I think in all honesty, Senator, the 18 framework that the QETC had, and that Senator Golden 19 had, I think, in his bill, that works. 20 I think it's something that reasonable people 21 can, you know, find is within the ballpark of where 22 you want to be on a startup. 23 SENATOR KRUEGER: And if we can agree that, 24 you know, successful tax policy is that which is 25 sort of fair, equitable, transparent, and works -- 1 DEAN ZERBE: Yes, ma'am. 2 SENATOR KRUEGER: -- and you work around the 3 country, can you name the three states we should be 4 looking at to model ourselves after with those 5 goals? 6 DEAN ZERBE: Well, overall, I would give that 7 some more thought. 8 I think that's a very fair question. 9 I think, where I live and breathe, in terms 10 of hiring incentives and economic-growth incentives, 11 I think we've actually -- 12 And I'd be happy to give you some model 13 language that we've drafted up, because we've been 14 asked this question before. 15 -- I think, historically, the Minnesota model 16 was a good one to look at. 17 I really do think the QETC, when we talked -- 18 you'll be very pleased to know, when we talked to 19 the U.S. Senators about models to look at, we very 20 much looked at the New York QETC as a model. 21 I think, the closer you can parrot the 22 federal R&D, in terms of who qualifies, is better, 23 in that it makes it easier for small and mediums to 24 qualify. 25 In other words, you're in for this, you're in 1 for that, setting aside the refundable, they can get 2 that. 3 But, in other words, Hey, you're available 4 for this benefit. You're also now available for 5 this benefit at the state level. 6 I think you're in a better place there, as 7 opposed to anytime you start having a variance in 8 the rules between the federal and the state, at 9 least in the R&D, it tends to be a bad place. 10 You basically have overlapped -- all 11 40 states, basically -- in fact, many of the states 12 directly just cite to the federal Section 41 of the 13 R&D credit. 14 So I think -- I'll be happy to look at that 15 more, but I think you're already in a pretty good 16 place with law that you've got. 17 And I know better than you do -- I'm sorry, 18 I know just as well as you do -- 19 No, no, no. 20 SENATOR KRUEGER: Probably know better. 21 DEAN ZERBE: No, no, I don't. 22 What I mean is, that you're -- it's always 23 fear easier for a legislator to kind of look at what 24 you've done, and where you've been, and everything, 25 and, so -- as opposed to trying to invent the whole 1 wheel. 2 And, so, I think you're in a pretty good 3 place, but I will certainly look at that, and we'll 4 get you our model language that we have, too, but 5 it's not that far apart from where you all are 6 already, in terms of, I think the refundable piece 7 is the big difference-maker for New York, I really 8 think. 9 And as I hear discussions about helping 10 Brooklyn, helping Staten Island, helping 11 Upstate New York, getting those startups, and those 12 technical startups, that's where you want to be. 13 And that's such a nice thing that New York 14 has had. 15 We saw firsthand the differences that was 16 making for companies; yes, ma'am. 17 Yes, ma'am. 18 SENATOR DeFRANCISCO: Senator Savino. 19 SENATOR SAVINO: One, very quickly. 20 DEAN ZERBE: Yes, ma'am. 21 SENATOR SAVINO: Nobody, in any of 22 [inaudible] has talked about one of the things that 23 may deter a startup from coming in. 24 So, when you mentioned Staten Island, it 25 triggered something. 1 About 10 or 12 years -- no, more than that. 2 Almost 20 years ago, in Staten Island, there 3 was a tremendous investment to build what they 4 called a "teleport." 5 It was going to be the -- you know, the 6 be-all and end-all of information technology in a 7 hub for these types of startups. 8 It has been a tremendous failure, and largely 9 because, while it was a great piece of property, and 10 they built this corporate park around it, it takes 11 forever to get there. 12 So no one has addressed the issue of 13 transportation inequities, and how hard it is to get 14 somebody to and from a particular place. 15 I mean, that, I think -- does that factor in 16 in a lot of places, in your experience? 17 DEAN ZERBE: I think that's a fair point. 18 I think New York has -- every state has a 19 different bundle of benefits that they bring. 20 I mean, I know there's been a lot of 21 discussion about Texas in here. 22 You're not Texas. 23 You bring your own bundle of benefits and 24 good activities and good schools, and that's 25 terrific. 1 But I think, obviously, infrastructure can 2 matter enormously, that you can have easy access. 3 I know, for instance, some of the cities in 4 the south, Charleston, Savannah, are working very 5 hard on their ports because it's vital for them to 6 have their good port facilities to be moving in and 7 out product. 8 And so, yes, I think, particularly for the 9 manufacturing situation, you need to -- you want to 10 have, obviously, good roads and good movement of 11 people. It's certainly an important part of all of 12 that; yes, ma'am. 13 SENATOR SAVINO: Because I would think 14 even -- even if we were to would offer the best, 15 most attractive tax-incentive program, if you can't 16 get your simple, you know, goods to market, whatever 17 it is that you're selling, it's not going to work. 18 DEAN ZERBE: Yes, and if it's a mud road 19 they're gonna have to go on to get to port, yes, 20 you're in a bad way, that's right. 21 I mean, it's always a bundle of things that 22 make a city or a state attractive for investment. 23 And, certainly, you're right, you want to 24 have infrastructure, and all of that. 25 I just think, for New York, looking in -- as 1 I kind of approach it, thinking, your tax policies, 2 what could we be doing in terms of tax that would 3 make it most attractive? 4 I think, you know, certainly, obviously, 5 overall, changes are good, but then you say, Okay 6 well, what are specific policies that we can look at 7 that will attract certain types of businesses, 8 startups, because of their impact on jobs? 9 Because that's where job growth comes from. 10 If I didn't make that clear to begin with, 11 job growth comes with startups; not so much small, 12 medium, or large, but, really, new businesses is 13 where it creates. 14 And if I didn't make that clear, that's why 15 I was focusing on it. 16 But I think you raise a fair point. 17 I mean, I think, from where you sit, you need 18 to think of the overall bundle of ways that you 19 attract business. 20 Tax policies, obviously, a critical one, but 21 there's, certainly, you're right, that there's 22 others that businesses are going to want to look at; 23 yes, ma'am. 24 SENATOR DeFRANCISCO: Thank you very much for 25 your information, and being patient, being the last 1 speaker. 2 This -- you're not only the last speaker, 3 this is now the conclusion of the last hearing, 4 statewide. 5 And, what we intend to do, is to try to put 6 together some of the suggestions as a laundry list 7 of things we'd like to see discussed, and provide 8 that, not only to the Governor's group that's doing 9 the same thing, that's just started doing the same 10 thing, but, also, to advocate for some of these in 11 the next year's budget. 12 Senator Marcellino? 13 SENATOR MARCELLINO: I agree, John. 14 It's -- if these hearings ought to be 15 considered a success, we have to come up with 16 something positive, and actually come up with, 17 either, legislation, separate and apart from the 18 budget, that which is not going be in the budget, 19 or, incorporate a lot of it into the budget. 20 I'm looking forward to, not only putting 21 stuff in the budget that will help and make the tax 22 system a lot fairer, and, simplification, because 23 that's what I'm hearing, and that's what I've heard 24 throughout the state, and throughout our hearings. 25 There's a complexity out there that is 1 unnecessary, and it has to be addressed. 2 It may not be easy, and some oxes are gonna 3 get gored, but that's the way it has to be if we're 4 going to make our state move into the 5 twenty-first century and get it more likeable by 6 businesses. 7 We want to bring people here, we want to 8 bring businesses here, we want to create jobs here. 9 That's the whole purpose of this; not just 10 cutting taxes. 11 There's a reason we want to cut the taxes: 12 We want to bring jobs to New York State, we 13 want to employ our people, and we want to make sure 14 that it's a success. 15 So if this is going to be successful, and 16 I believe it will be, we're going to move to the 17 budget, we're going to move to separate legislation, 18 and bring that to fruition. 19 I'm looking forward to that in this coming 20 session. 21 Thank you. 22 SENATOR KRUEGER: Thank you. 23 DEAN ZERBE: Thank you all. 24 SENATOR DeFRANCISCO: I'll conclude it. 25 Thank you all. 1 (Whereupon, at approximately 12:35 p.m., 2 the public hearing held before the New York State 3 Senate Standing Committee on Finance and the 4 New York State Senate Standing Committee on 5 Investigations and Government Operations 6 concluded, and adjourned.) 7 ---oOo--- 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25