NEW YORK, March 30 (Reuters) - New York Governor David Paterson and legislative leaders have agreed a budget for next year that includes spending cuts and a temporary increase in taxes for high earners to close a two-year $17.7 billion deficit.
“The agreement we are announcing today closes the largest deficit in state history, stabilizes our finances and institutes critical reforms that will help eliminate waste and inefficiency in our government,” Paterson said in a statement jointly issued late Sunday with Senate Majority leader Malcolm Smith and Assembly speaker Sheldon Silver.
The budget calls for spending of about $131.8 billion, up 8.7 percent from the prior-year budget. The bulk of that increase, or $7.2 billion, is accounted for by federal stimulus money that must be spent in the current fiscal year.
The plan includes $6 billion in spending cuts, including reforms to Medicaid, the health program for the elderly, poor and disabled, that will save $1.6 billion this year.
It also includes a temporary hike in taxes for higher-income taxpayers that would increase the margin rate for married couples with incomes above $300,000 to 7.85 percent from 6.85 percent, and for couples with incomes above $500,000 to 8.97 percent from 6.85 percent.
The tax hike will be applied for a three-year period from tax years 2009 through 2011 and is expected to generate $4 billion in fiscal 2009-2010.
Combined with other planned tax and fee actions, the budget is expected to produce $5.3 billion in revenues in 2009-2010.
The budget agreement comes after weeks of haggling in closed-door sessions between Paterson, Smith and Silver, all of whom are Democrats.
Senate Republican leader Dean Skelos criticized the tax increases and described the agreement as “the most fiscally irresponsible budget, produced at the worst possible time.”
“At a time when we are mired in the worst economic downturn in generations, this disgraceful budget would increase state spending to unsustainable levels,” he said in a statement.
Paterson has long opposed raising taxes for the wealthy, arguing that it would lead many of New York’s richer citizens to relocate to lower-tax states. The governor as recently as Friday called for greater spending cuts as an alternative before agreeing to the measures in weekend talks.
Reporting by Ciara Linnane; Editing by Chizu Nomiyama