NY's Cuomo slashes spending, freezes taxes in budget

NEW YORK Tue Feb 1, 2011 6:11pm EST

New York Governor Andrew Cuomo presents his 2011-12 budget proposal in Albany, February 1, 2011. REUTERS/Hans Pennink

New York Governor Andrew Cuomo presents his 2011-12 budget proposal in Albany, February 1, 2011.

Credit: Reuters/Hans Pennink

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NEW YORK (Reuters) - New York Governor Andrew Cuomo proposed laying off nearly 10,000 state workers and cutting billions from education and Medicaid as he laid out his first budget on Tuesday designed to close a $10 billion deficit.

The Democratic governor proposed no new or increased taxes in the $132.9 billion budget plan, which would shrink the current budget ending March 31 by 2.7 percent. If the budget plan holds, it would mark the first spending decrease since 1997.

"New York state is functionally bankrupt. We have to think in terms of restructuring because New York doesn't work anymore," Cuomo told legislators, who must approve the budget plan.

New York is one of many states battling multibillion-dollar deficits due largely to the sluggish economy, which has created a nationwide fiscal crisis that has added risk to the historically stable $2.8 trillion U.S. municipal bond market.

Cuomo said New York's finances have been hammered by a budget process that he labeled a "sham," with automatic increases for expensive programs such as education and Medicaid, the state-federal health plan for the poor that led to runaway spending.

"In a down economy, this is a death spiral and that's where we are now," Cuomo said. "If the state continues doing what we're doing, we're heading down the road to ruin."

Cuomo's budget proposal includes spending cuts of $1.5 billion from education and $1 billion from Medicaid, as opposed to previous automatic increases of 13 percent that would have amounted to additional spending of $2.85 billion each.

The austere budget plan could enhance Cuomo's standing as a fiscal conservative nationally at a time when growing deficits and dwindling tax receipts are affecting states and cities across the country.

Cuomo had vowed to make New York "a business-friendly state" shortly after taking office on January 1.

His austere approach to his first budget prompted a comparison to New Jersey Governor Chris Christie, who has emerged as a national Republican leader by promoting spending cuts and putting a cap on taxes.

Cuomo "is taking a page from Christie, which is interesting given that he's a Democrat. I think it's a positive if it materializes," said Evan Rourke, a portfolio manager with Eaton Vance in New York.

The Cuomo budget, which requires legislative approval, could strengthen his position with the Republican-controlled Senate.

The Democratic-controlled Assembly, however, might reject the spending cuts. Democrats may also seek to derail Cuomo's plan to let expire a temporary income tax surcharge on millionaires, though any Assembly bill to extend the tax would likely die in the Senate.

New York City would be hit particularly hard under the budget proposal, with a $580 million reduction in school aid. The cut is less than the $1 billion reduction that Mayor Michael Bloomberg had feared. Bloomberg had said a $1 billion cut would translate into 15,000 teacher layoffs.

"There's going to be balancing the budget on the backs of local communities," said Howard Cure, managing director for municipal research at Evercore Wealth Management LLC in New York. "This is just the beginning of what I would expect would be a long negotiation."

Cuomo revealed little during last year's low-risk election campaign in which he faced a weak opponent, though he had called for an end to waste and fraud in state government while saying taxes were too high and spending needed to be cut. Since Cuomo's January 1 swearing-in he has taken a decidedly conservative bent.

Cuomo is the son of former New York Governor Mario Cuomo, who was a liberal hero during the era of Republican President Ronald Reagan.

(Additional reporting by Dan Wiessner; Writing by Daniel Trotta; Editing by Leslie Adler and Andrew Hay)

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Comments (9)
go2goal wrote:
The rich will be pleased. Are they witnessing what’s happeing in Egypt, Jordan, Algeria, Tunisia, Yemen, and elsewhere? The economic suppression and poverty and wealth concentration are what’s driving the uprisings by the middle and lower class in those countries. Don’t think for a minute the US working class isn’t cheering on the Egyptians…and obtaining some inspiration.

US leaders in DC, the states, and local levels better not under estimate what’s finally happening….wealth concentration and corporate monopolies have spread like cancer across the globe…and especially in the US. When our Top 1% has more income and wealth than the bottom 90% – we have a problem!

Bloomberg…how are your policies going to make life better for the middle class and lower class? That needs to be the litmus test of government policy decisions now….not how it caters to business or pleases the rich and the connected.

Feb 01, 2011 12:09pm EST  --  Report as abuse
beofaction wrote:
Cuomo is dead right. New York, like most states, and the Federal Government have been giving away money they don’t have by the trillions to people to establish an artificial standard of living – buying votes in the process. Well if $14 trillion in debt doesn’t make you understand that our system doesn’t work, then you are dead from the neck up. The problem is we are no longer a nation of free men who value our independence and fear government. Instead we have become serfs willing to give up our economic freedom and look to the government to provide us a better life, and “security”. Indeed, we even feel entitled to a certain standard of living! I’ve got news for you. Economic oppression starts with the theft of money by the government from one person to give it to another.

Feb 01, 2011 9:39pm EST  --  Report as abuse
Trooth wrote:

That is right, run all of your business and rich people out of the state. They can come down south where businesses and wealthy people are welcome, and seen as a vital part of the welfare of everyone. I will see you when you move down here in search of a job.

Feb 02, 2011 12:12am EST  --  Report as abuse
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