November 15, 2010 NY In The Hole New York State’s deficit projection for 2011 has risen to greater than $9 billion with a three year deficit projection at $40 billion. New York State’s Medicaid costs are projected to increase by $5 billion next year without counting in Obamacare’s expected rise in the state’s assumption of the rise in Medicaid costs by paying for healthcare for those who cannot afford it. In the past decade, New York spent in excess of 250% of its tax receipts, even more than the 220% average by the largest 15 states by GDP. Lets hope that Andrew Cuomo, a man whose campaign was paid for by public employee unions, a man who has been part of the Albany establishment, will make a complete break with his past and not raise taxes (since jobs, people and businesses are already in exodus from the tri state area) and will instead take a cue from David Cameron and the United Kingdom which has proposed cutting 500,000 public employees in order to start slimming the payroll down by privatizing services and laying off thousand of workers the state can ill afford. Otherwise, the rest of the country, which has been prudent, will be paying for the sins of California, New York, New Jersey and Illinois by federalizing their debts which are mainly pension and health care obligations for public employees, totaling over a trillion dollars. Most investors and taxpayers fail to appreciate that state bailouts have already begun. Over 20% of California’s debt issuance in 2009 and over 30% of its debt issuance in 2010 to date has been subsidized by the federal government in a program known as Build America Bonds. Under this program, the US Treasury covers 35% of the interest paid by the bonds. Arguably, without this program, the interest cost of bonds for some states would have reached prohibitive levels (effective bankruptcy). California is not alone: over 30% of Illinois’s debt and over 40% of Nevada’s debt issued since 2009 has also been subsidized with these bonds. These states might have already reached some type of tipping point had the federal program not been in place. Do you think Cuomo will control the political forces that live off of the Medicaid fatted calf? This is not a Republican or Democratic issue. We watched Eliot Spitzer cave in to the forces. We watched Paterson never really engage them. We watched Pataki empower them. Once a proving ground for presidential aspirants, Albany has turned into a political burial ground. Let us hope that the Andrew Cuomo who talked like Hugh Carey remains and not a man who echoes his father. We all have a stake in this. Wall Street Journal 11/3/10 p. A27, A29. NYS Budget Passes The new state budget raises and extends taxes, cuts tax deductions and even resurrects taxes. Historically, non-residents could avoid taxation by either converting an S corporation’s underlying assets to stock or receiving installment income after disaffiliating with the state, removing the S corporation’s NY nexus. This was possible because these gains could be considered intangible income, which is not taxable for non-residents. Under the new rules, if one is a non-resident shareholder in an S corporation that has elected to distribute proceeds from terminating that company’s connections to New York State on an installment basis, then any gain recognized on the receipt of payments from this obligation, for federal tax purposes, will now be counted as New York source income. The 4% sales tax on clothing, shoes and other apparel costing less than $110 returns on April 1, 2012. Prior to that, on April 1, 2011 through March 31, 2012, the exemption will be for sales of less than $55. Travel websites like Expedia and Orbitz, which book hotel rooms through the Internet, will now be treated as hotel managers for tax purposes and will be expected to collect sales tax. They already pay sales tax on the price upon which they purchase the hotel rooms. They now will have to collect sales tax upon the mark up (the difference in the price at which they bought the room and the price at which they sell them). The state has established a new program called the Excelsior Jobs Program, which is meant to replace the Empire Zone Program, an incentive program that sunset on June 29, 2010. The budget did not provide for layoffs or tax incentives to draw new businesses to relocate to New York. The Trusted Professional Vol 13, No. 18, 10/1/10 p. 1. Recession Has Transformed Retirement Landscape The recession has left few areas of American life untouched. Now, a survey released on September 13, 2010 by Ameriprise Financial indicates that American’s attitudes, ambitions and preparations for retirement have changed dramatically. The findings underscored the economic environment’s substantial emotional effect on people, especially those who are approaching retirement or who have retired within the past year. The new study uncovered six distinct stages that occur before and during retirement. Stage 1: Imagination (6-15 years before retirement) - People in this stage are now feeling substantially less hopeful than they were in 2005. However, most feel enthusiastic about retirement, likely because they still have time to recover financial losses they experienced during the recession. Stage 2: Hesitation (3-5 year prior to retirement) - Significantly fewer expect to feel happy in retirement due to job setbacks and conflicting financial priorities. Stage 3: Anticipation (2 years prior to retirement) - Excitement begins to build in the final two years prior to retirement after questioning their readiness. Stage 4: Realization (Retirement to 1 year following) - The optimism that once accompanied this stage has been muted by the recession. With sharp declines in the value of portfolios as well as “forced retirements,” people are struggling with the realities of retirement. Stage 5: Reorientation (2-15 years after retirement) - Most people are still feeling happy and more report working with financial advisors. Stage 6: Reconciliation (16 or more years after retirement) - While the vast majority still continue to feel happy, they are experiencing depression at significantly higher rate than in 2005 and are troubled by the loss of income and social connections. They are among the least likely to say they are enjoying retirement a great deal. Investment Advisor October 2010 p. 101. As always, if you have any questions about these or any other matters, do not hesitate to call me. Remember, We’re Here For You!!