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Now to how the financial crisis on Wall Street is filtering down to state budgets, and all the way down to small towns. In New York state, the governor and leaders of the Legislature are debating what to cut from the budget. Governor David Paterson is calling for $5.2 billion in cuts over the next two years. Hundred of miles from the state capital, rural towns may be hardest hit by those cuts. Brian Mann of North Country Public Radio visited one of those towns in the northern part of the state, close to the Canadian border.

BRIAN MANN: The prosperous-looking Main Street in Malone, New York, bustles with traffic as a church carillon chimes overhead.

(Soundbite of church bells)

MANN: A few blocks away, the town's state-of-the-art public school, with its manicured ball fields, sits on a rise above the Salmon River. The school's business administrator, Tim Whipple, says so far Malone has dodged the bullet of the national economic downturn.

Mr. TIM WHIPPLE (Business Administrator, Office of the Board of Education, Malone Central School District): We are insulated a little bit because, you know, we don't have the GMs and the big companies that are going out of business. So when those things happen, you know, we don't feel the pain here in Malone like maybe some other communities might.

MANN: The good local jobs aren't in factories or stores, Whipple says. The good jobs here are in government, and the vast majority of the cash paying those salaries comes from income and other taxes generated on Wall Street, a seven-hour drive to the south.

Mr. WHIPPLE: Being in an area where we don't have a lot of private enterprise, a lot of what we depend on here in Malone is the state. You know, the state funds a lot of our hospitals. They fund the prisons. They fund the schools.

MANN: It's not uncommon for towns to rely on state money for some jobs and services. But in this part of New York, the number of people working for the government is more than twice the state average. That number doesn't include hundreds more workers at nonprofits and private sector businesses that rely on Albany for grants and subsidies. Town supervisor Howard Maneely says people in Malone used to make wool pants, boots, and T-shirts. When those jobs went overseas, Wall Street tax revenues filled the gap.

Mr. HOWARD MANEELY (Town Supervisor, Malone, New York): If we didn't have the three state prisons here, I don't know where we'd be. I know we wouldn't have a Kmart. We wouldn't have a Wal-Mart.

MANN: Maneely spent most of his career as a state corrections officer. He says no one here expects the private sector to revive anytime soon.

Mr. MANEELY: That's the way it is. I mean, we have to depend on these civil service jobs to survive up here.

MANN: But at a press conference last week, New York Governor David Paterson said the massive pipeline of cash and jobs has been cut to a trickle.

Governor DAVID PATERSON (Republican, New York): And now the downturn on Wall Street, which had bailed us out for a number of years. And now the well has run dry.

MANN: By some estimates, New York City could see as many as a hundred thousand high-paying jobs disappear in the finance and banking industries. As a consequence, the state is projecting a $14 billion deficit over the next two years.

Governor PATERSON: And we recognize that all areas of government are going to have to suffer some of these cuts, and they will be painful.

MANN: Paterson imposed a hiring freeze on state workers. Here in Malone, his proposed cuts to education would slash $800,000 from local school aid and cut Medicaid reimbursements to the hospital.

Mr. HUGH HILL(ph) (Head, Malone Chamber Of Commerce): I do believe they need to cut the state budget. I think, you know, to be fiscally prudent, they need to do it.

MANN: Hugh Hill runs a shop downtown and heads Malone's chamber of commerce. This is a conservative area. And like most people, Hill prefers smaller government. But he says losing even one state prison would be devastating.

Mr. HILL: I don't really foresee that. Usually during hard economic times, unfortunately prisons are a growth industry.

MANN: But the governor is already proposing to mothball a nearby prison farm along with a correctional boarding school in the region. State officials say they hope to cut another 134 prison guard jobs statewide. Some lawmakers in Albany say they'll fight to block Paterson's budget plan. When the special session convenes tomorrow, corrections officers, nurses, and schoolteachers across upstate New York will be watching closely, waiting to see if the economic crisis on Wall Street will finally hit home. For NPR News, I'm Brian Mann.

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