N.Y.'s Quick Overhaul of Tax Code Pleases Analysts

While it’s unlikely to singlehandedly trigger a rating upgrade, the New York Legislature’s approval of Gov. Andrew Cuomo’s overhaul of the state income tax code is a step in the right direction, muni market observers say.

“I’m not expecting an upgrade, but I see it as a credit positive,” Alan Schankel, a managing director of Janney Capital Markets in Philadelphia, said Thursday after the state Senate and Assembly passed the tax and jobs package that Cuomo sent to them only a day earlier.

The Senate approved the bill  unanimously Wednesday night before the Assembly, working after midnight, passed the measure by 130 to 8.

The package calls for a tax cut for most New Yorkers and an increase for individuals making more than $1 million annually and couples making more than $2 million. The three-year agreement also features an infrastructure fund to inject more than $1 billion into job-creating investments and an estimated $320 million payroll-tax cut on businesses within the New York City region covered by the Metropolitan Transportation Authority.

Cuomo crafted the measure in conjunction with Senate Majority Leader Dean Skelos, R-Rockville Centre, and Assembly Speaker Sheldon Silver, D-Brooklyn.

“The leadership ­— the governor, the Senate the Legislature — set out to do what they had to do,” Schankel said.

According to Cuomo, the new tax structure would generate $1.9 billion in additional revenue for New York, covering about half of its projected deficit, although some critics questioned the numbers and criticized the hastiness of the tax deal, which cleared the Legislature in about 30 hours.

Moody’s Investors Service assigns an Aa2 rating to the state’s general obligation bonds, while Fitch Ratings and Standard & Poor’s assign equivalent AA ratings.

“The current rating incorporates our expectation that the state would be able to close its projected budget gap for fiscal 2013. However, the move to close some of that gap occurring earlier is a credit positive,” said Baye Larsen, a Moody’s vice president and senior analyst.

“The additional revenues currently being projected by the state is a key rating factor,” Larsen added. “Looking at revenues and expenditures, and how they’re balanced, is a more important factor than the specific tax rates.”

Income tax rates for the highest earners will rise from 6.85% to 8.82%, although they will no longer be subject to the “millionaire’s tax” surcharge.

Assembly Minority Leader Brian Kolb, R-Geneva, was against raising taxes for anyone. “This is how they’re conducting business,” he said. “Let’s go after the millionaires, class warfare, divide and conquer. It’s wrong.”

According to Cuomo, the state would compensate the MTA for the lost revenue, though particulars were not immediately available. Maintaining that revenue was a priority for Joseph Lhota, who took over last month as the authority’s executive director.

The Empire State is not alone, according to Moody’s.

“Both in New York and California the current administrations said they would not pursue higher taxes and both have sought more taxes,” said Emily Raimes, also a Moody’s vice president and senior analyst. “A number of states still see some very challenging budgetary issues. With revenues down, states are looking for budgetary remedies.”

For reprint and licensing requests for this article, click here.
Tax New York
MORE FROM BOND BUYER