NEW YORK - New York Governor Andrew Cuomo unveils his first budget plan on Tuesday, giving him the opportunity to alter a process he labeled as a "sham" that leads to runaway spending and deception similar to what he uncovered on Wall Street.
The Democratic governor, who has vowed not to raise taxes, faces the challenge of closing a $10 billion budget gap via spending cuts, primarily in education and healthcare. The current budget, which extends to the March 31 end of the fiscal year, totaled $136 billion.
Cuomo is planning to cut Medicaid -- the state-federal health plan aids the poor, disabled and elderly -- by $2 billion to $3 billion, and slice the education budget by 2 percent to 3 percent, a source with direct knowledge said.
Cuomo is to address the legislature in the state capital of Albany around 1 p.m. (1800 GMT).
Growing deficits and dwindling tax receipts are affecting states and cities across the country, adding risk to the historically stable, $2.8 trillion municipal bond market.
Thousands of New York state workers stand to lose their jobs while Cuomo has pledged to let expire a temporary income tax surcharge on millionaires.
Cuomo's approach, which the source said includes merging agencies and slicing their budgets by 10 percent, won cautious approval among investors.
"He's saying the right things," said Fred Yosca, a managing director at BNY Mellon Capital Markets in New York.
New York state is rated Aa2 by Moody's Investors Service and AA by Standard & Poor's, the third highest rankings for both credit agencies.
New York City Mayor Michael Bloomberg has said state spending cuts could force him to lay off 15,000 teachers and damage the city's public hospitals. The upstate region, which has been locked in an economic downturn, likely will see some of its job-providing prisons shuttered.
The state also faces the loss of $5 billion of federal stimulus aid, and its problems are compounded by reduced tax revenue during the economic downturn.
New York's problems are particularly acute because it has one of the costliest and most generous Medicaid programs at $1 billion a week.
The governor, in an op-ed column that appeared in New York newspapers on Tuesday, criticized rules that automatically increase state spending for expensive items such as education and Medicaid by as much as 13 percent, saying reasonable limits could eliminate most of the deficit.
"I was shocked to learn that the state's budget process is a sham that mirrors the deceptive practices I fought to change in the private sector," Cuomo said, referring to Wall Street abuses he challenged as New York's attorney general.
Cuomo called for replacing automatic increases in the budget on various items with a more reasonable formula, contending that if education and Medicaid rose only at the rate of inflation, there would be only a $1 billion deficit.
Cuomo also must try to balance the budget while honoring a campaign pledge to cap property taxes imposed by local governments at 2 percent annual increases.
Senate Republicans on Monday evening approved the property tax cap. But the Assembly, led by Democrats, might buck at the bill as it has called for safeguards for low-income people and said preserving New York City's rent rules are a top priority.
One problem with the 2 percent property tax cap is that local governments already have a 3 percent cap on their Medicaid budgets, meaning a property tax limit would put a tighter squeeze on their finances. (Editing by Chizu Nomiyama )
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