Mario M. Cuomo, considered a political has-been just a few weeks ago, has launched an impressive comeback in his bid for a fourth straight term as governor of New York State.

With the helping hand of media strategist David Garth, Cuomo has unleashed a concerted campaign to define his Republican opponent, George E. Pataki, as a pawn of the state's controversial junior U.S. senator, Alfonse M. D'Amato.

Last week, the Democratic governor's campaign received an unexpected boost from the Republican mayor of New York City, Rudolph W. Giuliani, who endorsed Cuomo and questioned Pataki's commitment to the city. The endorsement helped Cuomo move past Pataki in the latest public opinion polls.

Despite Cuomo's recent successes, polls also show that voters have little faith in the governor, who has run counter to public opinion by opposing the death penalty and championing other liberal causes. But the public appears to be angriest with Cuomo when it comes to the economy.

New York has one of the highest tax burdens in the country, while its bond rating stands among the lowest. The state's economy has slumbered for the past seven years and continues to face grim prospects, even as the rest of the country basks in a strong recovery.

The state also has cost itself millions of dollars by selling appropriated debt -- debt not approved by voters -- in a practice known as "backdoor" borrowing. And Cuomo recently proposed a state takeover of the Long Island Lighting Co., a utility that charges some of the highest rates in the country. Many market analysts say the idea is too costly, and even Cuomo's running mate, state Comptroller H. Carl McCall, has expressed misgivings.

In an interview with Bond Buyer senior editor Charles Gasparino, Cuomo defended his record on the state economy and taxes, and discussed other fiscal issues such as debt reform and his proposed state takeover of Lilco.

Q: Could you just tell me why you think it's important that the state pass the debt reform amendment as proposed by yourself and state Comptroller H. Carl McCall?

A: First of all, no one knows more about backdoor financing because it was my ability to read the laws broadly that enabled us to do a lot of it. We built the prisons with backdoor financing.

I'm not embarrassed by that. We needed those prisons and I couldn't do it any other way, but I'm afraid that someday you'll have governors even more clever than I am, and they may do too much of it. So we have to constrict our capacity to overspend. To constrict the capacity to overspend, you have to constrict the capacity to overborrow. Borrowing makes it too easy to spend. But we have to be intelligent about it.

Q: Your critics, including George Pataki and Republican comptroller candidate Herbert London, say the plan would give the state authority to issue $23 billion in debt, without a voter referendum.

A: That's not true. First of all, there's a limit on all the borrowing you can do and you need a revenue source. Everything had to go to the people. They're talking about bonds that you'd float with a revenue source. But you don't have a limitless revenue source.

Q: So what you're saying is that by tapping a limited revenue source, such as a specific tax stream, the plan caps the issuance level. This in turn forces the state to go to the voters more often.

A: Exactly.

Q: But those revenue sources are taxes, and by using taxes as revenue streams, doesn't that force the state to keep taxes high in order to protect bondholders? That's the argument critics of the debt reform proposal are making.

A: Well, if you're talking about building something you need, like prisons for example, what they're also saying is we want to cut spending for prisons, so you will have no prisons. If you're talking about making roads and bridges safer, what they're saying is "We don't want you to make roads and bridges safer."

It's easy to make yourself popular by saying you're against spending, but when you explain that that means you can't build school buildings, then you're not so popular. When it means you're going to increase the death rate on the roads and bridges, then you're not so popular. So they are slick in what they say, but they run into some very hard realities.

Q: Why doesn't the state have a higher bond rating? As you know, it's one of the lowest in the country.

A: I have never understood why the state's rating isn't higher. And if you want a nice conservative's opinion, neither did John Sununu [former governor of New Hampshire]. He and I said the same thing when we were governors, that these are unrealistic ratings. The New York State paper is so well understood that whatever the raters say, it gets sold out at a premium usually.

The raters don't say to the people, "We don't believe they're going to pay this paper back on time in full." They never say that, and that really should be the question. Will New York pay? We always have for over 200 years. New York State invented banking. We're the best bet in America, everybody buys our paper, and they pay a premium.

Q: Were you disappointed when they didn't upgrade the state's debt this summer?

A: Yes. We didn't get it because the budget was late and the Republicans did that to us and everybody knows it. They made the budget late deliberately. [Assembly Speaker] Shelly Silver was ready to go, everybody was ready to go. [The Republicans] didn't want us to get a rating increase because it's a political year. It was as cynical as that. They left Albany without doing a lot of things this year because they didn't want us to have the political credit. For example, three strikes and you're in. Now that's not a budget issue. They didn't want to give that to us. Life imprisonment without parole for murders. They insisted on more spending this year because it was a political year. We didn't have to spend all this money. We could have saved a lot. But they wanted to do a whole lot of spending to buy votes. It's as simple as that.

Q: Did you tell the raters that the budget delay was nothing more than a political ploy to hurt your election chances?

A: Of course.

Q: What did they say?

A: Well, you know, mumble, mumble.

Q: Do you think the municipal market will be able to absorb the $9 billion in debt that the state needs to sell as part of your proposal to purchase the Long Island Lighting Co. using the state Power Authority and the Long Island Power Authority?

A: Our advisers tell us that during the three or four weeks of the marketing phase, it would be costly for competing state and local issuers to come to market. As for the period just before or after the sale, our advisers tell us that this offering will have no material impact on the cost of other state or local issues.

Q: Have the rating agencies been contacted about the proposal, and what have they said?

A: The agencies that my staff and our financial advisers have spoken with have indicated that it is premature to predict how LIPA bonds would be rated. Standard & Poor's, for example, has stated publicly that it wants to examine the specifics of any deal with Lilco before giving us an indication of how it would rate LIPA bonds.

Q: In terms of your tax package, why did it take an election for you to come up with income tax cuts? Why didn't you come out with this in the past?

A: I did. I cut the taxes this year -- $470 million. I cut taxes in 1985, and 1987, the largest tax cuts in history. I couldn't do it in the middle of the recession obviously. I cut taxes before the recession, and I did it after the recession.

Q: Are you going to make the corresponding budget cuts to make sure the budget remains in balance?

A: I can't do it any other way. I'm not going to shift the burden onto the city and I'm not going to shift the burden onto vital services. I have to do it in such a way that it's responsible. I also said I would go to the raters with it.

Q: So you won't do anything unless the raters say it's not going to hurt the rating?

A: I said specifically we would go to the raters.

Q: In terms of New York City, your Democratic running mate Carl McCall has said that the Financial Control Board should meet more often regarding the city's budget. Giuliani obviously doesn't like that idea. Where do you stand?

A: If the private members thought it was necessary, I would do it. I would wait to hear from them. They are independent.

Q: Did they ever call you?

A: No, they have not.

Q: Will there be a new executive director for the control board before the election?

A: I really don't know. They're looking for the best person they can find. I'm waiting for the private members to make a recommendation.

Q: One more question. Carl McCall has stepped up his criticism of the state generally -- and has pointed out specifically that he's made criticisms of your budget. Is this starting to hit home as far as you're concerned?

A: I ignore it. He's running for office.

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