New York budget portends clash with public unions

ALBANY, New York Tue Jan 17, 2012 3:59pm EST

New York Governor Andrew M. Cuomo gestures during a cabinet meeting in Albany, New York October 12, 2011. REUTERS/Hans Pennink

New York Governor Andrew M. Cuomo gestures during a cabinet meeting in Albany, New York October 12, 2011.

Credit: Reuters/Hans Pennink

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ALBANY, New York (Reuters) - New York Governor Andrew Cuomo proposed a $132.5 billion state budget on Tuesday that is virtually flat from a year ago, offsetting increased spending on schools and healthcare with cuts to a host of government agencies.

The proposed budget for the 2013 fiscal year starting April 1 cuts total spending by $225 million, or 0.2 percent, from the previous year. It would put New York on track for a budget shortfall of $715 million for fiscal 2014, the smallest in two decades, the governor's office said.

The budget is in line with what Cuomo outlined early this year in his State of the State address, when he called for introducing a new tier of lower pension benefits for public employees.

Cuomo, a Democrat in his second year of office, on Tuesday also proposed giving future state workers a choice between a less-generous defined-benefit pension plan and a defined contribution pension plan.

"Our stronger fiscal position now allows us to tackle long-overdue pension reform and mandate relief that will lower the cost of government, drive accountability in our schools to put students first, and leverage tens of billions of dollars of new private-sector investment to create jobs without significant cost to the taxpayer," Cuomo said in a statement.

In his State of the State address, Cuomo had proposed a plan to attract $25 billion in private capital for new projects and infrastructure around the state, which is still struggling with a weakened economy more than two years after the country's recession officially ended.

Cuomo, who last year closed a $10 billion budget gap and had once vowed to not raise taxes, reversed course late last year. Under a plan that the governor led through the legislature, New Yorker's making more than $2 million a year will now pay state income tax of 8.82 percent, compared with a rate that had been due to revert to 6.85 percent with the expiration of a temporary surcharge.

Cuomo on Tuesday proposed a new pension tier for public workers that would save $79 billion over the next three decades by raising the retirement age, increasing employee contributions and excluding overtime from pension formulas.

Workers would also be able to opt into a defined contribution plan, which "offers a portability and vesting feature not currently available, and requires both employees and employers to share in the risks and rewards of market volatility," according to the proposal.

New York's public employee unions accepted austere contracts last year in order to avoid thousands of layoffs, and some have already said they would fight the new tier.

Cuomo also sought to please local government officials by proposing a state takeover of future growth in counties' Medicaid costs. The proposal would save counties and New York City $1.2 billion over five years. At the same time, state aid to local governments would be frozen at the current year's level.

The state legislature has already agreed to Cuomo's plan to increase state aid to school districts by $805 million after cutting the funding by $1.2 billion last year, prompting thousands of layoffs. The proposal would steer about three-quarters of the new funding to poor districts, and would tie the funding to the adoption of new evaluation systems for teachers and principals.

After 10 percent across-the-board cuts last year, most state agencies would see additional cuts under Tuesday's proposals, after Cuomo requested agency spending to be pared down by 2.5 percent.

(Additional reporting by Joan Gralla; Editing by Daniel Trotta and Leslie Adler)

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