"Good morning Mr. Farrell. Thank you for having me, everybody. It's chilly here but it's a good day for New York State, I think, and I think the future looks bright for this state if we do what's right, keep our nose to the grindstone, and realize that we represent 18-odd million people, 8.3 million of those who live in New York City, and who basically feel that we are going in the right direction and clearly that we have more to do, clearly that not everybody is sharing in the Great American Dream. But I think the trends in New York City are healthy. Unemployment is down, building permits are up, life expectancy is up, crime rate is down, a lot of things are going in the right direction. But today I wanted to thank you for the opportunity to address the joint committees concerning the State's Executive Budget for Fiscal Year 2007- 2008.  Seated with me are Michelle Goldstein, director of our State Legislative Affairs Office for the City of New York, and Mark Page, director of the City's Office of Management and Budget.

"Last month, Governor Spitzer, as you know, made creating "One New York" the theme of his first "State of the State" message. In important respects, most notably, by at last righting an historic wrong and offering a system providing more funding for our public schools, this Executive Budget, I think, advances us toward that worthy goal of "One New York."

"In other areas, particularly in unjustly eliminating nearly $660 million of State revenue-sharing funds to New York City in our current and upcoming fiscal years, sadly this budget does not. Now it's incumbent on the Legislature to retain what is sound in the Executive Budget, and to address what is faulty.  And as you begin that important work, I ask you to bear in mind that New York City is the economic engine of the entire Empire State.  We all have a strong interest in keeping that engine running smoothly. 

"The City contributes nearly half, actually 48.6%, of the State's tax revenues, and the continued strong performance of our economy is why the State is enjoying its current budget surpluses. At the very least, that means that the State budget should not undercut New York City's economy, which to some extent this budget does.  In government, when an agency or, in this case, a locality, is doing well, policy makers often commit the error of cutting its funding.  Successful businesses, let me remind you, do exactly the reverse; they invest in their top subsidiaries which this budget does not. But we should and we must. 

"Now, everyone in this room recalls that just five years ago, New York City faced record, back-to-back budget gaps of $5 billion, and then $6.5 billion. With the help of our State leaders, we put the City's finances back in order.  You provided us the flexibility to borrow $2 billion that was instrumental to our recovery. 

"For our part, we cut City spending by nearly $4 billion.  We raised our property tax rate by 18.5%.  And at the same time, we maintained disciplined City investments in our schools, our infrastructure, and our quality of life. In other words, New York City's taxpayers and employees dug into their own pockets and made the sacrifices needed for sound fiscal management.

"And strong as this medicine was, and painful as it was, we knew that keeping New York City an attractive place in which to live, work, and do business was the only way to get ourselves back on our feet. It worked.  And because it did, we now can ease the tax burden on those same city residents.

"These tax cuts will reward those who sacrificed, those whose sacrifice got us through our worst days, help more New Yorkers work their way out of poverty and keep our economy growing.  As our representatives, you must now help us provide such tax relief and also you to ensure that the State makes the investments now that will keep our City strong and growing in the future.

"First let me address education. I'm happy to say that the Governor is proposing major investments in our City schools. Let me preface my comments on the Governor's "Four-Year Education Investment Plan," however, with this observation:  Last year, the City and State effectively settled a substantial portion of the issues raised by the Campaign for Fiscal Equity case with an agreement to evenly divide the capital costs of replacing and modernizing New York City's public schools.

"With half our City schools of World War II-vintage, or even older, this is clearly an urgent task.  Because of the State's strong partnership, we are now moving forward vigorously with the largest and most comprehensive school capital program in New York City's history. 

"It will create 65,000 new classroom seats throughout the city.  That will go a long way toward reducing class size, and providing the city's school children with the modern classrooms, labs, libraries, and other facilities they need for a first-rate education.

"This year, our attention turns to State operating support for the schools.  The Executive Budget proposes that State funding for our schools will grow by more than $3 billion annually over the next four years, from $7.1 billion annually today to more than $10 billion annually by the year 2011.

"I want to point out, however, that substantial as this is, it does not match the funding increases that the City has put into our schools during our Administration, even during the years when we faced unprecedented budget gaps.

"Today, we in the city, with our own tax dollars, spend $3.5 billion more on our schools every single year than we did five years ago.  By Fiscal 2011, we will have added another $2.3 billion more in such City spending, for a total nine-year increase of $5.8 billion annually coming directly out of the pockets of New York City taxpayers.

"During that same period, even when you include the historic long-overdue funding increase that the Governor now proposes, State operating support for City schools will have grown by a total of $4.5 billion, contrast that with the $5.8 billion that our taxpayers came up with. It should be noted that when you include the unfair distribution of STAR aid in the Governor's budget, after all the strum und drang and the court decisions, the City's share of State educational aid will change virtually not one bit.

"I make this point, not to diminish the importance of this additional State support, for which we are grateful.  But I want to underscore our Administration's longstanding commitment, backed up by more than our share of City tax dollars, to ensuring a quality education for all of our children.While even though we have educational expenses not found in other parts of the State, let me just reiterate, we are not getting any relative help financially. We're getting more money but it's exactly the same share that we have gotten in the past of state aid, notwithstanding the fact that this city sends $11 billion more to the state than we get back.

"I am delighted, however, with the Governor's focus on reform and one of the principal features of his Contract for Excellence in Education. I couldn't agree more with him and I'm pleased to note that the reforms it contains mirror those we have brought, or are attempting to bring, to New York City's public schools.

"That includes insistence on rigorous top-to-bottom accountability for improved school performance, providing incentives for schools that achieve such results, offering pay differentials for teachers in math, science, and special education and reforming teacher tenure to make it a genuine tool for rewarding excellence.

"We believe, as I think the Governor does, that we need a simple, fair, and transparent system of State education funding.  It's long-past time to end the arcane array of school formulas that have allocated funds on the basis of political expediency rather than student need. I urge the legislature to do it and do it now. You have to look on where the students are and what the needs of those students are, and not just look at the political distribution of funds based on where your voters are.

"We also strongly support the Governor's call to lift the cap on charter schools from its current level of 100 schools statewide to 250 schools.  And we endorse the proposal that the Schools Chancellor of New York City be authorized to issue up to 50 of these new charters. 

"This will permit us to increase the number of small, innovative schools for which there is now a substantial pent-up demand in our city. And little wonder, because charter schools offer both greater choice for parents, as well as academically rigorous education for students.  Anyone who cares about improving education should applaud the fresh ideas and approach that this new wave of charter schools will introduce. And anybody that votes against it, I urge you to look the parents in the eye of those whose choice you are taking away and the kids- their kids, who aren't getting as good an education as they would if the parents have more choice and if we have more diversity in the offerings for them.

"Now, let me turn to other programmatic expense elements of the Executive Budget, starting with health care in general, and then moving to Medicaid in particular. The Governor has set the right overall priorities: Reorienting health care toward effective disease management and prevention; redirecting funding toward the safety net hospitals that serve those most in need; and reducing runaway costs while improving patient care. These are also major priorities of our Administration. 

"We have, for example, succeeded in substantially increasing public insurance coverage enrollment.  But we recognize more needs to be done to insure the uninsured.  And for that reason, I strongly support the Governor's proposal to dramatically expand the number of families participating in the Child Health-Plus program.

"I also share the Governor's commitment to increasing health care information technology, particularly in underwriting the introduction of electronic health records in clinics and doctor's offices with large numbers of low-income patients.  This is an area in which the City is already a national leader.  We have committed $27 million in City funds and $3 million in State funds to bringing electronic health records to doctors and health centers in low-income communities, because we believe they hold out enormous promise for dramatically improving preventive health care.

"Finally, as to Medicaid: I applaud provisions in the budget that would simplify the Medicaid application and renewal process, and allow more families and single adults who need Medicaid coverage to get it and to keep it. The 3% cap on Medicaid increases passed last year by the legislature does help all counties in the state, including the five that make up New York City.

"At the same time, we do recognize the need to reduce waste and fraud in the Medicaid program-and this year, the City is joining a pilot initiative that we believe will root out such problems, restore faith in the integrity of Medicaid, and save tax dollars.

"The Governor is also correct in his decision to protect hospitals with large proportions of Medicaid patients. These include the public hospitals in New York City's Health and Hospitals Corporation, because some two-thirds of HHC patients receive Medicaid. Shifting aid to a basis of how many patients need help from how big the hospital is, is fair, helpful, and intelligent.

"We should also work to create a balanced health care system.  New York has world-class hospitals and now the challenge is to establish world-class ambulatory care services. We should, however, remember that one of the great stars in the crown of New York State is our teaching hospitals and if we deny them the funds that they need to survive, we will be ultimately pennywise and pound foolish.

"Let me also say a few words about the need for State support for public housing. New York City's Housing Authority (NYCHA) administers 15 public housing developments that were built in the 1950s with State dollars.  These developments are home to almost 30,000 people with low to moderate incomes.

"For decades, the State provided money to meet a portion of the operating costs of this housing that are not covered by rent, but then stopped doing that nearly ten years ago.  As a result, NYCHA has had to divert what now amounts to $60 million a year in Federal support to cover these costs. If the State wants to be more compassionate, as it keeps saying that it does, here's a good place to start. Because this puts an unfair burden on the City, the State must resume its obligations and restore funding for this public housing.

"Let me turn to the area of revenue sharing, which is known as "Aid and Incentives to Municipalities," or "AIM" funding.  It provides unrestricted State support, support that the Governor "aims" to withdraw from New York City this year.

"The results are much worse than the three point- $330 million reduction it appears that we're taking in the Governor's budget.  Because of the way these funds are paid to the City, the effect will actually be the elimination of nearly $660 million:  $330 million in the current fiscal year and $330 million in our Fiscal Year '08, which begins July 1st.   The revenues from plugging tax "loopholes" promised the City in the Executive Budget will in no way fully offset these losses. Let me remind you that the legislature voted these loopholes for economic incentive reasons that haven't gone away. And since the State gets its share of loophole closing monies, double the amount of money is taken out of New York City's economic businesses than what the numbers say. These are the same businesses that are so highly taxed, we're working hard to keep them from leaving our city.

"The State's revenue-sharing funds are very important to New York City.  They provide us with welcome spending flexibility at a time when the share of discretionary spending in our budget keeps shrinking, year after year.  They are a cushion against any future ups and downs in taxes we receive from our real estate, financial services, and other very volatile sectors of our economy. 

"And if we lose these revenue-sharing funds now, does anybody seriously believe that we will ever get them back?  Once again, something that's gone, is gone; just take a look at the commuter tax. Let me give you an idea of the enormous impact this projected loss of State revenue-sharing funding will have on our city.

"The $660 million we stand to lose in the next State fiscal year is roughly equivalent to the combined annual budgets of the City's Department of Parks and Recreation, Department for the Aging and Department of Juvenile Justice, all put together.

"New York City has been receiving State revenue-sharing funds, known for decades as "per capita funding," since William O'Dwyer was mayor, more than 60 years ago. In recent years, there have been attempts to "nickel and dime" us on this revenue sharing.  New York City, and our city alone, was, for example, specifically excluded from each of the State's revenue-sharing increases enacted in 2000, 2005, and 2006. But until now, no one has ever proposed eliminating this funding entirely.

"This abrupt de-funding would produce an enormous hole in the preliminary City budget that we presented only a week ago. That's something none of us, Downstate or Upstate, can afford.

"The annual "imbalance of payments" between New York City and Albany is $11 billion, which means that we send the State that much more in tax revenues than we receive in State funding and State services.  Even without the elimination of AIM, New York City residents only get back 50 cents for every dollar they send to Albany.

"Members of the Legislature:  We should not make this imbalance any larger.  That is precisely what the elimination of AIM funding to the City's- to the City would do and I ask you to rectify this error in the Governor's Budget. Those of you who represent New York City, now is the time when you have to stand up for New York City and deliver what we need to keep the economic engine of the State going and to let us help those who live in the city and aren't as fortunate as the rest of us.

"In the same vein, let me turn to the revenue side of the budget. I also urge you to amend the Governor's STAR property tax relief proposal to ensure greater fairness for New York City taxpayers.  Certainly we share the Governor's commitment to reducing property taxes.  And we are acting on that commitment, a subject I'll discuss in more detail shortly.

"However, the modifications to the STAR program included in the Executive Budget seriously shortchange New York City residents.  We would receive only 14% of the Governor's proposed new STAR tax reductions.

"STAR already redistributes hundreds of millions of tax dollars generated in New York City to other parts of the state.  If the purpose of STAR is to provide relief to those who need it the most, New York City taxpayers should receive more relief than they did last year, not less, and I urge you to work with the Governor to achieve that goal.

"I'd like to make one more final observation about State taxes; and that concerns a proposal in the Governor's budget to increase from $40 million to $70 million what the City pays the State to administer our Personal Income Tax.  That raises the cost to the City to $20 per tax return, a one-year, 75% increase in overhead costs. This is pretty outrageous, if you think about it, especially when you take into account two factors: 

"First, the State never reduced what it charges the City for these services even after the commuter tax was eliminated, significantly decreasing the number of P-I-T filers; and second, more and more New Yorkers are filing their income taxes electronically, reducing administrative costs. 

"The Executive Budget sends us the message that it's time for a "PIT stop" on these fees.  So this year, I will ask the legislation- the legislation authorizing the City's Department of Finance to administer the City's P-I-T itself.  I'm confident that they can do it better for us than hitting us with a 75% year-over-year increase for doing less work.

"New York City's high taxes hurt our ability to compete with other regions- other cities in this region.  So the City also has a number of proposals to put before the Legislature to substantially ease this tax burden.

"First, we will ask the Legislature to renew the $400 property tax rebate that we have paid to City homeowners since Fiscal 2005.  When you originally approved this rebate three years ago, it was with the understanding that renewing it would depend on our lowering the City's overall property tax rate.  The preliminary budget I have presented does just that.  It includes a 5% across-the-board property tax rate reduction that would give New Yorkers $750 million in tax relief.

"We're also requesting your approval of an additional $250 million in job-creating local tax cuts, in the form of new deductions and credits to the Unincorporated Business Tax, targeted reductions in the General Corporate Tax and the elimination of the City portion of the sales tax on clothing and footwear.

"And because we believe in removing roadblocks to fulltime employment, we also ask you to make New York the first city in the nation with a child care tax credit. It would offset the fact that after paying for childcare, many people find that taking a fulltime job actually represents a net loss of income. 

"That simply shouldn't be the case, so we now propose to return up to $1,000 a year in tax credits to qualified low-income families with children under the age of three, in the form of personal income tax refunds. (Interruption off-microphone)

"Finally, we are also asking for one more piece of tax legislation, in this case a tax increase that would save the lives of thousands of New Yorkers. It would be a 50-cent per tax increase in the City's tax on cigarettes.  Experience demonstrates that raising the price of smoking is the surest means of discouraging teenagers from becoming addicted to tobacco.   And the additional revenues from this tax increase would permit us to mount new anti-smoking public health efforts.

"There are at least six other steps we urge you to take that would produce enormous budgetary benefits for the City, at no cost to the State.

"First is abolishing the Wicks Law, the requirement that the City contract separately for electrical, plumbing, heating, and other services on construction projects.  This antiquated and expensive measure raises the cost of such projects by an average of 14%.

"Currently, the Wicks Law controls all City projects valued at $50,000 or more.  The Governor has proposed raising this threshold to $2 million for City projects. Such a cutoff amount might be significant in other parts of the state, where the costs of building are lower. 

"But let me remind you that in New York City, it doesn't go nearly far enough.  More than 95% of our construction contracts are greater than $2 million.  And under the Governor's proposal, over the next ten years we would save only $53 million in City funds out of the $19 billion that we plan to spend on capital projects that are subject to the Wicks Law.  That's just three-tenths of one per cent of our total cost.

"Eliminating this costly and cumbersome law completely is the right thing to do.  It would produce almost $3 billion in capital construction savings for the City over the next ten years, and more than $1.5 billion in debt service savings. With a $2 million cap, why bother? Don't waste your time.

"Second, we urge you to amend State law to give City child welfare agencies access to the State's Wage Reporting System.  The information they could obtain on income of parents in the foster care system would permit us to draw down an estimated $20 million a year in additional Federal reimbursements.

"Third, we commend the Governor for including two common-sense reforms in his budget that the City has long sought.  The first would direct the courts to offset personal injury awards with payments from worker's compensation or other "collateral sources."  The second would put reasonable limits on the interest municipalities have to pay on judgments.  Both of these are very welcome steps that would save the City millions of dollars each year.

"Fourth, we are proposing legislation designed to curb the rising pension costs that are now the equivalent of 25% of salaries throughout our municipal workforce.   Add health and other fringe benefits to these pension costs, and this rises to 55% of salaries for all City workers. And for our uniformed service personnel, the cost of these benefits equals 100% of their salaries.

"For too long, pension "sweeteners" have been added here in Albany with no regard for their effect on the City budget.  There has been no accountability. Enough is enough.  It's time to put these decisions back where they belong: on the collective bargaining table between the City and our municipal unions.

"Fifth, to curb another growing expense in the City's budget, debt service, we urge you to increase the bonding capacity of the traditional- Transitional Finance Authority by $2.5 billion.  This would allow the City to finance half our capital program at substantially lower rates of interest, saving us millions of dollars each year.

"Sixth and finally, the Executive Budget anticipates conversion of the non-profit health insurers HIP/GHI to a private, for-profit company.  The proceeds of this conversion would go into the State budget to offset State health care expenses. 

"This ignores the facts that an outside expert has found that the City's cost of doing business with such a joint company that would face pressures of producing a profit will rise by at least $200 million a year, and also that 60% of HIP/GHI's business comes from New York City employees.  You should know that New York City is suing to prevent this outrageously anticompetitive merger that would be detrimental to our taxpayers.

"But in any case, we believe that the proceeds such a sale, if it were to take place, would be far greater than the $1 billion figure in the Executive Budget.  In all fairness, then, if HIP/GHI goes private, and I'm not all- at all certain that this is a good idea, as I've said, the money realized should be shared proportionally with the City.  And we will work with the City's Municipal Labor Committee on this important issue.

"Before taking your questions, let me also run through other key items on the City's legislative agenda this session. In the realm of criminal justice, we propose to eliminate youthful offender status for any violent felony committed with a firearm.  Gun play is never child's play, and it's just time to stop treating it as such. How would you like to be a victim or have one of your relatives be a victim? Kids with guns should be treated as adults.

"We also should require all convictions, felonies and misdemeanors, to be included in the State's DNA databank. And to protect our children, we must give the City's Administration for Children's Services access to adult rap sheets, so that they can have vital information about the homes that vulnerable children are placed in. The next time we unfortunately, and history shows this will happen, place a child into a family where if we'd had this information we would not have done, and that child is injured or killed, we all are going to know right where the responsibility comes.

"In the area of public health, reducing AIDS infections and improving AIDS treatment are among our paramount challenges.  Each day of the year, an average of 12 people in New York City are diagnosed with AIDS, many of them years after they contracted the disease.  In virtually every case, early diagnosis and treatment would have ensured them longer and more productive lives than they now face.  And people who don't know they are infected continue to infect and kill others.  So we urge this action to reduce barriers to HIV testing and improve linkage to care.

"Last year, the City adopted a new solid waste management plan that includes the most ambitious recycling program in the nation.   To make it operational, we need to reactivate a marine transfer station on the Gansevoort Peninsula of Manhattan's Hudson River waterfront.  For this to happen, we are going to ask the Legislature to amend the Hudson River Park Act.

"The reactivation of this marine transfer station has the support of the Speaker of New York City Council, Christine Quinn, in whose district it is located.  And I believe that such an environmentally sound measure is perfectly in keeping with the spirit of the law.

"Finally, I urge you to pass three measures that will further strengthen public confidence in the integrity of our government.

"First, we support the Governor's proposed Constitutional amendment mandating merit selection of judges.  However, the amendment process takes four years to complete, and there are things we can do in the meantime, including passing legislation this year making the judicial convention system more open and democratic.

"Second, I ask you to build on the reforms already made in the operations of our State government, and abolish the anti-democratic Public Authorities Control Board. It just is not democratic that three people should have control over what goes on in our city.

"And third, I am hopeful that, working with you and the Governor, we can pass legislation that will move us out of the 19th century, and into the 21st century, by replacing the broken State Board of Elections with the kind of professional, nonpartisan agency that other states already have.

"Members of the Legislature:  Reform is indeed the welcome new watchword in Albany.  It's been a long time coming.  But the people of New York State have sent a clear message that this is what they want and expect from their elected leaders.

"This year, we have in our power to renew and restore the public's confidence in government.  Let us seize this opportunity by passing a budget that is fair to every part of our state, and that makes the wise investments now that will ensure our long-term stability and prosperity. Thank you for your indulgence and I'll be happy to take some questions."