By Jimmy Vielkind

ALBANY, N.Y. -- Gov. Andrew Cuomo on Tuesday proposed a $178 billion state budget that reins in spending on schools and health care and includes $20 million in new tax revenue if state lawmakers legalize recreational marijuana this year.

Mr. Cuomo developed his spending plan in the face of a projected $6.1 billion deficit, caused mostly by a $4 billion overrun in the state's Medicaid program, which provides health-care services to more than 6 million New Yorkers.

The governor called for the creation of a Medicaid Redesign Team, similar to a panel he formed in 2011, to identify $2.5 billion in savings in the program before the current fiscal year ends on March 31.

The governor is proposing a tax cut for small businesses that will eventually total $39 million, and is resisting calls from unions and progressive groups to raise income taxes. The state revised its revenue projections upward by $2 billion in the budget proposal, citing stronger-than-expected income-tax receipts.

Mr. Cuomo's team also said it found $1.8 billion in savings among programs that assist the state's localities, including a smaller-than-expected funding increase for public schools.

Mr. Cuomo proposed an additional $826 million of school aid, which is $275 million less than the increase the state had been projecting and far short of the $2.1 billion sought by groups representing teachers and school boards.

The total amount of proposed school aid is roughly one-quarter of the state's operating budget, or $28.6 billion. The governor again proposed changing how funds are distributed to ensure state aid is reaching the poorest schools and students.

Lawmakers turned their immediate attention to the Medicaid program, which costs approximately $80 billion and is jointly funded by the state, federal and local governments.

New York City and the state's 57 other counties contribute $7.6 billion, an amount the state capped in 2013, but Mr. Cuomo said Tuesday localities should again have "skin in the game." Going forward, he proposed requiring localities to pick up the tab for any growth in their Medicaid outlay in excess of three 3%. And if a locality exceeds the state's 2% cap on property tax levy growth, it would be on the hook for all the growth in its share of Medicaid costs, the governor proposed.

The Medicaid Redesign Team will be chaired by Northwell Health President Michael Dowling and Dennis Rivera, the former leader of Local 1199 of the Service Employees International Union, which represents health-care workers.

Mr. Cuomo said he directed the panel to develop solutions that don't increase costs for local governments or hurt Medicaid beneficiaries. Leaders of groups representing hospitals, nursing homes and the state's counties issued statements saying they would work with the MRT.

State Budget Director Robert Mujica said the panel could also examine the taxes and surcharges levied on health-insurance plans. He also said the MRT would look at managed long-term care, which has logged explosive growth in recent years.

In addition to legalizing marijuana, the Democratic governor also included a slew of policy proposals -- some with minimal fiscal impacts -- as part of the budget bills. They include a ban on single-use foam food containers, banning repeat sex offenders from New York City's subway system and legalizing electric bikes and scooters. Mr. Cuomo last month vetoed a bill that would have allowed the vehicles, citing safety concerns.

The governor declared his support for legalizing marijuana while campaigning for a third term in 2018. Democratic leaders of the state Assembly and Senate disagreed with certain aspects of the program, and the state Legislature adjourned last year without taking any action on marijuana.

Mr. Cuomo said he believes the budget is an appropriate vehicle to hash out a program with lawmakers and projected $20 million from taxing marijuana in the next fiscal year, rising to $63 million the following year.

Assembly Speaker Carl Heastie, a Democrat from the Bronx, said he believes any revenue generated from marijuana should be directed to "communities that suffered the most" because the drug is criminalized.

Senate Minority Leader John Flanagan, a Republican from Long Island, said he believes marijuana is a gateway drug and opposed its inclusion in the budget. He also questioned whether Mr. Cuomo would be able to achieve his Medicaid goals.

"This is the living proof of the devil is in the details," Mr. Flanagan said. "There is no way you can say you'll have no effect on local governments and no effect on beneficiaries."

(END) Dow Jones Newswires

January 21, 2020 17:52 ET (22:52 GMT)

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