State legislators reached an agreement last month to cut state spending, but influential labor unions—with deep pockets—are working aggressively to kill Gov. David Paterson’s plan to cap property taxes.

The split in the state Legislature could last well into next year’s budget discussions, threatening to turn property taxes into a wedge issue that stalls progress on other initiatives. It also illustrates the sway that unions have in New York, which is the most unionized state in the nation.

“Since there’s virtually no one else involved in politics in New York who has any money—even the parties have slipped in importance—the only well-funded organization in the state is the unions,” said E. J. McMahon, of the Empire Center for Public Policy, located in Albany.

Gov. Paterson, a Democrat, has vowed to have “real, progressive conversations” about his proposed tax cap after Labor Day. But Democrats in the Assembly, backed by the New York State United Teachers union and the state AFL-CIO, refuse to vote on the tax cap.

Instead, they have endorsed an approach that does not limit increases in school spending. The plan would be funded by new taxes on millionaires, which could lead to tax increases for thousands of small businesses.

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The Empire Center is an independent, non-partisan, non-profit think tank located in Albany, New York. Our mission is to make New York a better place to live and work by promoting public policy reforms grounded in free-market principles, personal responsibility, and the ideals of effective and accountable government.