DiNapoli: Federal tax plan bad for NY

Dec. 12--GLENS FALLS -- State Comptroller Thomas DiNapoli says federal tax reform could have a devastating impact on middle-class taxpayers.

"I think it's going to be bad for New York -- whatever comes out. It's a matter of how bad," he said Monday during a meeting with The Post-Star editorial board.

DiNapoli talked taxes, the pension system and economic development during an hour-long session with the board.

Senate and House versions of the bill are different, DiNapoli said, which creates uncertainty. Among the top items of concern is elimination of New Yorkers' ability to deduct state and local taxes from their federal return. That is going to hit middle-class taxpayers hard, he said.

Cutting corporate taxes -- the tax bill would slash the corporate rate from 35 percent to 20 percent -- has not in the past trickled down to the middle class, DiNapoli said.

"I'm more worried about the impact on everyday people than I'm worried about the impact on corporations," he said.

It is the middle class that fuels consumer spending, he said.

If people have to pay more in taxes, DiNapoli said, that will put the squeeze on local budgets.

"You'll start to question more carefully how the money is being spent in the city, school district," he said. "There will be more scrutiny of government spending at all levels."

Some municipalities and school districts may have to exceed the tax cap, DiNapoli said.

Pressing infrastructure work, such as upgrades to roads and bridges and water and sewer projects, will be more difficult to fund, he said.

Whether wealthy taxpayers who own second homes will change their legal address to Florida or move to some other low-tax state in reaction to the tax bill remains to be seen, he said.

Revenues in New York are coming in below projections, which has created a $4 billion budget deficit on paper for 2018.

DiNapoli cited a variety of possible explanations for under-performance on the revenue side. The state economy has slowed a bit, he said.

Wealthier people planning to cash out investments may be waiting until the federal tax bill passes.

DiNapoli said state officials will have a truer picture of the state economy in the last quarter of the fiscal year -- in January, February and March -- when they see how much money was awarded in Wall Street bonuses.

If Gov. Andrew Cuomo stays true to the goal of capping the increase in state agency spending at 2 percent, that would take care of about half of the shortfall, DiNapoli said. But since 2018 is an election year, the Legislature and the governor will feel pressure to boost school and other aid to municipalities.

"Usually you can come up with a budget when you have more money to spread around. I think you may have a tougher time doing that next year," he said.

What the Republican-controlled Congress plans to do about health care is another unknown. If it is successful at repealing or significantly gutting Obamacare, DiNapoli said, then New York will have to grapple with the effects on 2 million residents who could lose coverage. They could flood emergency rooms.

Various estimates of the tax plan have concluded it would add $1 trillion to the deficit. To counteract the deficit explosion, there will be pressure on the federal government to cut spending on housing, education and home heating programs as well as community development block grants.

"It's a triple hit," he said.

In 2016, New York received 84 cents back for every dollar it sent to the federal government in revenue, DiNapoli said, and that was down from 91 cents in 2013. Most states get more money back from the federal government than they send to it.

Overall, New York is doing well, he said, but revenues are driven by a handful of counties -- New York City and the downstate counties of Nassau, Rockland and Orange. They have been responsible for about 90 percent of the new jobs created since the Great Recession of 2008-09, he said.

The state pension fund is 95 percent funded, primarily because the stock market is doing so well, he said.

Having a pension plan that is nearly fully funded is unusual among states, he said.

"The rally and recovery has been stronger and longer than anyone anticipated," he said.

DiNapoli expressed concern about efforts by the Trump administration to gut financial protections of the Dodd-Frank Act, which include an attack on the federal consumer protection bureau. Without proper government oversight, DiNapoli said, firms can take on too much risk, which can lead to big crashes like the Great Recession. The state lost about 26 percent of the value of its pension fund in 2008-'09, going from $155 billion to $109 billion.

DiNapoli said he wants as much transparency as possible in economic development agencies to avoid the problems such as as the bid-rigging charges that have plagued the Buffalo Billion project.

"If you don't have a transparent process, that's when people think they can get away with something," he said.

He's not sure granting tax breaks helps to create jobs, whether the state is granting the breaks or local development agencies.

"Some of the programs we have are so embedded in terms of how we do economic development. It's not so easy to unwind some of them," he said.

DiNapoli has been comptroller since 2007, when he was appointed after Alan Havesi resigned while under investigation. DiNapoli was elected in 2010 and re-elected in 2014.

He plans to seek re-election next year. He said he enjoys the work because he gets a chance to look at the whole state and serve as an independent reviewer of how taxpayer money is being spent.

He pointed out that since 2011 his audits have led to the arrests of 150 local and state officials and heads of nonprofits and to $50 million in restitution being paid.

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