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By Joan Gralla
NEW YORK Dec 16 New York Gov. David Paterson
on Tuesday proposed a new $121.1 billion budget that increases
spending by 1.1 percent and relies on cuts as well as higher
taxes and fees to close a 15-month $15.4 billion deficit.
Saying the state faces its worst fiscal crisis since the
Great Depression, the Democratic governor in a televised
address said he was not proposing any "broad-based" tax
increases. But he did recommend shutting tax loopholes for
hedge funds and proposed an extra 5 percent sales tax on luxury
items, including yachts and jets, jewels and furs.
Wall Street's troubles cost the state dearly because it
gets one-fifth of its tax revenues from the financial sector.
Hedge funds have in the past avoided federal tax hikes proposed
by Congress by arguing they would move overseas. New York City
is home to a number of hedge funds, although lower-tax
Connecticut has also attracted many firms.
Democrats in the Assembly have sought to raise personal
income taxes for millionaires. Paterson's strategy includes a
number of fee increases that would hit residents of all income
levels, from a new obesity-fighting tax on sugary soft drinks
to higher motor vehicle fees.
Beer and wine drinkers may pay higher excise taxes, but
consumers would be able to buy wine from groceries and drug
stores. At present, beer is available in groceries and drug
stores but wine can only be sold at specialist liquor stores.
A sales tax exemption for clothing and footwear that costs
less than $115 would be abolished. Homeowners would lose
rebates under a property tax relief plan, called STAR.
Noting the credit crunch has driven interest rates on
student loans as high as 18 percent, Budget Director Laura
Anglin unveiled a new $350 million lending program for students
that will only charge 8 percent rates. But students will have
to pay higher tuition at state universities and colleges.
New York City is the only municipality to get less aid from
the state, taking a $328 million reduction over last year's
budget. Paterson is planning to reduce funding for the state
mass transit agency by $285 million, although the agency says
it needs 23 percent more revenue.
Lame duck Senate Republicans last month rejected Paterson's
plan to slice $2 billion of spending, and since then, the
Democrats, who won a two-seat majority in November, have failed
to pick a new leader. That could imperil Paterson's budget.
"I think the legislature has been sobered by the incredible
downturn in the economy," Paterson said. "It won't be easy, it
won't happen overnight."
Paterson is proposing to save more than $1 billion by
enacting his budget by March 1, a month before the deadline.
He is also proposing to increase welfare grants for the
first time in 18 years, increasing 10 percent per year for
three years, a move that would benefit children most, said
More than 500 workers will be laid off as at least 7
agencies are merged. The state workforce will lose a total of
3,108 positions. Workers, who on average earn $68,000 a year,
will be asked to forego a planned pay increase, and benefits
for new workers will be reduced while the retirement age is
raised to 62 from 55.
Paterson is proposing $3.6 billion of cuts in healthcare,
mostly in Medicaid, the state-federal health plan for the
elderly, disabled and poor. Paterson noted New York's Medicaid
plan will still be the most generous in the nation.
Public schools will lose $2 billion of aid, though Paterson
said a majority have sufficient reserves to offset the cut.
Other popular programs singled out for cuts include over
$400 million of cuts in environmental protection and mental
hygiene, and $300 to $400 million of reductions in human
services, economic development, work force, and higher
(Reporting by Joan Gralla; Editing by Chizu Nomiyama)