Joseph D. Morelle

A BLUEPRINT FOR

Fiscal IntegrityEnsuring independence AND excellence

In THE New York State Comptroller’s Office

TABLE OF CONTENTS

Introduction_______________________________________________________5

Summary_of_Proposals_ ____________________________________________7

Protect_the_Retirement_System_and_Pension_Funds___________________9 • Maintain Outstanding Performance of the Common Retirement Fund (CRF)

• Formalize Substantive Checks and Balances on Private Equity Deals

• Recruit and Retain Professional Pension Investments Staff

• Create OSC Pension and Investment Internship Program

• Advocate Better Corporate Governance

• Ensure Diversity in Financial Service Providers

Champion_Debt_Reform_and_Fiscal_Accountability__________________ 12 • Increase Transparency and Restrictions on Issuance of Public Debt

• Establish Debt Management Board to Monitor All Public Debt

• Report Annually on Debt Issued by Public Authorities

• Strengthen Fiscal Responsibility in Budget Decision Making

• Establish an Economic Forecasting Bureau

• Establish a Board of Economic Advisors

Promote_Economic_Development_________________________________ 16 • Foster Entrepreneurship and Innovation

• Expand the In-State Private Equity Investment Program

Strengthen Integrity and Confidence in Daily Operations____________ 18 • Ensure Ethical Safeguards by Adopting Campaign Finance Reforms

• Continue Focus on Staff Development and Morale

• Improve IT Capacity to Increase Efficiency and Productivity

• Advocate for Public Authority Contracting Reform

• Aggressively Pursue Procurement Reform

Support and Oversight of State_and_Local_Governments_ ___________ _21 • Improve the Fiscal Health of Local Governments

• Reduce Property Taxes and Fees through Consolidation

• Attack Waste, Fraud and Abuse in State Agencies and Authorities

• Collaborate with Other State Agencies

Biography_______________________________________________________ 25

Public_Policy_Record______________________________________________ 27

Overview Office of the State Comptroller_ ________________________ 29

I

II

III

IV

V

Thank you for the opportunity to share with you my vision for the future of the Office of the New York State Comptroller.

In the more than 200 years since its founding, the Executive and Legislature have added many responsibilities to the constitutional authority of this critically important office. Taken together these somewhat disparate duties have one basic theme: ensuring New Yorkers get the maximum benefit for their tax dollars.

In order to fully discharge the great responsibilities of this office – chief fiscal officer, state and local government auditor, and sole-trustee of the pension system, to name but a few – the person selected as our next Comptroller must possess an absolute commitment to independence and fiscal integrity.

This report, A Blueprint for Fiscal Integrity: Ensuring Independence and Excellence in the New York State Comptroller’s Office, details my plans to make this office the finest of its kind in the nation. It outlines my views on a wide variety of issues affecting the office: protecting the retirement system, promoting economic development, championing debt reform and many others. In every page you will note unwavering independence, a passion for excellence and a commitment to fiscal integrity as the central themes of my blueprint.

I pledge that these values will form the foundation of my stewardship of the office, should I be chosen to serve as New York’s next Comptroller. Following this prescription will ensure the mandate for protecting taxpayer interests is honored well into the future.

Warmest personal regards,

Joseph D. Morelle

5

January 23, 2007

Protect_the_Retirement_System_and_Pension_Funds

• Maintain outstanding performance of Common Retirement Fund

• Formalize substantive checks and balances on private equity deals

• Recruit and retain experienced and professional staff

• Take steps to ensure current leadership of the division continues

• Formally change the position of Deputy Comptroller for Pension Investment and Cash Management to a direct report to the Comptroller

• Advocate for better corporate governance

• Ensure diversity in financial service providers

• Create OSC Pension and Investment Internship Program

Promote_Economic_Development

• Expand the In-State Private Equity Investment Program in New York State.

• Focus strategically on the upstate economy and other distressed communities

• Foster entrepreneurship and innovation

• Support Governor’s economic development programs and initiatives

• Bring entrepreneurs, innovators and investors together with local officials through regular roundtables

• Facilitate entrepreneurial business networks by strategically investing to leverage private capital in New York State

• Pursue policies to develop highly-skilled, well-educated New York State workforce

• Expand access to start-up capital and equity for under served areas

• Track results of economic development programs and facilitate access to economic information and technical assistance

Champion_Debt_Reform_and_Fiscal_Accountability_

• Increase transparency and restrictions on issuance of public debt

• Use power of the Office to advocate for improved fiscal and budgetary practices, including limitations on State and local debt

• Establish Debt Management Board to monitor all public debt

• Publish an annual on Debt Affordability Study

• Report annually debt issued by public authorities

• Establish Revenue Forecasting Bureau and Board of Economic Advisors

• Strengthen fiscal responsibility in budget decision-making

7

Summary_of_Proposals

Strengthen Integrity and Confidence in Daily Operations

• Ensure ethical safeguards by adopting campaign finance reforms

• Focus on staff development and morale

• Improve information technology capacity to increase efficiency and productivity

• Advocate for public authority contracting reform

• Aggressively pursue procurement reforms

Support and Oversight of State and Local Governments

• Improve the fiscal health of local governments

• Reduce property taxes and fees through consolidation

• Develop incentives to help local communities share services

• Promote regional approaches to economic problems

• Advocate for relief from unnecessary mandates

• Showcase local government best practices

• Reactivate early warning system to identify local governments in early stages of financial distress

• Attack waste, fraud and abuse in state agencies and authorities

• Conduct more joint “thematic” audits to address issues that cross state and local jurisdictional boundaries (i.e. criminal justice, public safety and economic development)

• Collaborate with other state agencies

8

SUMMARY OF PROPOSALS

Responsible stewardship of the State’s $152 billion pension fund is the most fundamental function of the Office of the State Comptroller. It must be done in an ethical and transparent manner that safeguards both the public trust and the public purse. Close to one million public employees and retirees have placed their trust in the integrity of the System and there is no higher obligation than to fulfill the fiduciary responsibility to them.

Maintain Outstanding Performance of the Common Retirement Fund (CRF)New York State has been fortunate in that its fund performance has been excellent as a result of strong, disciplined management. The CRF has outperformed the Wilshire median for all public funds for the three-year period ending 3/31/06 by more than 10% (17% return versus 15% return).

It is vital to continue the fund’s record performance, which serves the short-term cash needs of current retirees while maintaining long-term integrity of assets for future generations of public employees. At the same time, providing reliability and predictability helps reduce the annual financial burden on local governments.

Formalize_Substantive_Checks_and_Balances_on_Private_Equity_DealsIn keeping with long-time OSC practices that ensure the integrity of the investment process, I will not consider any private equity deal that does not have four evaluative recommendations: a staff memorandum, the Deputy Comptroller of Investments, an external independent fiduciary, and a legal review. One of my first actions will be to formalize this review requirement through an Executive Order.

Recruit_and_Retain_Professional_Pension_Investments_StaffThe Pension Investments and Cash Management division is run by an extraordinary group of professional and experienced staff, headed by Deputy Comptroller David Loglisci. Mr. Loglisci and I met four years ago at a roundtable I organized with OSC and Rochester-area business leaders on the CRF’s In-State Private Equity Investment Program – a model we created together that has been so successful it has been emulated throughout the country. Under his direction, the division has produced excellent performance results for the fund and I will take all necessary steps to ensure his continued leadership of the division.

To underscore the importance of the investment function to OSC, I will change the reporting structure so the position of Deputy for Pension Investments and Cash Management reports directly to the Comptroller.

In addition to the Deputy Comptroller position, I remain concerned about the ability to retain and recruit qualified investment professionals as well as the effect the recent turmoil in OSC has had on employee morale and turnover. I will also look at staffing levels. By comparison the CalPERS system in California has 180 people doing the work performed by 25 here at OSC, which operates at essentially the same staffing levels as it did twenty years ago when the Fund had $38 billion in assets and benefits to retirees were only $1.2 billion.

9

Protect_the_Retirement_System_and_Pension_Funds1

OSC has highly-regarded staff who are continually pursued by better-paying private sector companies. Failure to act will jeopardize the performance of the funds. I will move quickly with immediate reviews of salaries and compensation levels in order to improve recruitment and retention in the Investments Division and build a team of the best and the brightest — without regard to politics.

Create OSC Pension and Investment Internship ProgramUnder my leadership, OSC will create an internship program in consultation with colleges and universities across the state to expose bright students to careers at OSC and develop talented individuals capable of replacing those who retire or leave for opportunities in the private sector.

Advocate_Better_Corporate_GovernanceCorporate governance is the means by which the Comptroller can be a responsible investor and fulfill his or her fiduciary responsibility. The Comptroller’s activities in corporate governance are based on the premise that sound corporate governance contributes to improved long-term performance and a means to influence public policy goals of New York State.

OSC has long been a leader in the area of corporate governance. Former Comptrollers and trustees of other public pension funds have addressed many important governance issues, including investments in South Africa, anti-takeover devices used to entrench boards of directors, Macbride principles in Northern Ireland, tobacco and auditor independence. I will continue this proud tradition of social responsibility at OSC.

There are a variety of ways in which the Comptroller can engage in corporate governance including proxy voting, sponsoring shareholder proposals, quiet diplomacy, and participation with other institutional investors. As an advocate for better corporate governance, the Comptroller may be asked to comment on some of the most visible corporate governance issues. Among the major issues on which I will be involved in are the following:

• Compensation – Excessive compensation and severance packages have angered investors and caused outrage among the general public, particularly when it occurs at companies where performance has lagged. Executives should be compensated in accordance with market norms, but they should not be paid for failing to meet their fiduciary responsibilities – executive compensation should correlate to executive performance. As Comptroller I will commit to using all the avenues available to ensure that executives meet that test.

• DirectorIndependence – It is vital that directors represent the interests of shareholders. They must be independent of management and should not have a financial relationship with the company. While new NYSE and NASDAQ listing standards have strengthened independence requirements, I will promote continued vigilance to ensure that directors are independent in accordance with both the spirit and the letter of the law.

10

PROTECT THE RETIREMENT SYSTEM AND PENSION FUNDS

• MajorityVotingforDirectors – Currently, most directors are elected by a plurality of votes as opposed to a majority of votes cast. Since most directors are unopposed, it follows that nominees are assured of becoming directors, with as little as one vote. Corporate governance advocates are fighting vigorously to have state law and corporate bylaws amended to require that nominees receive at least 50 percent plus one of the votes cast before becoming directors. I would support this basic principle of sound governance.

• InternationalIssues – The Fund’s global investments include countries where poor labor practices and violations of human rights laws are of grave concern. Regrettably, some of these same practices and laws serve to increase corporate profits and shareholder value. This is an area that highlights the need for balance in the Comptroller’s approach to corporate governance. Relying on guidelines and limitations determined by the federal government, I would expect to support proxy proposals, send letters and participate in meetings that aim to enhance the humane treatment of people around the globe.

Ensure_Diversity_in_Financial_Service_ProvidersThe CRF has maintained a strong commitment to the use of minority and women-owned financial service providers. Over $4 billion is managed by minority and women-owned firms and one-third of the firms trading securities with the CRF are minority and women-owned brokers. The fund’s external managers used minority and women-owned businesses for 12% of all trades and 17% of firms picked to sell State bonds are minority and women-owned businesses.

While this record of diversity is among the nation’s best, I am committed to improving diversity in the CRF’s financial service providers.

11

PROTECT THE RETIREMENT SYSTEM AND PENSION FUNDS

The large amount of debt issued over the last twelve years will play a significant role in budget development during the next several years, with state-funded debt projected to grow by one-third from its current $48.5 billion to nearly $65 billion over the next five years. Debt service alone in 2011 will grow to more than $7 billion from $4.3 billion this year. In fact, just the 2006-07 Enacted Budget alone

increased State-Funded debt by $16.5 billion.

Increase Transparency and Restrictions on Issuance of Public DebtAlthough the Debt Reform Act of 2000 set a cap on outstanding state-supported debt of 4 percent of personal income, the State’s debt is currently well above this cap, reaching 6.5 percent of personal income on March 31, 2006. New York State is second in the nation when measuring per capita debt.

Every dollar we dedicate to debt service is a dollar that will not go to other vital services on which New Yorkers depend. The State appetite for borrowing is ever-growing and so the longer comprehensive reforms are postponed, the more difficult it will be to achieve and sustain affordable debt levels. The debt burden is a crisis that must be addressed immediately.

In 2006, along with the Senator Libous and the Comptroller, I introduced a comprehensive debt reform package including a constitutional amendment and statutory legislation aimed at restricting state-funded debt issuance to 95 percent of the previous year’s level. Enactment of this important legislation would slow the growth of outstanding debt and issuances, eventually bringing the State’s burgeoning debt to a more reasonable level.

Establish_Debt_Management_Board_to_Monitor_All_Public_DebtTo increase accountability, complete and transparent information regarding debt practices and plans must be readily available to all New Yorkers. To do this, the legislation I proposed would create a Debt Management Board made up of representatives of the Comptroller, the Executive and the public. The board would be responsible for the assessment of Executive and Legislative proposals, would establish overall debt policy, and regularly monitor and report on the State’s debt affordability level. It also would have the authority to adopt guidelines and standards addressing the issuance of bonds and the management of bond proceeds and establish guidelines for refinancing.

Other components I have advanced within my legislation to control debt, include the following:

• Constitutionally define state-funded debt to include all debt

• Limit outstanding state-funded debt to 5% of personal income

• Statutorily limit new borrowing to 95% of previous year’s debt for the next 11 years. This will reduce the total amount of debt outstanding, and bring it to the 5% limit by 2017

In the event that a Debt Management Board is not established, the Comptroller would continue to publish an annual debt affordability study

12

Champion_Debt_Reform_and_Fiscal_AccountabilityI1

Report_Annually_on_Debt_Issued_by_Public_AuthoritiesWhile the State has $48.5 billion in state-funded debt, some estimates indicate that state and large regional public authorities are also responsible for at least an additional $80 billion in authority-issued debt, not supported with state revenues. While the Comptroller approves certain debt of various public authorities prior to issuance, not every authority’s transactions require such approval. There is currently no formal, comprehensive accounting of this debt. No one entity is required to monitor and account for all debt, therefore it is impossible to comprehend the full magnitude of this significant debt burden.

In order to provide New York taxpayers a full understanding of all the financings entered into on a yearly basis by both the State and hundreds of public authorities, the Comptroller’s office will establish a repository for certain data related to these debt transactions. Once established this data can be compiled and analyzed annually. Each year my Office will produce a public report on its findings which will include, but not be limited to, the following information:

• Overall level of debt including the amount issued for the fiscal year and a comparison to the prior year’s issuance level

• Type of debt: i.e. variable or fixed rate

• Whether the transaction(s) was conducted through a competitive bid or a negotiated sale

• Bond purpose

• Whether the transaction(s) was new money or a refunding • All costs of issuance including underwriter, bond counsel, financial advisor and rating agency

fees

Strengthen_Fiscal_Responsibility_in_Budget_Decision_MakingWhile the State has enacted on-time budgets for the past two consecutive years, improved fiscal and budgetary practices must go beyond timeliness. I will use the power of OSC to increase transparency and the quality of financial information available to improve budget decision making.

With only two months to deliberate the Executive’s budget proposal prior to the start of the fiscal year, the current State budget process does not allow much time for the Legislature and interested stakeholders to perform a comprehensive analysis on which to base decision making. Compounding the lack of time to deliberate is the lack of information provided to the public, leading to diminished accountability in the budget process. With a new administration focused on openness and transparency, the opportunity to bring greater accountability and transparency to the budget process is now.

13

CHAMPION DEBT REFORM AND FISCAL ACCOUNTABILITY

In conjunction with key policy makers, elected officials and independent budget groups such as the Citizens Budget Commission, I will play a leading role in bringing changes along the following lines, many of which have been recently announced by Governor Spitzer, Speaker Silver and Senate Majority Leader Bruno and may be enacted into state law soon:

• Require a balanced Enacted Budget; currently only the proposed Executive Budget must be balanced.

• Ensure that the actual size of the year-end surplus is clear and public by revealing year-end obligations and certifying the size of the surplus.

• Require the Legislature to report on any changes it has made to the budget before passage.

• Elimination of lump-sum appropriations for discretionary money. All legislative initiatives must be line-items including the recipient of funds and purpose.

• Improve the legislative report on the budget after passage (the Green Book) by requiring full and uniform reporting of all differences between the proposed Executive Budget and the final Enacted Budget.

• Require public authorities to fully report how they spend state monies.

• Modify the capital plan to include detailed financing and debt service information within a comprehensive project-by-project list.

• Improve out-year financial planning by expanding the current three-year plan to a four-year plan.

• Modify the Tax Stabilization Reserve Fund by removing the caps and enacting minimums rather than maximums on the balance in the Fund and on deposits into the Fund. If the Fund is too small, it has little value as a protection against bad times.

• Require monthly cash flow reporting for each of the government fund types. The State is increasingly using other funds to pay for State spending.

• Require a Gap-Closing Report detailing the effectiveness and results of gap-closing proposals.

• Require a Local Government Impact Report, so local governments can better understand how provisions of the budget will directly affect them.

• Require more Personal Service spending information, especially on people hired through consulting contracts.

• Tie appropriations bills to the financial plan, linking the planned spending of the appropriations bills to actual expenditures.

• Create an Independent Budget Office to provide analysis and reports for the Legislature and the public.

• Expand the Executive Budget hearing process to permit more public participation.

14

CHAMPION DEBT REFORM AND FISCAL ACCOUNTABILITY

Establish_an_Economic_Forecasting_Bureau_One of the first steps to responsible budgeting is a consensus between the Executive and Legislature on revenues and certain spending category estimates. Aside from the last two consecutive years, New York State has historically failed to agree on revenue estimates in a timely manner. This failure to achieve timely revenue consensus has significantly contributed to the 20-year legacy of late budgets.

Over the last couple of years, several budget reform proposals have included measures that would require the Comptroller to resolve Legislative and Executive revenue deadlocks. State leaders have gained confidence in OSC’s expertise, objectivity, professionalism and non-partisan approach in determining the amount of revenues in the event that the parties fail to reach agreement.

The recent budget reform agreement between Governor Spitzer, Speaker Silver and Senate Majority Leader Bruno calls on the Comptroller to act as an independent arbiter that will determine revenue figures by March 5th that will be binding, should the Governor and the Legislature fail to reach an agreement. It now appears that this critical reform is on the verge of becoming law. OSC must move aggressively to meet this new responsibility, which I believe currently it is not fully prepared to do.

Through a reallocation of existing resources, I will establish a new Economic Forecasting Bureau charged with analyzing national and state economies and creating an econometric model to forecast state revenues. The bureau would monitor indicators and revenues throughout the year and be prepared to assist state policy makers as necessary, including providing revenue forecasts should the Governor and Legislature fail to agree. Analysis performed by this unit can also benefit local officials’ budgetary processes.

Establish_a_Board_of_Economic_AdvisorsAdditionally, I would establish a Board of Economic Advisors comprised of economists, including professionals from major financial and manufacturing corporations and prestigious universities as well as respected private forecasters. The panel would provide an independent review of staff assessments and projections at various points throughout the fiscal year.

15

CHAMPION DEBT REFORM AND FISCAL ACCOUNTABILITY

Throughout my entire career as a legislator I have worked towards the revitalization of New York’s economy. I know first-hand both the immense need as well as the real challenges that come with this undertaking. As an upstate business owner, this is an area of attention that is very personal.

Foster_Entrepreneurship_and_InnovationWorking in cooperation with the Governor and the Legislature, I want to help create an environment where innovation and entrepreneurship are strongly encouraged. As the state’s chief fiscal officer, the Comptroller has enormous potential to enhance economic opportunities for New Yorkers. As a member of the Legislature, I have focused on small business issues, fiscal and tax policy and economic development initiatives. I know that I can use this experience to help stabilize our tax base and bring positive economic results to New York State, particularly distressed communities and regions throughout the state.

As Comptroller I will work to put my ideas to work through prudent investments in our pension fund and by using the power of OSC to:

• Bring entrepreneurs, innovators and investors together with local officials to spur economic development.

• Promote economic growth by facilitating entrepreneurial business networks, and by strategically investing to leverage private capital investment in New York firms, while enhancing portfolio performance.

• Focus strategically on the upstate economy and other distressed communities where many of our troubles lie because those areas can no longer afford to be forgotten.

• Aggressively pursue policies to develop a highly-skilled, well-educated and productive workforce that responds to changing needs in a changing economy.

• Jump-start our approach to providing start-up capital and equity, as well as physical infrastructure support—including broadband—for under served areas.

• Establish more effective means of tracking the results of economic development programs, and advocating for changes when performance fails to meet expectations.

Promote_Economic_Development

16

I1I

Expand_the_In-State_Private_Equity_Investment_ProgramThe In-State Private Equity Investment Program has been very successful in securing private capital by leveraging CRF investments in early-stage companies across New York State. The program has exceeded many of its original hopes and goals and has become a model emulated around the nation. $450 million in commitments have been made since the program was created. More importantly, that money has leveraged an additional $381 million in other capital, creating $831 million that has been invested in New York. Many of these companies would not have remained or expanded in New York without this program.

In 2003, I organized a roundtable to foster relationships between regional businesses and OSC. The roundtable was very effective in increasing awareness of the program and ultimately leading to the deployment of much needed capital. Similar forums can be a useful tool in bringing the benefits of existing programs to new places and stakeholders and I will convene them around the state as Comptroller.

The In-State Private Equity Investment Program can provide benefits beyond direct investments. I will use the leveraging power of the program to spur greater private investment, attract outside capital and support the economic development programs initiated by the Spitzer Administration. The Stem Cell and Innovation Bond Act proposed by the Governor represents such an opportunity and OSC will be ready with a plan to augment that funding.

In summary, I will expand the In-State Private Equity Investment Program to do the following:

• Leverage additional private capital.

• Attract outside investors and businesses to New York.

• Support the Governor’s economic development programs and initiatives.

• Convene regular investor and business leader roundtables to outline opportunities for investment.

PROMOTE ECONOMIC DEVELOPMENT

17

Ensure_Ethical_Safeguards_by_Adopting_Campaign_Finance_ReformsUpon taking office, I will adopt the same internal reforms issued as Executive Actions by Governor Spitzer and Lieutenant Governor Paterson:

• A gift ban for all at-will employees of the office.

• Former employees will be prohibited from lobbying the office for two years from the time of their departure.

• A ban on campaign contributions from all at-will OSC employees.

• A ten-thousand dollar limit on contributions to my campaign committee.

Continue_Focus_on_Staff_Development_and_MoraleStaff morale has been seriously shaken by the circumstances regarding the former Comptroller’s resignation. I will take immediate action to reach out to the workforce, visit the main OSC work sites across the state and launch an aggressive plan to communicate with them on an ongoing basis. The staff at OSC has long had a reputation of being independent and professional. It is important that the excellent work they perform on a daily basis continue and that they know their efforts are valued. One important step in this process will be conducting a formal employee opinion survey to help us better understand the issues and problems confronting the OSC workforce, to help guide our human resource planning for the next several years.

During my professional career, my goal has been to identify skilled, capable individuals, set out the goals and benchmarks for success, and create an environment in which they are encouraged to achieve excellence. Whether managing a small staff or a large one, such a strategy offers the best chance for success. The professional staff at the OSC is use to operating in this manner, and it has produced impressive results in successful management of the pension fund and retirement systems, as well as innovative ideas for local and state government reforms. As the leader of this nationally respected organization, I would remain committed to this strategy.

In addition, OSC has maintained a solid reputation for workforce development over recent years and I want to build on that foundation. OSC’s employee recognition programs are valuable, particularly in the current climate, as are its programs to develop future leaders. The workforce challenges of OSC are similar to other governmental agencies. It has an aging workforce. More than 40% are expected to retire over the next three to five years. OSC’s ability to recruit and retain many of the professional skills and diversity of staff needed to respond effectively to the operational challenges of the agency will be a high priority for me.

Furthermore, I believe many benefits could be achieved thru reorganization and realignment of OSC’s organizational structure, as well as greater collaboration among operating divisions. Some examples that deserve further scrutiny include reorganizing IT and information services, merging claim operations and merging audit and investigations operations.

18

Strengthen Integrity and Confidence in Daily OperationsIV

Improve IT Capacity to Increase Efficiency and ProductivityOSC administers large internal information technology units with responsibility for systems related to payrolls, retirement, accounting and contracting. All these systems are in the process of major upgrades and are confronting significant challenges.

For example, the FOCAS Project to redesign the State’s accounting system is taking place at the same time the Governor’s Office has been advancing a project to standardize agency Fiscal Management Systems. My analysis has revealed these projects have been on parallel but generally uncoordinated paths. Further discussions need to occur very soon with the new administration on how to better coordinate these two projects.

Senior staff at OSC has been struggling with a large portfolio of technology projects and a shortage of appropriately skilled professionals. I believe my background in technology, running a software development company will help me provide leadership in this very significant area. Important decisions on the logic of OSC’s organizational structure, quality and pay of staff and how best to respond to a number of future information technology challenges all must be made in the upcoming year.

Advocate_for_Public_Authority_Contracting_Reform_While State agency contracts are subject to State Comptroller review and approval, with few exceptions, public authority contracts are not obligated to meet this requirement before they become effective. The two major public authorities whose contracts are subject to pre-approval are the Long Island Power Authority (LIPA) and the Thruway Authority. In 2004-05, the 46 public authorities and subsidiaries that submit annual procurement data to the Comptroller entered into 10,404 contracts valued at $5.5 billion.

These same entities made payments of $4.8 billion pursuant to contracts in 2004-05. Dozens of other entities, however, entered into contracts without reporting their procurement activities to any independent oversight body. As the Legislature and the Comptroller’s Office have focused their attention on reforming public authorities, it has become clear that there are weaknesses in authority procurement and contracting practices. Through public hearings conducted by the Legislature and several audits issued by the Comptroller, authority weaknesses were uncovered in one or multiple areas important to ensuring the integrity of the procurement process, including lack of adherence to procurement rules, waste or inefficiencies, and abuses in procurement authority.

It is time for a more comprehensive approach to subjecting contracts of public authorities to pre-audit by the Office of the State Comptroller. I will support legislation to require an authority to submit contracts to OSC for review in the same manner as state agencies before award when the Comptroller determines that there is a need for increased oversight. Current requirements should also be strengthened to require authorities to establish and enforce procurement guidelines and receive approval from two-thirds of an authority’s board of directors for exemptions to competitive bidding requirements. I will also advocate that each authority be required to designate a procurement officer and establish a board committee on procurement policy.

19

STRENGTHEN INTEGRITY AND CONFIDENCE IN DAILY OPERATIONS

Aggressively_Pursue_Procurement_ReformAnother opportunity for OSC to help bring transparency and accountability to state government is in the area of procurement reform. On this issue, as Comptroller I will:

• Ensure that state agencies continue to conduct and document thorough vendor responsibility determinations, as well as give them the tools to perform those determinations in a more consistent, standardized manner.

• Advocate for the enactment of legislation improving the process by which the state conducts business with not-for-profit organizations, including contracting and payment methods and the need for penalty interest to be paid by the state when timely notification regarding contract renewals does not occur.

• Explore electronic development and processing of grant contracts for all State agencies through the new electronic central accounting system so that information about contracts can be more readily accessed at every step in the process.

One of the most important roles that OSC performs is the support and oversight of local and state governments. This role has evolved greatly over the past two centuries. Originally focused on state issues, this role has increasingly expanded to assess and improve the way local governments manage their fiscal affairs.

20

STRENGTHEN INTEGRITY AND CONFIDENCE IN DAILY OPERATIONS

Improve the Fiscal Health of Local GovernmentsAs recently as November of 2006, OSC issued a report finding that despite increased state aid and a cap on local Medicaid costs, the fiscal condition of local governments is worsening. According to this report, six cities have projected budget gaps of more than 10% in 2007, and ten project budget gaps by 2009. The upstate cities of Buffalo, Rochester, Syracuse and Yonkers have projected budget gaps averaging 22% of revenues by 2009. Too many municipalities are dangerously close to the statutory tax limits: Rochester used 87% of its limit in 2006, and Buffalo used 92% of its limit. Local government debt has nearly doubled from 1994 to 2004, with school district debt tripling during this period. In fact, just this past week the Center for Governmental Research released research which showed that 9 of the nation’s top-10 highest tax rates are in upstate New York. This dismal fiscal situation threatens the economic health of major portions of our state; it may lead to higher sales and property tax levels, further stifling efforts to revitalize the economy of New York State.

OSC already conducts audits and offers a variety of services and technical support to more than 4,000 units of local governments in New York State. But as the challenges they face increase, even more must be done.

State government must be more pro-active in helping municipalities address the economic conditions at the root of many of their fiscal problems. This conclusion is shared by the New York State Conference of Mayors (NYCOM), as detailed in its recently released report, “Connecting the Dots: A Blueprint for Revitalizing Our Communities and Our State”. The report analyzes many of the obstacles confronting local governments across the state. It identifies the need for a cohesive local economic development policy as one of its principal recommendations.

As Comptroller I would strengthen OSC’s efforts by:

• Helping identify real incentives for local governments to cooperate and consolidate

• Promoting regional approaches to problem-solving

• Identifying performance-based incentives

• Advocating for mandate relief and other streamlining and cost-saving proposals

• Showcasing local government best practices and innovative approaches

• Re-activating OSC’s early warning system (FAST) to identify local governments in early stages of financial stress so more pro-active measures can be taken to avoid deeper, more costly problems in the future

21

Support and Oversight of State and Local GovernmentsV

Reduce Property Taxes and Fees through ConsolidationThe structure of local government in New York State was designed in the 18th century, implemented in the 19th century and largely unreformed since then. Despite significant shifts in population, economy activity, transportation systems, settlement patterns and communications technology, few modifications have occurred. Instead, the state has continued to add localities and special districts without significant pruning or streamlining. Today there are more than 4,200 units of local government, including the more than 1,600 general purpose local governments – town, villages, cities and counties. There are 698 school districts and 867 fire districts which also levy property taxes, as well as over 1,000 special purpose entities including local public authorities, industrial development agencies, libraries, regional planning boards. Many of these provide municipal services such as water, sewer, garbage collection and community development.

The impact of this proliferation of local government entities on the property tax burden of New Yorkers is enormous. For example, in some counties of the state, special district expenses represent more than two-thirds of their town property taxes. And in some areas, city and town taxpayers pay taxes for county sheriff ’s road patrol services and county road maintenance – but do not receive these services within their city or town limits.

In the 21st century, much of the unwieldy patchwork of local governments and special districts is not only costly – it is also unnecessary and inefficient. This is not a new problem. As far back as 1990, the Local Government Restructuring Project issued a comprehensive analysis on the topic entitled: The Evolution of New York State’s Local Government System. And as recently as October 2006, the OSC published a report, Outdated Municipal Structures, an examination of how traditional municipal classifications no longer fit many of today’s local governments. That report highlighted the multitude of state laws and programs that arbitrarily treat localities differently and make a more rational approach to structuring local government problematic.

Unfortunately, it is still the case that most New Yorkers, and many public officials, remain unaware of how these structural issues contribute to the problem – despite their concerns about high property tax rates.

It is time to take these studies and their legislative and policy recommendations, and begin putting them into action. This will require reforming state laws that deal with service provision, governance, revenue structure, intergovernmental aid, and laws covering how municipalities can merge, dissolve or annex territory. OSC is ideally placed to facilitate discussion and dialogue among municipalities, as well as the public at large, on this serious and costly problem.

As Comptroller, I will work with Governor Spitzer, who identified in his recent State of the State address the need to bring about a fundamental reevaluation of our municipal structures in New York State. We need to move toward greater efficiency and effectiveness to address the crushing property tax burden that hampers growth and economic development throughout the state.

22

SUPPORT AND OVERSIGHT OF STATE AND LOCAL GOVERNMENTS

Attack_Waste,_Fraud_and_Abuse_in_State_Agencies_and_AuthoritiesMore needs to be done on the state front as well. Hundreds of audits of state departments and agencies are performed each year which generally provide excellent, detailed recommendations for corrective action. When deliberate fraud is uncovered, OSC can help ensure the perpetrators are dealt with severely. But often government waste occurs differently: archaic or inefficient systems and policies; overlapping, duplicative or unclear lines of authority; inadequate training; or unclear or unrealistic goals.

A number of the initiatives I would like to expand for local officials: training, showcasing best practices and innovative approaches and promoting broader approaches to problem solving among department and agencies would be equally beneficial at the state level.

Finally, as the state’s fiscal watchdog, the Comptroller can play a greater role in helping ensure that the root cause of problems are understood and addressed. I will explore ways for the state and local audit staffs to work more closely together so that more public policy issues in New York State can benefit from more seamless analysis. Along these lines, I will conduct more joint “thematic” audits to address issues that cross state and local jurisdictional boundaries (i.e. criminal justice, public safety and economic development).

Collaborate with Other State AgenciesThe Office of the State Comptroller has always been a valuable resource within state government. I will build on its reputation for excellence and customer service by strengthening outreach. I look forward to developing good professional working relationships with the new Governor and members of his administration, as well as with the staff and members of the State Legislature and will conduct a series of workshops for state agency and Legislature staff to explain OSC’s role and responsibilities, promote best practices and discuss how best to interface with different parts of the office to help meet their business needs.

23

SUPPORT AND OVERSIGHT OF STATE AND LOCAL GOVERNMENTS

A lifelong Upstate resident, Joe was born in Utica and raised in the Rochester suburb of Irondequoit. Joe, 49, is a graduate of Eastridge High School and received his bachelor’s degree in political science from SUNY Geneseo. Joe and his wife, Mary Beth, live in Irondequoit and have three children. Mary Beth teaches in the East Irondequoit School District, which all three Morelle children have attended.

Joe’s career in the Assembly is the latest phase in a long history of public service. In 1983, he was elected to the Monroe County Legislature, where he eventually served as vice president and assistant majority leader. He served there until his successful bid in 1990 for the Assembly’s 132nd District seat (Charlotte, Maplewood and North Winton Village sections of the City of Rochester and the towns of Irondequoit and Brighton).

Since his election to the New York State Assembly in 1990, Joe has authored more than 100 laws and established himself as a leader on the issues that matter most to New Yorkers: economic growth and job creation, crime prevention, and ensuring the health and safety of our most vulnerable citizens.

Joe is particularly recognized for his efforts to improve New York’s business climate, including his well-received report entitled Creating a State of Innovation: Unleashing the Power of New York’s Entrepreneurial Economy.

Joe is also a small business owner and founder of MMI Technologies Inc., a Rochester-based software development company that was started in the early nineties. Managing his own business has given Joe a real life understanding of the challenges facing New York’s private sector. Joe knows what it is to manage a staff, meet a payroll and make hard choices when expenses outpace revenues. This experience has driven Joe’s public policy interest to bring economic progress to New York State.

As New York’s next Comptroller, Joe will bring a unique mix of personal, government and business experience to the task of stewarding the state’s pension fund and financial affairs while using the office to advance public policy in important areas such as New York’s economic growth and competitiveness.

25

BIOGRAPHY

Joe Morelle’s career in public service has provided him unique insight into the breadth of the issues confronting the Office of the State Comptroller, as well as the know how to build consensus and get things done. Joe’s legislative committee assignments have provided a solid foundation for many of the issues the next Comptroller will face.

Joe has developed one of the leading records in the State Legislature, authoring over 100 laws on issues ranging from fiscal and tax policy to economic development to reform and accountability. He is known for his independence and willingness to collaborate in a bi-partisan fashion to achieve results.

A_Leader_on_Government_ReformJoe was one of six initial prime and co-prime sponsors of two resolutions based on work by the Brennan Center for Justice at New York University Law School to substantively reform the rules of the Assembly chamber for the first time in decades.

A_Leader_on_Debt_ReformIn June 2006, Joe worked with OSC to announce major legislation aimed at reforming New York’s debt practices in order to reduce the annual cost of the state’s $49 billion public debt and spare future generations those costs as well.

A_Leader_on_Economic_Development_In 2005, Joe published a report entitled Creating A State of Innovation: Unleashing the Power of New York’s Entrepreneurial Economy that detailed the decline of New York as an economic power and offered numerous policy prescriptions for reversing a decades-long trend. This report has been widely praised by business and academic leaders, other elected officials and editorial boards across the state.

Joe’s report was the culmination of years of advocacy for new economic and tax policies, much of it stemming from his own experience as founder and president of MMI Technologies Inc., a software development firm. At Joe’s request, the Speaker of the Assembly created the Subcommittee on Manufacturing, with Joe as chairman, as a means of providing New York’s manufacturing community a greater voice in state government.

Working in a bi-partisan fashion with our colleagues in the Senate, Joe wrote and passed the Economic Growth & Competitiveness Act, which reduced corporate taxes by nearly $2 billion. Working with Speaker Silver, Joe also co-authored the CAPCO program, to encourage investment in small, New York-based businesses.

He also succeeded in getting enacted a Single-Sales Factor, which changed the way corporate income taxes are calculated, to encourage increased business investment in New York.

Working with his colleague Assemblyman Lentol, Joe authored the highly successful Empire State Film Production Tax Credit, which has provided hundreds of million of dollars in tax relief to create more than 10,000 film and television jobs and generated billions of dollars in additional economic activity in New York State.

27

PUBLIC POLICY RECORD

As the chief financial officer of New York State, the duties of the Comptroller are virtually unique in the country, encompassing treasurer, auditor and comptroller responsibilities, as well as sole trustee of the pension fund.

The Office of the State Comptroller has four major components to its mission of providing stewardship of New York’s taxpayer dollars. They include:

• Protecting the state retirement systems and pension funds

• Providing support and oversight of state and local government operations

• Managing the state’s fiscal affairs

• Advancing public policy

The Office has 2,500 agency employees and a budget including $230 million state operations funding plus an additional $120 million in Aid to Localities funding for Indigent Legal Funds and reimbursement to New York City for a special retirement program.

Protecting_the_State_Retirement_Systems_and_Pension_FundsThe most significant responsibility of the State Comptroller is to administer the retirement system for employees and retirees of the State Retirement system. The Comptroller is the sole trustee for the $152 billion public pension fund and oversees the administration of a system with nearly one million members. Duties include:

Investments

• Providing the necessary assets to pay benefits to the New York State and Local Retirement Systems’ participants and their beneficiaries, as well as minimizing employer contributions, through an investment program designed to enhance long-term asset value

• Maintaining asset allocation to obtain maximum return consistent with policies on high rate of return, liquidity, portfolio diversification and prudent risk management.

• Internally managing the majority of domestic funds of the Common Retirement Fund - and providing oversight of all external investment managers

• Recommending selection and termination, negotiating contracts and recommending changes to both the domestic and international equity asset classes, fixed income – managing fixed income assets both short- and long-term for State and Custodial Accounts such as the Short-Term Investment Pool (STIP), the Sales Tax Account and the New York City General Debt Service Account, private equity – investments in high-risk funds, international funds, and fund-of-funds or pooled investments

29

OVERVIEW OFFICE OF THE STATE COMPTROLLER

• Managing and investing the monies of the pension fund in real estate-related investments.

• Implementing OSC policies on Corporate Governance, including coordinating activities of corporate governance advisory committees, preparing annual proxy voting procedures and policy materials, directing and monitoring internal voting process, maintaining records of votes cast at corporate governance session, preparing case-by-case analyses of performance related issues. In the past four years, votes have been cast at 7,300 corporate board meetings and 48 shareholder resolutions have been sponsored in coordination with other national and global networks of shareholders.

Retirement Systems

• Working with New York State employers to register, document and track employee service and earnings for the nearly 1 million members of the state retirement systems.

• Processing all plan changes, process all member requests, provide annual member statements.

• Developing and delivering comprehensive benefit information program, conducting member consultations, communicate major developments and updated information, and maintaining the Retirement Systems’ Call Center which processes more than 350,000 calls annually.

• Investment staff also runs the College Savings program serving 300,000 state residents, with an asset base of $5 billion.

Managing the state’s fiscal affairsOSC has responsibility for managing the State’s cash flow professionally and reliably through daily concentration and disbursement of State Funds while attaining the highest rate of return and insuring safety of principal and liquidity. Other important responsibilities in this area include:

• Managing the sale and payment of debt service for general obligation bonds and notes of the State of New York.

• Coordinating the debt issuance of the State, the City of New York and their Authorities.

• Administering $12 billion annual New York State Payroll for 300 state agencies and 250,000 state employees under multiple contracts including collecting and maintaining appropriate employee time, payment, tax and deduction information and producing the New York State payroll. This includes training and communication with payroll staff in each agency fiscal office.

• Publicizing the Unclaimed Funds Program via outreach and a toll-free communications center, and maintaining the unclaimed funds database on the Internet.

30

OVERVIEW OFFICE OF THE STATE COMPTROLLER

Providing_support_and_oversight_of_state_and_local_government_operationsState Government

OSC is responsible for investigating and evaluating state agency programs by determining whether they operate economically, and are achieving agreed-upon goals. Its duties include:

• Acting as an independent auditor to improve State government operations and public accountability by overseeing financial practices in payroll, procurement and revenue accountability.

• Identifying inefficiencies, waste, fraud and abuse in State agencies.

• Evaluating the effectiveness of internal controls, and compliance with state law, administrative regulations and contract provisions.

Local Government

OSC has financial oversight responsibility for over 10,000 subdivisions of local government, including 1,600 counties, cities, towns and villages, and close to 800 school districts. It provides direct services to assist local officials manage their local governments efficiently and effectively:

• Developing guidance for local government operations, including performance measurement.

• Providing guidance on financial reporting issues such as the implications of a recent decision of the Governmental Accounting Standards Board (GASB) to require governmental employers to accrue on their financial statements the cost of Other Post Employment Benefits (OPEB) such as the cost of health insurance for retirees, over the active service life of benefiting employees.

• Coordinating and promoting economic development initiatives, and gathering data on economic conditions, development needs and development opportunities.

• Conducting audits to improve public accountability and decision making, and providing self-assessment tools to local governments in areas such as payroll, revenue services and cash management.

• Investigating allegations of fraud, corruption and in local government.

• Providing technical assistance and training, including on-site assistance to local government officials.

• Developing policy positions on issues such as smart growth and regionalism; analyzing and developing legislative programs related to local government issues.

• Generating statistical reports based on annual financial data from all local governments including IDA’s, housing authorities/other reporting districts.

31

OVERVIEW OFFICE OF THE STATE COMPTROLLER

• Compiling reports on a variety of issues relating to local government finance and policy including property taxes, Medicaid, government structures, fiscal distress, local economic projects and planning.

• Providing legal opinions and informal guidance to local government officials.

• Sponsoring workshops and developing training materials on a variety of local government issues.

Advancing_Public_PolicyNew York State Comptrollers have historically been advocates for prudent state budget and debt policy, as well as for other good government reforms. The Office of Budget and Policy Analysis helps fulfill this role by issuing public reports on proposed and enacted State budgets as well as fiscal issues affecting the State and those with implications for New York taxpayers. It serves as a resource not only for the Office of the State Comptroller but also for other governments and community organizations by performing research and providing information about State finances, budget trends, public programs and proposals.

The Office also analyzes revenue and economic forecasts, monitors debt and provides the background necessary for the Comptroller to make informed decisions when his opinion is sought on budget and policy issues. In addition, the Office monitors State and federal legislative developments, and identifies innovative approaches to fiscal and policy challenges, to support the Comptroller in offering solutions.

32

OVERVIEW OFFICE OF THE STATE COMPTROLLER