ALBANY, New York (Reuters) - The New York state legislature on Thursday passed a $132.5 billion spending plan, closing a $10 billion deficit with no new taxes or debt and instead relying on harsh cuts to education and healthcare.
Having been passed by both the Republican-led state Senate and the Democratic-controlled state Assembly, the budget will now be sent to Governor Andrew Cuomo to sign. It is the first budget since 2006 to be passed by the April 1 deadline.
“Tonight the legislature not only passed an on-time budget, but a historic and transformational budget,” Cuomo said.
The budget, which cuts total spending by 2 percent, also calls for the layoff of 9,800 state employees unless public employee unions concede $450 million in savings in pay and benefits.
The budget is an early victory for Cuomo, who persuaded the legislature to back almost all of his plan by threatening a government shutdown in the event of an impasse.
New York has one of the country’s biggest budgets and the state is one of the top issuers of municipal bonds in the nation. These factors all intensify scrutiny of its budgets in the $2.9 trillion municipal bond market.
Many other states also are grappling with huge deficits -- a legacy of the 2008 financial crisis. But some of them, including California and Connecticut, are mulling significant tax increases. Illinois in January blazed the tax raise trail, enacting a 67 percent increase in state personal income taxes.
New York’s fiscal 2012 budget cuts more than $1.2 billion from state aid to local school districts and reduces spending on the state’s Medicaid program by $2.8 billion.
The budget sets an annual cap of $15 billion on Medicaid spending and ties future spending increases to a national index. Similarly, future education spending will be linked to personal income growth.
“Difficult and painful decisions had to be made to address the fiscal reality facing our state,” said Assembly Speaker Sheldon Silver.
The list of legislative plans Cuomo beat back included a tax on New Yorkers who earn more than $1 million per year, which was sought by Silver and other Assembly Democrats. That proposal was meant to replace a surcharge on singles who earn more than $200,000 and couples who earn more than $300,000, which will expire on December 31.
Republican Dean Skelos, the Senate majority leader, tried to ensure that prisons were closed in both Democratic and Republican districts but the final plan lets Cuomo make the choices without legislative approval. With that exception, Skelos and Cuomo were largely in lockstep throughout budget negotiations.
“You can’t tax your way into prosperity, you can’t tax your way out of economic problems,” Skelos said. “We have sent a message to the business community that we want you to stay here, grow here, invest here and create jobs here.”
The budget merges a number of state agencies and cuts agency budgets by 10 percent, nearly across the board.
It also puts Wall Street, the state’s economic engine, under a new regulator. Cuomo merged the state’s banking and insurance departments into a new Department of Financial Services, which will gain oversight of new financial products.
Editing by Joan Gralla and Mohammad Zargham