NY Gov. Proposes Cutting 10K Workers, Freezing Taxes

New York Governor Andrew Cuomo proposed laying off nearly 10,000 state workers and cutting billions from education and Medicaid programs as he laid out his first budget on Tuesday, designed to close a $10 billion deficit.

The Democratic governor proposed no new or increased taxes in the $132.9 billion budget plan, which would shrink the current budget ending March 31 by 2.7 percent. If the budget plan holds, it would mark the first spending decrease since 1997.

Cuomo had billed the budget as an opportunity to alter a process he labeled a "sham" that led to runaway spending in the past because of automatic spending increases and deception that he likened to what he uncovered on Wall Street in his previous job as the state's attorney general.

The budget plan could enhance Cuomo's standing as a fiscal conservative nationally at a time when growing deficits and dwindling tax receipts are affecting states and cities across the country. Cuomo, in his "State of the State" address early last month shortly after taking office, had vowed that New York would be "a business-friendly state."

The fiscal crisis has added risk to the historically stable $2.8 trillion U.S. municipal bond market.

Cuomo "is taking a page from Christie, which is interesting given that he's a Democrat. I think it's a positive if it materializes," said Evan Rourke, a portfolio manager with Eaton Vance in New York, referring to New Jersey Republican Governor Chris Christie.

Christie has emerged as a national Republican leader by closing a similarly huge budget deficit.

The Cuomo budget, which requires legislative approval, could strengthen his position with the Republican-controlled Senate.

The Democratic-controlled Assembly, however, might reject the spending cuts. Democrats may also seek to derail Cuomo's plan to let expire a temporary income tax surcharge on millionaires, though any Assembly bill to extend the tax would likely die in the Senate.

"There's going to be balancing the budget on the backs of local communities," said Howard Cure, managing director for municipal research at Evercore Wealth Management LLC in New York. "This is just the beginning of what I would expect would be a long negotiation."

Cuomo revealed little during last year's low-risk election campaign in which he faced a weak opponent, though he had called for an end to waste and fraud in state government while saying taxes were too high and spending needed to be reined in. Since Cuomo's January 1 swearing-in, he has taken a decidedly conservative bent.

The budget calls for laying off 9,800 state workers and would cut $1.5 billion from education and $1 billion from Medicaid, the state-federal health plan that aids the poor, disabled and elderly.

Cuomo was due to formally present the budget to legislators later on Tuesday.

There were two minor fee increases expected to raise $19.5 million. Cuomo proposed a horse racing purse surcharge of 2.75 percent and an increase in an unexplained "clearance registrar fee," to $60 from $5.

New York City would be hit particularly hard under the budget proposal, with a $580 million reduction in school aid, though the cut is less than the $1 billion reduction that Mayor Michael Bloomberg had feared. Bloomberg had said a $1 billion cut would translate into 15,000 teacher layoffs.

Cuomo is the son of former New York Governor Mario Cuomo, who was a liberal hero during the era of Republican President Ronald Reagan.