Despite making over $4 billion of spending cuts in New York's fiscal 1992 budget, Gov. Mario M. Cuomo and state lawmakers are faced once again with a midyear budget gap, this one projected to be $689 million.

Gov. Cuomo and lawmakers both point to the national recession as the culprit and they are expected to meet later this year to hammer out a solution, one that may require even further painful cuts in the budget. Local government could be especially hard hit.

In an interview last week, Mr. Cuomo discussed some of the ways he would approach the budget gap, the state Legislature, and New York City's fiscal crisis.

Question: Gov. Cuomo, for the fourth consecutive year New York faces a budget gap. How do you plan to deal with it?

Answer: The budget director has to look first at what spending we can continue to cut or cut further. You can say, Governor, you have already made substantial cuts and people can criticize you for that.

You can also say that after all the cuts, we are still a cut above the rest of the country.

You talk about commitment to mental health, for example, and dealing with people who are mentally ill. Our per capita budget is still one of the richest in the United States of America.

Ninety-nine percent of our children still go to schools, schools that are more richly invested in than any other in the country. Ninety-nine percent of them are above the national average.

Our corrections department, they are unhappy about the cuts we made last year, but I still have the best ratio between corrections officers and inmates in the United States of America.

I am not suggesting that we are over-spending. But I am suggesting that you have to bring a certain perspective to this. We have cut a great deal -- more than people thought we could. Last year, over $4 billion of my deficit was dealt with in cuts. They said that was imposible.

I don't think any of the other states did anything like that. California, for example, as I recall it did $7 billion in tax increases in a gap of about $14 billion, and then they did some spin-ups and some other things. So they didn't come anywhere near the proportion we did by cuts, which was $4.2 billion out of $6.2 billion.

Will you resort to one-shots?

The budget director has to tell me whether or not there are revenues around.

You say one-shots. If you can give me a new revenue that is worth $100 million or $200 million and I can show you in next year's budget and the year after how I make up for the disappearance of that revenue next year, then you as a rater will have no objection.

The objection to one-shots is that you are paying for a recurring expense this year with an episodic revenue -- it's here and it's gone. You hit a horse, and now you are trying to sign a 10-year lease on the basis of ne month's rent.

But if I can show you how I replaced it next year or reduce the base of spending so I don't need it, then I think the raters wouldn't have the same problem.

Then, always the mind reaches for the magnificent possibility, which is the painless one, where somehow you find a way to spread this, the way a private corporation would.

I don't know whether we can do that. That is the ppossibility that the [Speaker of the Assembly Mel Miller, D-Brooklyn] mentioned publicly and I promised him I would have my budget director look at it.

Would you prefer to borrow your way out of this budget gap?

No. I would prefer to restructure. I would prefer to do what I would prefer to see the city of New York do -- what Felix Rohatyn talked about.

[Mr. Rohatyn, chairman of the Municipal Assistance Corporation for the City of New York, last week said in a speech at a luncheon sponsored by the Citizens Budget Commission that he wants the city to implement structural budget reforms, such as a two-year tax freezd and reduction of its labor force by up to 35,000 over the next few years.]

That approach we're talking about with respect to the City of New York is the approach we should take: a reorganizing of your approach to government. Especially in the areas where you now have the greatest growth of expenditures: Medicaid, health care generally, education, criminal justice.

You also have to reform by taking down some of the services you give. We can't give all of these services. Like it or not, we can't do it now.

We should have had national health insurance, we don't have it. That is too bad, but we can't afford to do that right now. While meeting our basic needs to poor people, especially the elderly poor people, we have to find ways to use thresholds, contributions, and drop some services.

You look at Mel Miller's statement. The statement he made said that for the first time -- he said "no sacred cows."

It is Mel who has been insisting on sacred cows. I don't blame him for it. I applaud him for it. He has been a man of principle. We have differed not in the principle but in the realities. I said no sacred cows. Remember, "No sacrificial lambs, no sacred cows."

What is Mel saying this year? No sacred cows. That means he is ready to do this restructuring. Now we have to get the Republicans.

Can you blame the state Legislature for the state's budget gap?

I don't want to blame it on anybody. I want to explain what the cause is. The cause is the national recession.

What else explains what happened to 85% of the American people? Did all their governors go crazy and all their legislatures go crazy at the same moment?

Did we all go mad?

So it has to be something beyond the states.

Now if you want to get down to, "Well, Governor, you said the spending was too high." Yeah, that's true. I said if you accepted my budget you wouldn't have this deficit. And that is absolutely clear.

But then you would have had to pay another big price. The services would have been even less than I gave you at the end of the year, and that was Mel's point.

It is true that they spent more than I asked them to spend, but [lawmakers] got services for that.

It is also true if you want to lay the blame at the local level for spending then you have to be more thorough about the analogy.

Our spending in the state of New York over my nine years is under the national average, under the average of the major states, under the average of the Northeastern states.

And if you look at the place where the spending went up, nobody in America would quarrel with me. It went up for education, it went up for health, it went up for roads and bridges, and it went up for the prison system.

It didn't go up for the lovelies like the council on the arts. It didn't go up for the salaries. My people haven't had a raise in three years. I cut my work force this year by 10%.

So if you want to say spending is a problem, spending is a fault, I don't think you can lay that at the feet of the people of New York. What did we spend on? Education? Taking care of the sick people> Criminal justice?

And we haven't done enough of any of those things.

Why weren't cuts made before?

Because you didn't need to. That is a very popular argument: "Governor, you should have denied us when you didn't have to."

Does that make any sense at all? I should have given you less education, less care for the elderly, less care for sick people so that when we had the big falloff you wouldn't notice it so much?

"Governor, you shouldn't have given us this meat and potatoes. You should have given us bread and water."

It doesn't make any sense because then we wouldn't have missed the meat and potatoes.

I didn't give you charlotte russe. If I had given charlotte russe, then you would have a better argument.

Why didn't the state create a rainy-day fund during flush times?

A rainy-day fund for what? Yes, if first you have met all the needs. We haven't met all the needs.

That is the essential question: "Did you at one time waste instead of saving?" That is a legitimate question. But now you have to show me where we wasted in that spending, and I don't think you can.

Have there been areas where you wished you had cut spending but you couldn't?

A lot of it, but not big enough to make a difference.

Are you going to call a special session of the state Legislature?

I'm not talking about literally a special session. I am talking about asking [state Senate Majority Leader Ralph Marino] and Mel to bring their people back. And they will come back.

Are you worried about the city and its ability to deal with its budget crisis again? Could Mayor David N. Dinkins be doing things better?

No.

Anybody can be doing things better.

So far you have to say about Mayor Dinkins that he has balanced the budget and gotten it done better than I have in Albany.

He was on time, twice. Tough problems, he got it done. You can say all you want, the truth is I was late. I can blame Ralph Marino, I will. I can blame the Legislature, why not, I think it's true.

But in the end, it is my responsibility. So Mayor Dinkins has done his budget better than I have done mine.

The question then becomes, what will he do by way of meeting the most intelligent expectations for the next four-year plan?

Unlike other mayors or governors, if he doesn't do it up to our expectations then there is a chemical reaction. Then all of a sudden people say you have to be in control of the Financial Control Board.

If he doesn't do it well, if he doesn't do it plausibly, then it seems to me the inevitable effect must be for somebody at the Financial Control Board level to say I don't accept that, you are out of balance. The Street will say it. The two comptrollers will say it.

So really, this is an unusual situation, in that you won't have to speculate.

You'll know whether he did it adequately. Because the definition of adequately is: Do you get past the Street, past the comptrollers, past the Financial Control Board?

If you do, you win. You might not like it, she might not like it. That is the test for him. Does he get over these hurdles?

How would you feel about the Financial Control Board taking over the city?

It would not be good.

The headline all across the country would be "City Fails Again."

I will fight it with the mayor. We'll be all right. I would say that I am confident that the mayor is going to be able to handle it.

It's not just the mayor. That is unfair. It is the mayor, the city council, the state, all of us, we can handle it.

We put all of the responsibility on the mayor because, again, that is the instinct. Get it off your own shoulders onto him.

The mayor has to show the leadership. I believe he has doen that.

Would you force Mr. Rohatyn to turn over $1 billion of MAC funds to the city over the next four fiscal years?

I wouldn't do that.

One of the reasons [business leaders] will work with us is because this is a state they love, they feel commitment to, and this is a city they feel a commitment to.

One of the reasons I haven't lost them to this effort is I don't make absurd despotic demands upon them. I don't do it that way.

I cannot nor would I call Felix Rohatyn and say, "Felix, I know your best judgment is MAC should not do this, and you are talking about billions of dollars, and I am asking you to put aside your best judgment and do what I tell you because it is politically necessary."

He would quit before he would say yes.

What is the best way for the mayor to deal with Mr. Rohatyn and MAC?

The best way for the mayor to deal with MAC is to understand the forces operating on MAC.

Felix must first make prudent judgments. That is the first obligation he has.

He is a trustee. His obligation is to invest [MAC funds] in such a way that you increase to the highest level the reward for investment, keeping it safe.

He is the banker and the trustee. Therefore, you must satisfy Felix and his board.

The raters are relevant. If Felix decided that an investment was prudent but the raters thought it was not, then Felix would not do it because the raters could punish the city and MAC.

The first thing the mayor must understand -- and the people of the city -- is that in order to get the money, which Felix does want to give, you have to be prudent and you have to satisfy the raters you are being prudent.

Another way to translate that is you must create structural balance without the billion dollars from MAC. Then you can use the billion from MAC for other things -- park benches, the first installment on a rainy-day fund.

It gets a little more complicated when Felix starts articulating the kinds of things he thinks the mayor ought to do to get structural balance without his billion.

Felix would be perfectly easy to understand, and MAC, if he said, "Okay, Mario just told you the rules. It is that simple. When you satisfy me and the raters you get the billion." And then sit there.

He doesn't do that. He goes beyond that, and I encourage him to. And he says if you are looking for some ideas on how to do structural balance without my billions, I'll give you that too.

Why does Felix do that? That is what Felix does for a living. When they call him in Baton Rouge, they call him to figure out how to get out of this mess.

He is giving you the benefit of his intelligence.

With the state facing a budget gap, its bond ratings are once again under scrutiny. How do you feel about the state's current A ratings from Moody's Investors Service, Standard & Poor's Corp., and Fitch Investors Service?

There is an essential lack of relevance to the rating of New York that is unique.

Start with what a rating means. If the ratings mean we will evaluate with this designation the likelihood of the paper being paid in full on time -- then, if that is what the ratings mean, ratings for New York City and New York State should be the highest, without reservation.

Why? No state in the union, no city in the union has had paper as long as we have.

The paper has always been paid. Not only has it always been paid, but we are the place in the United States of America that had a dramatic opportunity to walk away from the paper in 1975.

A number of businessmen were arguing for a bankruptcy. We at the state level, we were arguing we must stand by the paper because our name means too much.

Our paper almost always sells early and sells better than the ratings. It is not conceivable that New York would not pay its paper. If New York didn't pay, this country would go down the drain.

Japan finds the New York City one of its most attractive investments. Why? They don't know what they are doing with their money, the Japanese? They say in Japan that the bilateral relationship will be built on the pillar of this man's state of New York. The Japanese are not as bright as Standard & Poor's?

When you talk to [Vladimir Stadnyk and Hyman Grossman, managing directors at Standard & Poor's Corp.] and the others and you say, "Just explain to me how you could conceivably say that anybody in America has better paper than this?"

But don't tell me that there is any real question about our paper being paid. And you ask any investor in the United States, and they will tell you the same.

Are you frustrated by the bond raters?

Of course you feel frustrated. How could you not feel frustrated that they can be reducing the ratings drive up your costs? It makes it more expensive. Everybody gets more money -- investment bankers, lawyers. Everybody gets more except the people. They pay more.

You have proposed a state takeover of local government Medicaid costs. If passed by the state Legislature, how long would it take to have an impact on local governments?

It will not make a difference in the next year or two. That is not a reason not to do it.

The plan starts with a cut in Medicaid that will make a couple million of dollars of difference immediately, at the very least. But that doesn't depend on the plan. That we should do anyway.

The plan operates over seven or eight years. To reject this plan that will be magnificent in seven years because it's not magnificent in one year is foolish.

Do you think the Medicaid plan will be passed by the state Legislature?

Yes.

We have distributed the whole Medicaid plan to all the legislators.

I am not expecting that they will accept every word of it, but we are in the process of working with them now.

The program is not designed to meet a regional need. The program deals with people, sick people, and the costs they create wherever they live.

New York City would be one of the biggest beneficiaries of the takeover, but city officials are pressing for faster implementation and more help. How do you react to that?

They want more, and that is a valid criticism. If I were the mayor, I'd be saying, "This is very nice, Mario, but we want more help."

And what I say to them is, "That is a nice request, I don't have the money."

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