By Daniel Wiessner
NEW YORK (Reuters) - New York Governor Andrew Cuomo and top lawmakers agreed on Sunday evening to a $132.5 billion budget that includes massive spending cuts and possibly 9,800 layoffs for state workers to bring some order to the cash-strapped state's finances.
The fiscal 2012 budget is largely a victory for the freshman governor, a Democrat who utilized a number of unique tactics and raised the specter of a government shutdown in order to convince lawmakers to make steep cuts to schools and the state's Medicaid program.
The six percent cut in the state's work force -- to be implemented if public employee unions don't concede $450 million in savings -- is the result of Cuomo's opposition to raising taxes to fill a $10 billion deficit.
The budget cuts overall spending by 2 percent.
New York is one of several big U.S. states working their way through the worst budget crunch in decades after the 2008 financial crisis and resulting recession squeezed tax collections, forcing tough decisions across the nation on spending. As the home of Wall Street, New York was among the hardest hit in the credit crisis.
Cuomo's anti-tax stand contrasts with strategies of some other cash-poor states, such as California and Connecticut, where governors want to raise some taxes. Illinois in January raised personal income taxes 67 percent to shore up what many consider the weakest state finances in the nation.
"I have said that New York is at a crossroads -- one road leading to further dysfunction and decline, the other toward fiscal responsibility and government efficiency. I believe this budget puts us on the right path," Cuomo said.
Cuomo and lawmakers said a handful of details still needed to be worked out, but that the complete budget would be voted upon by its April 1 deadline, and perhaps one day earlier.
Albany has not seen an early budget since 1983, when Cuomo's father, Mario Cuomo, was serving his first year as governor. Last year's budget was passed in August.
One of the few concessions made by Cuomo was the rejection of a proposed $250,000 cap on non-economic medical malpractice damages. The cap was supported by the Senate's Republican majority, but strongly opposed by Assembly Speaker Sheldon Silver.
$15 BLN MEDICAID SPENDING CAP
Other health care proposals by the governor, including a $15 billion cap on annual Medicaid spending and an increase in the minimum wage for health care workers, are in the deal.
"We were able to achieve critical restorations which will soften the cuts affecting working families, our senior citizens, our most vulnerable populations and the children in our classrooms," said Silver, who has been at the helm of the Democrat-dominated Assembly since 1994.
Cuomo had proposed a $1.5 billion cut in state aid to schools, but the deal includes the restoration of $272 million. That includes a partial restoration of the $98 million to fund private schools for deaf and blind children that Cuomo had sought to shift to local school districts.
A proposal to eliminate 3,700 prison beds, mainly in upstate Republican districts, will also be in the final plan. The Senate GOP had sought changes to the plan, which will give Cuomo the power to decide which prisons to close, but those attempts were spurned.
Senate Majority Leader Dean Skelos, a Republican, did not immediately address the prison plan, saying only that he was pleased that some cuts to higher education had been restored.
"This budget agreement keeps our commitment to reduce spending, cut taxes and empower the private sector to create jobs, and will begin to put New York on the path to fiscal recovery," Skelos said.
Policy changes folded into the budget will tie education spending in future years to growth in personal income -- currently about 4 percent -- and increases in Medicaid spending to a national health care index.
Those moves, Cuomo said, decrease the projected budget gap for fiscal year 2013 from $15 billion to $2 billion.
The plan will also merge the existing Departments of Banking and Insurance into a Department of Financial Services with greater regulatory muscle on Wall Street.
"I hope this is a template for a new era of cooperation and productivity between the executive and the legislature," Cuomo said.
(Editing by Chris Sanders and Todd Eastham)