The FY2021 Executive Budget language was released last night, and Big I NY has identified a number of issues that affect independent agents and brokers. The next step in the budget process is the Assembly and Senate budget proposals, called “one house budgets", which are typically released in late February or early March. Then the Governor and Legislative leaders will negotiate on a final budget which must be voted on and signed by April 1.
The Good:
The Executive Budget proposes a small business tax cut, which will lower the current corporate tax rate from 6.5% to 4% for businesses with less than 100 employees and $390,000 in income, which is approximately 36,000 businesses. The proposal also triples the amount that sole proprietors can exclude from adjusted gross income from 5% to 15% if they file personal income tax and have less than $250,000 in net income. Lastly, the plan repeals the penalty that underpay their estimated tax. Overall this is a welcome proposal, particularly in a year where the state is facing a large deficit and looking to raise revenue. We will advocate for this tax cut to be expanded to benefit a greater proportion of our member agencies, particularly those structured as LLCs.
The Bad:
The Executive Budget seeks to dramatically increase the fines for insurance law violations from $1,000 to $10,000. Independent insurance agents and brokers are often small businesses and a penalty of $10,000 per violation could result in substantial hardship, even putting some out of business. Such a dramatic increase is neither justified nor fair to the thousands of independent agencies and brokerages in New York. We are calling for the legislature to reject this increase.
The Executive Budget also proposes raising penalties for violations of the financial services law (FSL) at the greater of $5,000, or two times the damages, or the economic gain attributed to the violation, and also add to the FSL explicit authority for DFS to collect restitution and damages. Furthermore, the proposal expands the authority of the DFS to prosecute “unfair, deceptive, and abusive practices", and removes the requirement that such acts be “intentional" or “material." This measure increases the scope of conduct that may be prosecuted by the DFS. We are troubled by these provisions as they could expose agencies to significant fines for accidental violations or omissions.
Issues to Watch:
The Executive Budget proposes the creation of a “Digital Marketplace Worker Classification Task Force", which will study the issue of classification of independent contractor gig workers, and recommend legislation by May 1st 2020. We have expressed some concerns with previous versions legislation to reclassify gig workers, similar to California's AB5, as the definitions were sufficiently broad enough to create confusion as to whether producers would have to be classified as employees of the carriers whose policies they sell. Additionally, such proposals could reduce the ability of agencies and brokerages to staff flexibly. The Executive Budget proposal specifically targets “digital marketplace companies," the definition of which does specifically include insurance or financial services companies. This is an issue we will continue to track and weigh in on.
The proposed budget would legalize adult use of cannabis, and create a new Office of Cannabis Management to develop regulations and oversee the industry.
The Executive Budget would mandate that employers provide paid sick leave - five days for businesses with five to 99 employees and at least seven days of paid sick leave for businesses with 100 or more employees.
The Executive Budget also makes changes to the State Insurance Fund (SIF). It proposes authorizing the State Insurance Fund to cancel a policy when the employer fails to cooperate with a payroll audit. Furthermore, it would permit SIF to contract with carriers provided in other states to provide Other States Coverage for its policyholders.
Big I NY will remain closely engaged throughout the budget process to support beneficial proposals and oppose measures which will harm our members.