Governor Paterson has dropped a proposal to impose New York State’s personal income tax on the interest income of non-resident hedge fund managers from his latest preferred list of revenue-raisers to help pay for the 2010-11 budget appropriations the Legislature finished enacting two weeks ago.

The governor’s move is only symbolic, however.A package of tax and fee hikes including the hedge fund tax was passed by the state Assembly on July 1 and is the only live revenue bill pending in the state Senate.Moreover, the Assembly and Senate have refused to accept delivery of the program bill he sent up to them today.

Paterson originally agreed to the hedge fund tax along with the other taxes and fees passed by the Assembly.In fact, the governor himself originated the idea as part of his 2009-10 budget proposal, over a year ago.He began to second-guess the tax only after it received wider publicity, including Mayor Michael Bloomberg’s observation it would be “the best thing that ever happened to Connecticut” whose governor has responded by rolling out the welcome mat for New York-based hedge funds.

So far, Senate Democratic Leader John Sampson has not opposed the hedge-fund tax—or, for that matter, any of the other tax and fee hikes approved by the Assembly.Sampson’s majority conference members are holding up action on the bill because they want to link it to passage of (a) expanded administrative autonomy for the State University of NewYork and City University of New York, and (b) a contingency plan giving the governor authority to impound spending if up to $1 billion in additional Medicaid reimbursements are not approved by Congress.Paterson incorporated both those priorities into his updated revenue program bill.  Assembly Speaker Sheldon Silver opposes both.

Paterson offered no explanation of how he would replace the $50 million the hedge fund tax would have raised.Then again, since neither the governor nor the Legislature has produced even a summary of a 2010-11 financial plan update, there’s no evidence the budget was balanced even including that shortsighted and counterproductive tax.Assuming, of course, any non-resident hedgies stick around to pay it.