Statement of New York State Assemblywoman Catharine M. Young (R-Olean), 149^th A.D.

Mr. Chairman, panelists, distinguished guests, allow me to thank you on behalf of the residents of the Southern Tier of New York, and indeed all of New York, for conducting this hearing.

The high national cost of energy has had a potentially chilling effect on the recovering economy of the Northeastern United States, as you well know. What you may be less familiar with is the very personal and historic relationship this current challenge has with the district I represent in the State Legislature.

The small towns and villages of the Southern Tier were among the first places in the New World where oil was discovered and produced. These first wells gave rise to a series of bustling communities, emerging industries and a network of railroads. The communities of my district are mostly quiet now. Much of the oil still lies beneath the hills, but the expenses and regulations of production have made the industry non-sustainable. This bleak scenario has been the case for some time now.

Today my district faces an even graver challenge to its potential prosperity - senior citizens who cannot afford the energy needed to heat their homes, farmers grappling with the high cost of motor fuel required to run their machines, and employers unable to grow because of the rising electric and natural gas costs.

Simply put, energy costs too much.

Chairman, you know the people of the Southern Tier. They, like all other Americans, are hard working, stubbornly determined and possessed of an optimism that cannot be found anywhere else in the world.

Unfortunately that optimism is being eroded. The people of our small towns still work hard and still are oddly determined to make a better life for themselves, but many are discouraged. They are discouraged because they often do not see the fruits of their labor. They are losing their optimism because they are now unsure if their children will have a better life than they did.

The pursuit of the American Dream made this land a great one. It attracted faces and families from around the globe. Heroic men and women tamed this vast land and made it home. With their own blood and sweat they built a booming economy with enough prosperity to be had by all who would claim it with the work of their own hands.

The American Dream has faced many challenges. Wars and natural disasters have never defeated the spirit of our people. The challenge faced today is that of excessive - nearly punitive - taxation.

The taxes on energy threaten to destroy our ability to grow, to produce, and to improve. The taxes on energy threaten to destroy more than a reasonable share of family budgets.

Make no mistake about it. New York State itself has hurt its own residents with incomprehensible and burdensome taxes and regulations. In the state capital we are working diligently to right that wrong. New York now needs the national capital to rollback its unfair policies.

Home Heating Oil

In Western New York and much of the Southern Tier, home heating oil prices were $.78 per gallon in January of 1999. By January 2001 that price had ballooned to nearly $1.51 per gallon. That increase is approximately 93 percent in a two year span, according to the New York State Energy Research and Development Authority. Compare that to a 78 percent increase statewide, and the problem we are facing in western New York becomes very clear.

In the same report NYSERDA also outlines that the Mid-Atlantic regional inventory for home heating oil increased from January 2000 to January 2001 by over 40 percent. The regional oil inventory stands at 17.8 million barrels.

A free market system that encourages entrepreneurialism would allow greater industrial competition to meet consumer demands. As a businessman yourself, you know that an unmet consumer demand is the perfect opportunity for growth and the perfect remedy for economic malaise. We must allow American business to do what it does best.

Motor Fuel

Much of New York, as well as much of America, is still very rural. People need to travel moderate distances to find work, to see family, to buy goods and to get adequate medical attention. They need affordable gasoline for everyday living.

Farmers who already are operating too close to the solvency margin must purchase motor fuel to run their tractors, and other machinery. Commercial and industrial employers must ship materials and goods over great distances to meet supply and demand. Expensive gasoline is a cost of business, and is passed on to the consumer.

A report from the New York State Energy Research and Development Authority (NYSERDA) shows that statewide gasoline prices climbed from nearly $1.05 in January 1999 to nearly $1.55 in January 2001. In upstate New York this trend has been even more debilitating as prices climbed from $1.01 in January 1999 to $1.54 in January 2001. That increase totals 52 percent in 24 months.

As elected officials we can discuss the tightening of supply from the Organization of Petroleum Exporting Countries (OPEC), and debate the need for environmental regulation and infrastructure maintenance. However, we must acknowledge a startling problem. Taxes are too high.

According to price data obtained from the Energy Information Administration of the United States Department of Energy, taxes directly account for about 28 percent of what a consumer pays for a gallon of gas at the pump.

Altogether, Americans for Tax Reform has counted 43 different direct and indirect taxes on the production and distribution of gasoline. Through this lens we see that the total tax burden amounts to - on average - about 54 percent of the price of a gallon of gas.

Furthermore, the National Taxpayers Union reported that from 1990 to 1999 the pre-tax pump price of gasoline barely changed. Actually it decreased from 88 cents per gallon to 86 cents per gallon in adjusted dollars. However, over that same period gasoline taxes rose by more than half.

By cutting taxes we - federal, state and local government - can drop the price of gasoline back down to around a dollar a gallon. This positive action is something we can do to jumpstart our economy and save an average family nearly $1,000 per year.

Sound gas tax cuts can be achieved without disrupting the funding needed to support our national highway infrastructure. In March of 2000, the United States House of Representatives Committee on Transportation and Infrastructure reported that a proposed repeal of a 4.3 cent per gallon gas tax would result in a revenue loss of $20.5 billion in fiscal years 2001-2003. However, at the same time, the Office of Management and Budget showed the Highway Trust Fund was running at a surplus of more than $29 billion. The OMB report expected that the aforementioned surplus would grow to over $34 billion by fiscal year 2003. It is very clear that there is, and has been enough money to enact common sense, and overdue, tax relief.

Electricity and Natural Gas

From 1989 to 1994, during the five years before Governor George E. Pataki assumed office, the cost of electricity in New York increased by 20 percent.

According to the New York State Business Council and the United States Department of Energy, New Yorkers pay nearly 37% above the national average for natural gas. Part of the problem is again taxation, we tax our citizens too much. The Public Policy Institute of New York State shows that the per capita cost of taxes on utilities is 172.7% above the national average.

A larger problem is siting regulations and the permitting process. It takes too long, and does not allow industry to attempt to meet consumer demand. It is further complicated by narrow special interest groups who use scare tactics and a disregard for the broader economic need of society by opposing all new attempts to meet increased demand with supply.

The New York Power Authority is moving to install eleven small generating plants downstate. This plan is a small step in the right direction. The continued effort to improve operating efficiency and establish new facilities will enable New York to grow its energy market, thus allowing us to reap the benefits of the competition that true deregulation will bring.

New York needs to develop new generating capacity. We have not constructed a major plant since 1994.

Right now, our state's generating capacity is 35,000 megawatts. Our best estimates for peak summer use indicate that New York will need about 30,600 megawatts. That leaves us with a surplus for now, but only for now.

Businesses in New York City are asking for an increase of 2,000 to 3,000 megawatts of generating capacity locally. Since 1998 more than 60 large power plants have been proposed. Only 2 have been approved, and both will be situated upstate. This is a good start, but it will not be enough long term. To promote our long term growth and viability more needs to be done.

Competition is the answer. The current California crisis is a result of deregulation - or so we are told by the nightly news. But let there be no misunderstanding about it. California may call it deregulation, but their actions are more appropriately termed over-regulation.

The California government is acting to centrally manipulate the market place. Consumer rates have been regulated, and attempts to build new generating facilities have been denied by Sacramento.

Ten years ago in a policy analysis of U.S. energy markets, the Cato Institute and the Institute for Energy Research in Houston, Texas warned of the impending problems with the marketplace.

Prophetically they indicated that our country would grow and come to a crossroads in energy. The options were described as a return to free market entrepreneurialism, a reduction in taxation and regulation, and increased domestic generation or an adoption of price and allocation regulations, government manipulation of reserves and mandatory conservation.

California chose the latter path. On behalf of New York I urge you to return to Washington with the message that our nation must return to the free market practices. It is not yet too late.

Needed Action

Here in New York State I have been working with Governor Pataki and many of my colleagues to improve the availability of energy. Together we have cut the Gross Receipts Tax on utilities, and are working to spare residential ratepayers from its burden.

The Governors Office of Regulatory Reform is examining ways to cut the red tape that binds business and manufacturers, and the Public Service Commission is aggressively reviewing generating facility permitting applications.

Later this week I will be introducing legislation to eliminate the state sales tax on motor fuel. This action alone would save New York consumers $361 million annually and spur our economy - particularly the agricultural regions of the Southern Tier.

New York needs the federal government to be a partner in these actions. I am hopeful that a new Administration with its commitment to economic growth, and a sound energy policy will provide the compass needed to guide the country towards a full prosperity.

The rules of supply and demand govern price in a market economy. Unfortunately, today the cost of energy is determined under what could be described as a command economy, one comprised of the pressures of supply, demand and government. As it stands now consumers pay too heavy a price, generators are unable to compete for revenue fairly, and government is receiving a windfall of new tax "profits."

Cutting taxes will in no doubt increase demand. Free of undue regulation and stifling corporate taxes, the employers of this country and state will increase supply. America is a land of plentiful resources and unparalleled ingenuity. It is time for the American government to unfetter the drive and ability of its people by lessening the weight of government.

I urge you to help get government out of the equation. Fair market forces will act to overcome obstacles set forth by the government, supply will increase, demand will rise and our economy and people will prosper.

Thank you.