Blue Spot: NY gov seeks $2 bln spending cuts, led by schools

UPDATE 2-NY gov seeks $2 bln spending cuts, led by schools | Markets | Markets News | Reuters

NEW YORK, Nov 12 (Reuters) - New York Gov. David Paterson on Wednesday proposed $2 billion of spending cuts, led by aid to schools and health care for the poor, to clip a widening budget deficit as fallout from the financial crisis crimps revenues.

Paterson said the legislature agreed not to increase personal income taxes at a special session set for next week to reduce the state's $121 billion budget.

Paterson, a Democrat who says the state must reform its long history of over-spending, said he hoped to avoid an income tax hike next year -- though he did not rule one out.

"If we're not getting cooperation, and can't get any other way to do it, then it would become a possibility," he told a news conference, warning against relying on more aid from Washington to fix a two-year $14 billion deficit.

Assembly Democrats had pushed to increase the personal income tax on millionaires, a move that the Senate, led by lame duck Republicans, blocked.

Under Paterson's proposal, school aid would be cut by $800 million and funding for Medicaid, the joint state-federal health-care program for the poor, would be cut by $572 million. Those cuts will come even as more people are expected to seek health benefits as the economy falters.

New York has one of country's most generous Medicaid plans and spends more per pupil -- $14,884 -- than any other state.

In addition, Paterson proposed higher fees, including a $600 increase in annual tuition at state universities and a new 5-cent deposit for bottles of water and noncarbonated drinks.

Paterson's proposals drew a mixed response from legislators.

Republic Senate Majority Leader Dean Skelos said lawmakers cannot act until they see next year's budget. "We must avoid any job-killing taxes and fee increases, which the governor is proposing," he said.

Republicans will control the Senate only until the new Democratic majority is inaugurated in January.

Meanwhile, Democratic Speaker Sheldon Silver said he disagreed with Senate Republicans who say the fiscal crisis has been exaggerated.

"The Assembly will not shrink from tough choices and plans to confront New York's fiscal crisis head-on, based on the principle of shared sacrifice." Silver said.