However you slice it, the recent dreary reports by the Tax Foundation and State Comptroller Thomas P. DiNapoli plainly document that whatever improvements New York State has made to its balance sheet – and it has made several – the task of making this a business-friendly state has only begun.
The two reports amount to a slap to the head. In one, DiNapoli sounds an alarm over New York’s shrinking financial industry. In the other, the Tax Foundation’s annual ranking of state business climates puts New York dead last. The news isn’t really surprising, but it ought to be sobering.
Together, the two reports form a pincer assault on the state’s economy. On the one hand, continued weakness in the financial sector, New York’s dominant industry, spells trouble for state finances. On the other, the state’s reputation for high costs, including taxes and energy, makes it hard to expand the economy to make up for those losses. It’s a tough hand to play, but one that New York’s careless policies have invited.
New York has long relied on its financial sector to supply the money it needs to meet its outsized expenses. For example, in 2007, the securities industry accounted for 20 percent of the state’s personal income and business tax revenues. Today, it musters 14 percent.
In New York City, one of every seven jobs is directly or indirectly linked to the financial sector. Net job losses there are more than 20,000. Meanwhile, Wall Street bonuses, an engine for state revenues, are expected to be down 14 percent from last year, which was down from the year before. Those facts won’t help as lawmakers gather in January to begin crafting a budget, especially given that the state is once again facing a projected deficit.
In the past, state leaders have been able to count on the financial sector to come roaring back, allowing them to continue to spend as recklessly as they wanted. These are different times. Wall Street may come back at some point, but who knows when, and who knows if the industry will remain concentrated in New York? The Internet is a decentralizing force.
New York has never in recent memory been able to count on attracting new businesses. The climate here is decidedly chilly. Taxes and fees are ubiquitous and high. Energy costs are high. Regulations are often overly burdensome. As a consequence, the state cannot count on expanding its tax base, but must either raise taxes, cut spending or find new efficiencies.
The state raised taxes last year, imposing a “millionaire’s tax” while cutting rates slightly for other New Yorkers. The result was higher revenues. But Albany can’t come back to that well again this year. We can’t become a more business-friendly state by piling our tax burden even higher.
New York has made strides under the leadership of Gov. Andrew M. Cuomo. The budget has been cut, a tax cap imposed and a new pension tier created to save on future retirement costs. But, clearly, the work has hardly begun.
As candidates for state office come knocking over the next four weeks, it would be useful to know what exactly they intend to do.