NEW YORK (Reuters) - New York state lawmakers finalized a $136 billion budget for fiscal 2011 late Tuesday, approving a final piece of legislation that will raise about $1 billion through a mix of tax hikes and other measures.
However they rejected a controversial tax increase on hedge fund managers who live out of state, fearing an exodus of funds to neighboring Connecticut.
A late-evening 32 to 28 vote by the state Senate ended months of bickering between Republicans and Democrats, who control the legislature, over measures to close a $9.2 billion deficit.
The stalemate had delayed the budget 125 days into the new fiscal year, which began on April 1. Assembly lawmakers approved the budget several weeks ago.
Democratic Governor David Paterson welcomed passage of the budget, which he said eliminated the deficit mainly through spending cuts, with no borrowing. The measure now goes to Paterson for his signature.
For the first time in state history, lawmakers have taken action to create a contingency plan in anticipation of a loss of federal revenue, and put spending cuts in place to fill the gap, Paterson said in a statement.
Like many states, New York is hoping the federal government will extend Medicaid stimulus funds due to expire at year-end. The contingency plan will cut about $1 billion in spending if the funds do not materialize.
Republicans were critical of the plan.
“Today’s action also completes one of the latest budgets in state history,” Senate Republican Leader Dean Skelos said in a statement.
“What did taxpayers get as a result? They got higher spending and more taxes, but not a single initiative to create any new jobs or improve New York’s economy.”
The legislation approved on Tuesday eliminates a sales tax exemption on clothing purchases of less than $110, beginning October 1, to raise an expected $330 million.
Lawmakers also agreed to limit deductions for charitable donations for taxpayers who earn more than $10 million a year.
They also approved expanded tax credits for film production companies.
The Senate approved a 4 percent cap on local property taxes though the measure still awaits approval by the assembly.
But the Senate dropped a controversial proposal, approved by the assembly, to subject the so-called “carried” interest paid to hedge fund managers living out of state to New York income tax rates. The change would have generated an estimated $50 million in revenue.
In recent weeks, Connecticut Governor Jodi Rell has waged a campaign to woo New York hedge funds.
“It was too long and more painful than necessary for the legislature in New York to come around on this issue,” Tim Selby, president of the New York Hedge Fund Roundtable, said in a statement.
“Nevertheless they got to the right result even though it was through peer pressure from Gov. Rell,” he said.
Paterson pushed parts of the budget through the legislature in June by signing a series of weekly emergency spending bills that lawmakers had to pass to avoid a government shutdown, an unpopular move ahead of November elections.
Reporting by Ciara Linnane; Additional reporting by Edith Honan; Editing by James Dalgleish