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Gov. Andrew Cuomo on Tuesday tried to turn his annual budget address into a kickoff for taming Albany's status quo of politics and special interests, which he said serves itself rather than taxpayers, or even children.

"We created a sense of optimism and hope," Cuomo said, calling his and the Legislature's first-year accomplishments staggeringly successful. New Yorkers "believe in government. ... They have hope once again for themselves, their state, their families and their communities and that is a great, great gift."

Cuomo seized the moment with lawmakers, one of only two joint meetings all year, and intense statewide media attention. He turned what could have been a dull recitation of his $132.5 billion budget _ most of which he said was already agreed to last year through deals with lawmakers _ into a rousing reform rally.

He targeted powerful public employee unions in proposed overhauls of public education and public pensions, a fight that's popular in the polls. At every step, he reminded lawmakers from both parties this legislative election year that voters can see them as partners in another year of "staggering ... all-star" accomplishments, or as obstacles to carrying out the will of the people.

"This is a pro-economic growth strategy based on fiscal discipline, real reform and the exciting area of entrepreneurial government to lead us to a new New York," Cuomo said. "This is posing dramatic change in the system ... what we're talking about here are major shifts. Don't underestimate what we are trying to achieve ... we're changing it from the special interest focus to focus on the people."

His proposal would increase state spending by 2 percent, much of it involving 4-percent school aid and Medicaid spending hikes agreed to last year with legislative leaders. But the overall plan, including federal funding, is a fraction of 1 percent lower than the current budget, and eliminates a $2 billion deficit. Cuomo's plan calls for using $1.9 billion in revenue from a "millionaire tax" approved in December and making just over $1 billion in cuts while embarking on a three-year takeover of Medicaid costs from local governments, now cracking under the $8 billion a year strain.

Cuomo's proposal would also merge some state agencies and withhold increases in state aid to school districts that fail to enact tougher evaluations for teachers and principals. Failure to do so threatens $700 million in federal Race to the Top grants.

Union leaders _ primarily those representing teachers and public employees _ signaled Cuomo would get fierce opposition.

Richard Iannuzzi, president of the New York State United Teachers union, said Cuomo's 4-percent increase for school aid is still $500 million short, and he'll pursue those funds in the Legislature.

Cuomo also wants a less costly pension tier for new hires, including a voluntary retirement using a type of 401(k) plan that would save state and local governments billions of dollars over 30 years.

"The proposal for a new public employee pension tier is an assault on the middle class and a cheap shot at public employees," said Danny Donohue, president of the Civil Service Employees Association union with 265,000 members. "It will provide no short-term savings and will mean people will have to work longer, pay more and gain less benefit."

Ken Brynien of the Public Employees Federation, which represents 55,000 mostly white-collar members, called it "nothing more than a false choice of accepting severely reduced pension benefits or joining an inefficient 401(k) style pension."

But Cuomo was engaging in a fight some budget analysts have long sought in Albany.

"This budget, if enacted, will mark a second year of serious reform for New York state," said Elizabeth Lynam of the independent Citizens Budget Commission. "It includes an eminently sensible pension reform proposal and another step toward full state financing for the unusually high Medicaid burden now inappropriately placed on the shoulders of local taxpayers."

Like many who watched Albany through years of partisanship that threatened officials' once certain re-election bids, she was skeptical of the policies adopted last year that replaced the usual months-long battles over funding, rather than managing the funds.

"Now, they really seemed to have been able to focus on some of these key issues," Lynam said.

"The pension reform proposal is significantly stronger than last year's," said E.J. McMahon of the fiscally conservative Manhattan Institute. "Gov. Cuomo has a continuing capacity to be innovative and creative."

Younger workers, many less interested in long careers, might prefer the portable retirement fund.

"It changes the overall concept of how you look at public employment," said Robert Ward of the Rockefeller Institute of Government.

Cuomo's budget proposal now goes to the Senate's Republican majority and the Assembly's Democratic majority, where the public employee unions have traditionally had great influence over funding and policy.

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AP Writer Michael Virtanen contributed to this report from Albany.

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