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SPECIAL-INTEREST GROUPS filled the corridors of the State Legislature last week, button-holing politicians in an effort to save state programs that aid them.

Lobbyists representing the poor, civil servants, various local governments, hospitals and the State University of New York were all there, urging legislators not to take away money and jobs in order to eliminate the state's budget deficit.

Small-business groups also pressured the State Legislature. But they were arguing for even more drastic budget cuts than those proposed by Gov. Cuomo.

"Small business has always focused first on the tax burden, then the regulatory burden and as a distant third, programs designed to assist companies," said Assemblyman Robin L. Schimminger, D-Kenmore, chairman of the Assembly's Committee on Small Business.

"If there's any winner in this, it is the small-business community because the state is responding to a budget shortfall with spending reductions rather than tax increases," he said.

E.J. McMahon, director of research for the Public Policy Institute, explained that for most entrepreneurs, new taxes are a far greater evil than lost funding for economic development programs.

"There is nothing more important to business than controlling state spending," he said. "Whatever economic development programs are affected pale in importance to getting the state's budget under control."

McMahon criticized lobbyists and the media for misrepresenting the negative impact of Gov. Cuomo's $1 billion package of budget cuts. The people who are screaming the loudest about the revised state budget are part of Albany's bureaucracy, not public employees who provide hands-on services, he explained.

"People are upset, but this is only the beginning. We have to cut far deeper in the next few years," McMahon said. The state's budget deficit next year is expected to range from $3 billion to $4 billion, he said.

Business programs lost about $6.97 million during last week's budget negotiations, but they will have to be cut much more in the future, said Mark P. Alesse, state director of the National Federation of Independent Business, which represents 500,000 entrepreneurs nationwide. "There has to be pain across the board . . . every agency has to have some cuts," he said.

Two programs, the Small Business Innovation and Research grants and Small Business Development Centers, both of which lost money earlier in the year, are expected to be shielded from the latest round of budget cuts, small-business experts say.

Many small-business owners seem willing to accept the elimination of some business-assistance programs because they are fighting mad about taxes.

"It's painful medicine," said Gerald E. Kelly of Buffalo, "but New York is becoming non-competitive."

Kelly, a real estate and financial consultant, cited 1988-89 statistics that show that New York is the nation's biggest spender, averaging $4,200 per capita. Moreover, almost half of that money goes to pay the wages of public employees.

New York has 634 civil servants for every 10,000 people, while California has only 474. The average salary for an Empire State bureaucrat is $28,000, said Kelly, who serves as chairman of the government relations committee for the Council of Small Business Enterprises, a division of the Greater Buffalo Chamber of Commerce.

"You have to make cuts so we can become a competitive state again," he added.

Taxes are a major reason why New York is losing both small businesses and Fortune 500 companies, Kelly said. He noted that state and local taxes averaged $2,934 per capita in 1988-89, or 65.5 percent above the national average.

"The most important priority the state has is to start living within its means," advised Harold H. Connor, president of the Business Computer & Software Company of Western New York Inc.

Several small-business lobbyists and entrepreneurs acknowledged that if the state's fiscal crisis were not so severe, they would have fought to restore funding cuts to the Department of Economic Development, Urban Development Corp. and other state agencies that help struggling companies.

Those businesses that have been helped by Albany, however, shouldn't worry about the revised 1990-91 budget, said Harold Holzer, spokesman for Department of Economic Development. For example, the Western New York Economic Development Corp. lost $200,000 Friday for small business loans, but the agency still has money in another revolving-loan program that can be used to help entrepreneurs, he said.

Holzer concluded: "We don't think we're going to be crippled or killed by these budget cuts."

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