Lieutenant Governor Donohue, Majority Leader Bruno, Speaker Silver, Leader Nesbitt, Leader Paterson, Attorney General Spitzer, respected members of the Legislature, and fellow New Yorkers.

Thank you for being here.

Let's get right down to business.

We all want to make our state as safe and secure as it can be, keep our health care system the best in the world, preserve our environment, provide our children with a quality education, and create hope and opportunity for all New Yorkers.

These and all our other goals depend on two important factors - the fiscal strength and integrity of our State, and an economic climate that encourages job creation, growth and investment.

Before we get to the specifics of this year's budget, please allow me to put a little perspective on it.

In 2002 and 2003, New York State suffered a decline in revenues for two years in a row - the first time that had happened since the Great Depression.

Due to the combined impact of the national recession, September 11th, and the Wall Street decline, New York suddenly faced a budget deficit of more than $11 billion.

Since then, we've worked hard to restore fiscal balance.

Our economy is coming back, and yet today we still face a deficit of $4.15 billion - significantly less than we have dealt with before, but still a formidable obstacle to future prosperity.

We are once again showing strong growth in state revenues. During periods of revenue growth the temptation is always there to spend more on worthwhile programs - but our responsibility is clear.

We must control spending and reduce the tax burden that limits economic growth so we can put these fiscal difficulties behind us just as we've done in the past.

The budget I submit to you today closes the current deficit primarily through recurring actions. It lowers next year's gap to $2.7 billion, the lowest level in five years, and puts us on the road to complete structural balance in 2007.

This budget takes decisive, sensible action - action to achieve the fiscal strength and integrity that will not only erase this year's spending gap, but close future deficits as well. It accomplishes this goal with four core principles:

 

 

• Controlling spending and building the State's reserves;
• Reforming our health care system and our biggest budget item - Medicaid;
• Cutting taxes, including property taxes to spur economic growth; and
• Linking state aid to performance and accountability standards.

 

Let's begin with state spending.

For the last ten years, we've held state spending growth below the national average.

The budget I present to you today will do even more.

It limits spending growth to just 2.6 percent in the General Fund and 2.4 percent in All Funds, holding both below the rate of inflation and consistent with our 10 year record of keeping it below the national average.

Another proven way to solidify the fiscal strength of our State is by building up the State's Rainy Day Fund.

Back in 1995, the Fund contained just $157 million. This year, just as we've done nine times since, we'll make the maximum contribution allowable under current law, increasing the reserve fund to over $864 million.

For the first time since its inception, the Fund is now filled to its maximum capacity.

One of the main reasons we were able to overcome the fiscal challenges of the last three years is the billions in unrestricted reserves we had set aside in addition to the Rainy Day Fund.

So, along with this budget, I'm submitting legislation that will allow us to further strengthen our State's fiscal foundation by more than doubling the size of the Rainy Day Fund.

We have an opportunity this year -- an opportunity to use the recent trend of economic growth as a springboard to long-term solvency, fiscal stability and tax relief.

Today I submit to you a responsible, forward-looking State budget that puts New York on solid financial footing and ensures a bright future for the State of New York.

New York has the finest health care system in the nation. From access to the latest medicines and life saving medical technology to the best doctors and hospitals anywhere, we truly have a health care system to be proud of.

But if we are to maintain the high quality of our health care system we must take action to address the rapidly escalating costs of Medicaid.

We all know that the cost of Medicaid is crushing taxpayers.

New York's Medicaid program is the most expensive in the nation. If left unchecked, within the next six years Medicaid costs could actually consume more than half of our entire state budget.

We cannot allow this to happen.

The budget I propose today keeps state and local Medicaid spending flat and reduces the program's burden on New York City, on our counties and their taxpayers.

It provides real, immediate relief to New York City and county governments with a beneficial fiscal impact this year of $577 million.

Beginning in 2006, the budget caps local government Medicaid payments at a maximum growth rate of 3.5 percent, and lowers that rate permanently to 3 percent by 2008.

And starting in 2008, this budget calls for a complete State administrative takeover of Medicaid.

But merely redistributing the burden is not enough. The State can no more afford to pay for the current and future costs of Medicaid than counties can.

Shifting the cost of Medicaid from the real property taxpayers in the counties to the state taxpayers without reform is nothing more than an empty promise.

Many of us have been working to address this issue for years. The recommendations in my Executive Budget take ideas from many corners including the Berger Working Group and the Senate Task Force on Medicaid Reform, led by Senators Hannon, Meier and Rath.

My budget proposes a four point plan to address this matter. It includes proposals aimed at the critical issues of: Cost Containment, Excess Capacity, Facility Infrastructure and Long-Term Care.

Real Medicaid reform is about more than cost containment - it's about restructuring the delivery of health care to make it smarter, more affordable, more efficient and higher quality.

First, we must implement a series of cost containment measures. Let me be clear, there can be no Medicaid takeover without cost containment.

While we control costs, we must modernize and strengthen our health care facilities in a way that recognizes how important they are to delivering these vital health care services.

That's why the second point of my plan addresses the issue of excess capacity. We cannot afford to invest more in underutilized facilities. My Executive Budget creates the Commission on Health Care in the 21st Century to make the difficult recommendations to right-size the health care system.

But even as we make these tough decisions, let's make sure that those facilities most in demand are up to the challenges of the 21st Century.

That's why the third point of my plan creates the new Health Care Efficiency and Affordability Law for New Yorkers (HEAL NY) -- a $250 million program this year that will fund health care facility and technology upgrades throughout the State.

Finally, we must make the system better, more accessible and more flexible to meet New Yorkers' individual needs.

The fourth element of my proposal is a package of initiatives that will dramatically improve the long-term care options available to seniors and their families. Long-term care, particularly nursing home care is one of the most expensive aspects of Medicaid.

Because we know a nursing home should be an option, but not the only option, I am advancing the new Access to Home Program that will help families make the structural improvements that allow elderly or disabled loved ones to continue living at home. And because more and more seniors can and want to stay in their own homes, the budget also doubles the State's investment in home services for the elderly.

These long-term care initiatives are not only the right thing to do - they are what our seniors want and they also cost less than the alternatives that exist today.

Each of these four critical elements is necessary if we are going to reduce the costs of the Medicaid system while improving care.

And as we make these major reforms to our health care system we must do more. That's why my Executive Budget reauthorizes HCRA and moves it on budget to provide for greater accountability and transparency in our health care financing.

We all recognize that there are two reasons why our Medicaid costs are too high. First, we spend too much and second our federal reimbursement rate has been too low since the inception of the Medicaid program.

As we seek additional aid from Washington our case will be strengthened only if we make these reforms and finally bring our costs under control. Let's work together to enact these reforms and also with our congressional delegation to help secure additional aid from Washington.

On behalf of real property taxpayers, New York State taxpayers, on behalf of our seniors, on behalf of the next generation of New Yorkers, I urge you to join me in reforming our Medicaid system this year.

As we cap local costs and eventually take over the Medicaid program, let's make certain that the resulting savings will mean lower property taxes for New York's families.

Toward that end, this budget builds on the highly successful STAR program with Co-STAR- a new tax reduction program that gives county governments and the City of New York an incentive to control spending and provide property taxpayers with needed relief.

To be eligible for Co-STAR, counties must keep their overall spending growth at or below the Medicaid cap rate of 3.5 percent in 2006. Taxpayers in qualifying counties will receive a property tax rebate check, directly from the State of New York. The program will begin in 2006 for seniors and farmers and expand to all taxpayers in eligible counties beginning in 2008.

Co-STAR provides a double benefit to county and New York City taxpayers - their governments will be encouraged to control spending growth and lower future property taxes, and they will get property tax relief directly from the State as well.

This year alone our Medicaid reforms will provide savings of more than half a billion dollars to New York's counties and the City of New York. But we know that many other municipalities, especially our Upstate cities, have been facing their own fiscal challenges - we need to help them, too.

As we exercise the fiscal discipline to put the State's financial challenges behind us, let's provide encouragement for local governments to do the same.

The new Aid and Incentives for Municipalities (AIM) program will provide up to $164 million in new State funding to cities, towns and villages all across the State over the next two years.

Every municipality will get at least a five percent increase. Certain fiscally distressed cities will be eligible for increases of up to 25 percent, provided that they have balanced budgets and hold their spending growth below 3.5 percent in 2006 and below 3 percent by 2008.

If they meet these standards, AIM will provide record increases of $38.5 million to Buffalo, $27 million to Yonkers, nearly $18 million to Rochester and $16 million to Syracuse over the next two years.

Next, this budget provides local governments and their taxpayers with an estimated $621 million in savings this fiscal year by making necessary reforms to the State pension system.

But we don't stop there. Once again my budget proposes a comprehensive mandate relief agenda that protects localities from the costs of top-down state policies.

The mandate relief plan repeals the Wicks Law, reforms binding arbitration practices, relieves local governments of certain litigation costs and enacts other measures to assist local governments in reducing costs and the related burden on property taxpayers.

By enacting real Medicaid reforms…launching the Co-STAR program…providing more aid to local governments…linking state aid to performance and accountability standards…making prudent pension reforms…and providing relief and protection from State mandates, this budget takes direct, decisive, and intelligent action to substantially reduce property tax bills all across New York State.

Let's make home ownership in New York more affordable.

Let's strengthen families and improve the quality of life in communities throughout the State.

Let's seize this opportunity to enact smart, meaningful property tax relief this year.

And as we work to help local governments and property taxpayers across our State, we will also work to ensure that every school gives our children the best education possible.

This requires both resources and reforms.

New Yorkers already spend more per pupil on education than any state in the nation.

But in too many school districts, parents and children are not getting the results they deserve.

This year's budget increases school aid by $526 million, the largest increase ever proposed by a Governor.

We're allocating $201 million of this increase to traditional school aid, most of which will go to our Flex Aid program. This initiative will reform our education system by providing each school district greater discretion to better meet the needs of its students.

Through Flex Aid, every district will receive at least a modest increase in aid.

The remaining $325 million will be targeted to our 5-year Sound Basic Education Aid Program, or SBE.

SBE aid will also provide every district in the State with additional funding, but the bulk of it will be targeted to high-needs districts like New York City.

These additional resources, coupled with educational reforms, comprise a comprehensive plan to complete the unfinished business I spoke of when I stood before you two weeks ago.

You and I know that we didn't need a court to tell us that the school funding formula was broken and unfair.

For years now, I've called for replacing our archaic school aid formula with a statewide solution that will provide every child with a quality education.

And as I have said, any new resources must be accompanied by top-to-bottom, fundamental reforms to ensure greater accountability and performance.

SBE is meant to achieve each and every one of these goals.

We'll target nearly 86 percent of SBE aid to 207 of our State's neediest school districts, with New York City receiving 60 percent of total SBE aid.

But SBE isn't just about investing more dollars in education.

It's about getting more education for the dollars we invest.

To that end, through SBE, we'll establish an accountability system to track student progress and performance, and assess how well our schools are spending the dollars we're providing.

We'll require school districts to develop plans to improve underperforming schools, and close those that fail to improve.

We'll create a new, independent Office of Educational Accountability and Efficiency to monitor performance, review improvement plans, provide better financial oversight, and promote increased efficiency.

And we'll allow our school districts to replace tenure for principals with performance-based 3-to-5-year contracts.

And just as we're providing additional aid to municipalities that operate more efficiently - and providing Co-STAR benefits to taxpayers in counties that operate more efficiently - let's do the same thing at the local school district level through STAR-Plus.

Under this budget, a new STAR-Plus school property tax credit will be provided to taxpayers living in school districts that operate efficiently and restrain their spending.

Record investments. Fair and equitable funding. Greater accountability. Higher standards of performance.

Taking these steps will further improve New York State's education system and ensure that our children reach their full potential.

In doing so, we'll be preparing our children for a higher education that opens the door to greater opportunity.

And nowhere is there clearer evidence that sweeping accountability measures and real reforms actually work than at New York's public university systems.

Higher standards… record enrollment levels… unprecedented minority enrollment… state-of-the-art academic facilities… our SUNY and CUNY systems have been transformed over the past ten years.

This year's budget will continue our strong record of support by providing a substantial increase in State operating aid, as well as new investments in SUNY and CUNY's capital program.

Clearly, there's no better investment we can make than educating young New Yorkers to meet the challenges and opportunities of the 21st century. Let's continue our unparalleled record in this vital area, while insisting on the highest standards of accountability and performance.

In order to create a bright, prosperous future for our next generation, a good education is not enough. We need to ensure that New York is a safe place for them to live, learn, and grow.

The progress we've made in reducing crime over the last ten years is nothing short of historic -- New York is currently the safest large state in America. Let's make it the safest state in America.

This budget reflects a commitment not only to that goal, but to meeting the realities of fighting the War on Terror.

It increases funding for Operation IMPACT - allowing for an enhanced presence in the original 15 IMPACT counties, and it expands IMPACT to additional communities throughout the State.

New York State Troopers are busier than ever before, not only in their traditional role patrolling our highways and neighborhoods, but also on the front lines of the War on Terror. This budget adds even more Troopers to the Long Gray Line, bringing the total strength of the force to 4,700 - an all-time high. Another 100 of these Troopers will be joining the expanded Operation IMPACT taskforces this year.

And as we look to solidify our future, let's take action to rectify an injustice of the past.

For over three decades, the forgotten victims of the horrific 1971 riots at Attica State Prison have been seeking justice. This budget will finally honor New York's moral obligation to these dedicated public servants and their families.

With an expanded Operation Impact, a record number of State Troopers, and the best homeland security office in the nation we will make New York the safest State in the nation.

The budget I present to you today builds on our progress not only in making our Empire State safer, but also by providing a cleaner and healthier environment.

This year's budget calls for a $1.4 billion total investment in our environment.

My budget provides $150 million for our Environmental Protection Fund, the highest amount ever, and six times what it was a decade ago.

This year's budget will fully fund our Superfund/Brownfields programs, providing for the clean up and remediation of hazardous waste sites across our State, and returning lands once lost to pollution to productive use.

And my Executive Budget also provides for the expansion of our first-of-its-kind tax credit for the construction of "green buildings."

Together, you and I have made the right investments to enhance the quality of life of New Yorkers in every corner of our State. This year, let's pass a budget that continues our successes, so our children will inherit a cleaner, healthier New York -- enjoying its natural treasures and passing them on to future generations.

Another area where we've made dramatic progress is in reforming welfare, moving people from dependence on government to self reliance and productivity.

There are now one million fewer New Yorkers on welfare than there were a decade ago. Child support collections have more than doubled.

Our actions have transformed lives by giving hundreds of thousands of New Yorkers the opportunity to participate in the freedoms and rewards of our great State.

And as we have helped break the cycle of dependency for so many, let's do even more to improve people's lives.

My budget builds on our record of welfare reform by providing innovative programs that strengthen families. Lets make New York a national leader again, as we take this next step in reforming welfare.

To that end, this year's budget includes a first-in-the-nation State Earned Income Tax Credit for young single fathers who are current in their child support payments. This new credit will strengthen New York's families by encouraging fathers to play a more meaningful and productive role in their children's lives.

My budget also includes an increase in the earned income disregard, which will provide those who are still on public assistance an additional incentive to move more quickly from a welfare check to a real pay check.

I ask you to join me in empowering even more New Yorkers with the chance to pursue the American Dream.

And as I have said before, for most families, the American Dream starts with a job. The ability to achieve the goals I've outlined today depends on a growing and vibrant private-sector economy.

The cornerstone of our efforts to create jobs has been cutting taxes. In fact, between 1995 and 2000 we cut taxes more than any state in the nation.

This year alone the value of the tax cuts we enacted is nearly $15 billion. That's $15 billion less in taxes and $15 billion more in the pockets of working families and seniors, farmers and home owners, single parents and small business owners.

By cutting taxes dramatically, we unleashed our economy, creating hundreds of thousands new private sector jobs. By the year 1999, New York's annual job growth exceeded the national average for the first time in two decades.

For reasons we know all too well, between 2001 and 2003 we lost almost half of the private sector jobs we had gained since 1995.

Today, we are poised to regain the jobs we've lost and to continue our progress in the months and years ahead.

Our economy is growing, but our goal must be plain. Let's once again foster an economy that creates jobs at a rate faster than the rest of the nation - on our way to creating one million more jobs by the end of this decade.

To reach this ambitious goal, we're taking decisive action.

We're pursuing initiatives such as Worker's Compensation reform, Empire Zones and Power for Jobs.

And this budget advances three key strategies to create more opportunity for New Yorkers -- additional tax cuts, promoting job-creating investment through Operation SPUR in communities that need it the most, and continuing to attract high-tech investments through our Centers of Excellence.

Under my budget, our previously enacted tax cuts take effect this year, right on schedule, releasing a half-billion dollars back into the hands of millions of New Yorkers and their families.

But we need to do even more.

That's why my budget provides an additional $250 million in new tax cuts for New Yorkers this year. These tax cuts include accelerating the phase-out of the temporary personal income tax increase, business tax credits to spur Upstate job creation, and our STAR- plus program.

To promote private-sector investment in those Upstate communities which need it the most, my budget includes funding for Operation SPUR - the Strategic Partnership for Upstate Resurgence, our new initiative to leverage job growth and investment.

Operation SPUR is a seven-point program which will include the following:

 

• First, a new SPUR tax credit for businesses affiliated with our Centers of Excellence;
• Second, new wage tax credits for businesses that create new jobs;
• Third, new agricultural opportunity zones to strengthen our rural economy;
• Fourth, a new low cost Workers' Compensation program to help businesses - particularly small businesses;
• Fifth, a new tax cut allowing manufacturers to calculate their corporate tax using a single sales factor if they invest in SPUR communities;
• Sixth, a new exemption for manufacturers from the Alternative Minimum Tax or AMT; and
• Seventh, $100 million for SPUR grants for economic development initiatives.

 

Clearly, this creates a powerful incentive for companies from around the world to build plants in our State and to keep existing plants here as well.

In particular, this program provides a double benefit for New York companies investing in SPUR communities. New York companies that have existing operations in the State that expand in SPUR communities will receive favorable tax treatment on all of their in- state facilities.

As we target those areas having the greatest need for job and business opportunities, we'll continue building on our progress across our State through our high-tech Centers of Excellence, which have already attracted billions of dollars of private investment as well as Federal support.

This year's budget will provide $250 million for high-tech and other economic development projects that will further solidify New York's role as a world leader in high-tech research and economic development.

Tax cuts. Operation SPUR. Centers of Excellence.

These three strategies are fueling our progress and setting the stage for accelerated economic and job growth in our State.

But there is one more piece to the puzzle.

Our plans for continued economic revival and job growth must include maintaining, upgrading and modernizing our intricate network of highways, bridges, tunnels and rail lines.

To that end, my budget includes a new $36.6 billion, five-year, comprehensive statewide capital transportation plan that will keep our economy moving well into the 21st century.

That includes over $17 billion for our Department of Transportation capital programs and over $19 billion for the MTA. This builds on our record investments over the past decade and allows our State to pursue public/private partnerships to provide more resources for our transportation system.

I look forward to working with you to help strengthen and modernize our system for the benefit of our fellow New Yorkers.

The budget I propose today provides a concrete plan to solidify the fiscal integrity of our State and to set the stage for future growth and prosperity in New York.

It is not a new prescription, but a proven one.

We know that controlling state spending and stimulating the economy with tax cuts will lead to growth and opportunity - it's worked before - right here in New York.

Back in 1995, we faced a more dire economic situation than we face today - a $5 billion deficit, shrinking revenues, and job losses. But we didn't rely on the failed practice of raising taxes to plug the revenue gap - we cut taxes and curtailed state spending.

We are all familiar with the results - new jobs, new investments and new hope for the people of our State.

Today, three and a half years after the human and financial devastation of September 11th, our economy is growing again, but we still face a significant gap.

Let's build on our momentum by sticking to the proven formula of fiscal discipline and tax cuts.

This budget reflects a choice - not an easy choice, but the right choice. And when you think about it, the only choice.

The choice to take the responsible, prudent path to fiscal stability, economic growth and opportunity.

The choice to control spending and build the State's reserves, bring real reforms to Medicaid, cut taxes, including property taxes, to spur economic growth and link state aid to performance and accountability standards.

The choice to face our challenges head-on, rather than pretend they don't exist.

The choice to ensure that our children and their children will be able to live safe, healthy, fulfilling lives right here in New York.

I am confident that working together we will make the right choice.

By working together for the past decade, we've made some great advances, overcome some daunting obstacles and realized some remarkable accomplishments for the people of this State.

I'm confident that by working together again this year, we can the put our State on a path to lasting financial strength and stability…and lead our people to a future of limitless hope, opportunity and prosperity.

Thank you. God bless you, and God bless the Great State of New York.