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Spitzer's 'line in the sand' budget Health Care Industry Faces Cuts Ailing upstate cities, schools in line for increased funding

Vowing to take on Albany's special interests as well as the State Legislature, Gov. Eliot L. Spitzer proposed a sweeping 2007 state budget Wednesday that sharply eats into the politically potent health care industry while steering a larger share of state assistance to ailing upstate cities and their school districts at the expense of many influential suburban communities.

Spitzer used the term "line in the sand" several times in describing some of his key demands and signaled a willingness, almost eagerness, for a fight with the Legislature.

"I was elected with a mandate to change the direction of Albany -- and I am saying right here, right now, we are going to defend the principles of this budget," he told reporters. "I will not become, under any circumstances, one more in the voices of the status quo paradigm that is destroying our economic future. That's not why I ran."

The $120.6 billion budget plan, which hikes spending at nearly triple the inflation rate, offers a potential seismic shift in Albany budget-making policies -- if lawmakers agree -- by earmarking huge portions of the spending increases based on financial need.

For homeowners, it means a $1.5 billion property tax cut targeted to more moderate-income families.

For schools, it means steering a sizable share of a $1.4 billion education aid hike to lower-income, urban districts, particularly in upstate cities like Buffalo.

For cities, it means increasing state aid "to those cities that fundamentally need it most," said Spitzer. That includes Buffalo, which he would give a 40 percent increase in state aid over four years -- but only if certain spending accountability rules are met.

The governor's attempt to try to distribute greater aid increases to poorer school districts and cities -- something tried unsuccessfully by previous governors -- met with initial opposition from the Republican-led State Senate, whose GOP members represent mostly suburban and rural areas that would see lower increases in state aid under the Democratic governor's plan.

A war looms over whether to distribute some of the biggest increases based on need rather than pupil enrollment. Senate Majority Leader Joseph Bruno said, "We're very concerned that money follows the students -- we don't want it to be urban versus suburban."

The governor funds a sizable portion of his plans to cut property taxes and increase school aid with deep cuts to the state's health care industry. Hospitals and nursing homes, already reeling from plans to close or merge dozens of facilities, would take the brunt of the reductions. Providers said the cuts would reduce patients' access to care, a concern echoed by legislative leaders.

Spitzer, however, said his plan ends the days of using the expensive Medicaid system to bail out the entire health care industry. "We were willing at every turn to say to every institution, 'Don't worry. We will be here to bail you out.' Game over, it's not happening anymore," he said.

"We're saying 'no' to the people who had gotten used to the answer 'yes,' " he added.

But the governor's plan still says "yes" to many. While his fiscal aides predict a 2.3 percent inflation rate this year and a slowdown in the state's job growth well into 2008, especially with upstate manufacturing jobs, the total budget grows 6.3 percent. The portion of the budget funded mostly by state taxes grows 4.2 percent. Spitzer said that level is "austere" when compared with last year's budget that increased 10 percent.

The Spitzer plan proposes a big new borrowing plan to fund stem cell research, adds 2,500 state workers, rolls over hundreds of millions in "pork barrel" spending, provides retroactive raises for state judges and increases outstanding debt above the $52 billion level.

"I'm amazed at the size of it, frankly," added Bruno, who said Spitzer relies heavily on financial bailouts for the upstate region instead of adding small-business tax cuts to help keep companies from leaving.

And while Spitzer said his plan includes no new tax hikes, it does include about $70 million in various fee hikes and $450 million in what Spitzer called closing of various business tax loopholes but that critics called a corporate tax hike.

"Gov. Spitzer promised in his State of the State message that he would 'rein in spending.' He didn't," said Assembly Republican leader James Tedisco.

Spitzer said he didn't engage in the usual "gamesmanship" in which governors low-ball spending plans knowing that the Legislature will later add more spending. He said lawmakers are "going to have to persuade me that any additional penny merits the expenditure."

In other budget areas, Spitzer proposed a $1,000-per-child tax deduction for families with children in private or parochial schools. While it will amount to only about $68 for top tax bracket filers, religious groups called it an important opening in their long-standing battle to eventually get a voucherlike system in New York.

The governor, as promised last year, also plans to go ahead with collecting taxes on the sale of cigarettes and gasoline sold by Indian retailers to non-Indians. His budget contains close to $200 million in expected income, though he provided no clue how the collection effort will work.

The governor also wants to close state prisons, but he would not say how many or which ones. He said the state has 8,000 fewer inmates compared with 1999 and so needs fewer prison cells. He proposed creation of a panel to offer nonbinding recommendations for the prison closings.

Assembly Democrats cheered that Spitzer was borrowing many of the ideas they promoted over the years. But Assembly Speaker Sheldon Silver also raised concerns about Spitzer's plan to cut health care and his proposal to increase charter schools from 100 to 250 statewide because it does not provide enough local input into the granting of new charters.

"This should be a budget by consensus," added Silver, who is having his own wars with Spitzer in recent days.

Edmund J. McMahon, the director of the Empire Center for New York State Policy, a conservative think tank, noted that governors dating back to Hugh Carey tried to redirect more aid to distressed cities, and others have talked of linking school aid hikes to more accountability.

But groups that would do well under Spitzer's budget cheered.

Some mental-health advocates praised his plan for 1,000 new community residential beds and a pledge to reduce the state's reliance on institutional settings.

Farmers backed his $500,000 plan for a program to help upstate farmers sell goods to New York City consumers.

Environmentalists backed his call to expand the bottle deposit law to include noncarbonated beverages.

And social services groups rallied around his two-year, $165 million plan to provide health care coverage for 400,000 children now without insurance.

e-mail: tprecious@buffnews.com

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BUDGET HIGHLIGHTS

*Aid to suburban school districts in Erie County rises $21.7 million.

*Aid to Buffalo city schools increases by 9 percent, or $40.2 million.

*Aid to Buffalo will increase by 9 percent, or $12.8 million.

*STAR tax relief for Erie County property owners increases by nearly 18 percent, or $32 million.

*Gives the mayor of Buffalo representation on the School Board.

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