New Taxes, Cut in Budget Plan

by Lesley Politi on December 15, 2008

New taxes, cuts in budget plan
Paterson sees $404M tax on non-diet soda; higher levies on health care
By JAMES M. ODATO, Capitol bureau
Click byline for more stories by writer.
First published: Sunday, December 14, 2008  
New taxes, deep cuts to education and health care, and a restructuring of the state’s economic development programs will be hallmarks of Gov. David Paterson’s first budget plan to be released in two days, according to interviews of people briefed on components.The plan will come with a host of revenue raisers — increased taxes on hospitals and insurance policies, for instance — and at least one new assessment, a so-called obesity tax on non-diet soda to raise $404 million. The governor also is contemplating requiring new license plates to raise cash, reviving sales tax on clothing purchases, removing the tax cap on gasoline and threatening to require Indian retailers to collect taxes on sales to non-Indians by signing into law a bill passed earlier this year by the Legislature.

Paterson will unveil the spending plan, aimed at closing a $12.5 billion deficit for next year, on Tuesday. The total size of the Paterson budget is unknown.

There is no word on Paterson’s plans for the state work force, although he has said he will adhere to a strict hiring freeze while looking to consolidate some components of government.

The cuts will be across the board and will build upon a deficit reduction plan Paterson proposed in November as he attempted to close the $1.5 billion shortfall in the $120 billion budget negotiated for this year. The plan was inherited from the executive budget introduced last January by Gov. Eliot Spitzer.

The health industry will be particularly upset, although Paterson’s cuts will raise blood pressure throughout. He will call for about $3.53 billion in health care cuts, not including federal share of matching Medicaid dollars, which could be another $2 billion in cuts.

The biggest hits will be to insurance companies, which will be asked to come up with about $855 million in extra assessments. Those amount to more taxes on health insurance plans, increased sales tax on hospital discharges and more shifting of general fund costs to the Insurance Department so that insurance companies pay for programs such as Timothy’s Law, the mandated coverage of mental health treatments.

Further, the governor also will propose a new tax on some physician services to raise $50 million.

The bottom line will be a net increase in costs that ultimately get paid by subscribers, thereby increasing the cost of coverage at a time that most upstate insurers are struggling.

Hospital cost saving initiatives will amount to $700 million next year and $50 million this year. Some of that will come from a 0.7 percent tax on gross receipts and Medicaid rate reductions. Graduate medical education funds will be redirected to save $141 million and another $23 million will be cut through reforming reimbursement.

Nursing homes will be cut by $4.2 million this year and $420 million next year. Home care will be cut $190 million next year.

A number of other public health programs will come with savings by, for instance, taxing non-diet sodas under an “obesity tax” that will raise $404 million. Prescription drug costs, a hit on pharmacies and drug makers, will cut by $111 million.

Among the reductions in education spending, public colleges will be directed to raise tuitions. But despite the cuts, Paterson will try to make it easier for SUNY schools to partner with private developers who want to build on campus property. The public/private initiative is seen as a way to stimulate construction of private housing for campus residents.

The Empire Zone program will be cut by at least 50 percent, saving the state tens of millions by not extending benefits as liberally.

The budget will come a day after Senate Republicans vote on a bill to stimulate the economy by phasing out the Empire Zone program through 2011 and using the savings as tax breaks for companies.

The governor has contemplated instituting a different pension system for new employees, but the so-called Tier 5 program may not make it to the budget. He is also expected to reiterate a call for greater health care payments from retirees and the closure of some juvenile detention facilities.

James M. Odato can be reached at 454-5083 or by e-mail at


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