N.Y.’s Economic Strife Could Start, Stall Cuomo’s Run for White House : Politics: Observers say he must prove he can govern in a recession. The GOP is hoping taxes will have to be raised to deal with mounting deficits.

For Gov. Mario M. Cuomo the suspense on election night next week should last about a New York minute.

Then his real political test will begin: coping with a gaping hole in the state budget at a time when the Democratic field for the 1992 presidential race will be moving into the gate.

“Everybody will be looking at New York,” said Richard C. Wade, an urban historian at the City University of New York graduate center who has advised Cuomo. “He’s got 18 months to prove he can be a governor in a recession.”

Earlier this year, Republicans hoped the recession would fuel a serious challenge to Cuomo. But the New York GOP instead immolated itself with an embarrassing public search for a candidate that finally produced economic consultant Pierre A. Rinfret, a political neophyte.

Even in a year tailored for outsiders, Rinfret has been hapless. His campaign is so starved for both funds and attention that recently he took a Greyhound bus from New York to Syracuse for the first debate between the candidates.

Some leading Republicans--including Housing and Urban Development Secretary Jack Kemp--are so disenchanted with Rinfret that they have endorsed New York University dean Herbert London, the Conservative Party candidate. But, like Rinfret, neither London nor Right-to-Life Party candidate Louis P. Wein have had the funds to jostle Cuomo.

Ten days before the election, the only question left in the campaign is whether Cuomo can match the record-setting 65% margin of his first reelection four years ago.

With that prospect in sight, many Democrats here are openly speculating on a Cuomo presidential bid in 1992. They argue that events could not be moving more clearly in his direction: inspired by a shaky economy and emboldened by a vacillating President who seems intent on saddling the GOP with its old image as the party of privilege, the Democrats are rediscovering the attractions of the full-throated, class-based populism at which Cuomo excels.

“He is a great matchup against George Bush,” said Mitchell L. Moss, director of the Urban Research Center at New York University.

But even if Cuomo is interested in moving on--he has, as always, discouraged direct speculation--there are many twists in the road from Albany to Washington. The most immediate takes the form of a paradox: the same economic deterioration that makes Cuomo more attractive nationally threatens the local record on which he would run.

Earlier this month, state Comptroller Edward V. Regan, a Republican, reported that with the economy sagging, state revenues lagged behind expectations by $246 million through the first six months of the current fiscal year; some analysts say the gap in this year’s budget, which will be confronted in a special session of the Legislature after the election, could ultimately reach $1 billion. That’s the foothill to the mountain: Next year’s budget could be as much as $3 billion in the red, Regan projected.

Last spring, Cuomo and the Legislature went through extraordinary gyrations to close a budget deficit estimated at $3.5 billion. But they did so only after missing their constitutional deadline by nearly two months while arguing over taxes and manufacturing $1.7 billion of convoluted one-shot transactions, such as selling state assets.

By relying on these complex budgetary “gimmicks”, Rinfret has argued, Cuomo and the Legislature (which is divided in control between a Republican Senate and a Democratic Assembly) failed to address the underlying dilemma that state spending has been growing faster than revenue. Some independent analysts think he has a good case, even though Rinfret hasn’t had the resources to press it.

National Republican strategists are virtually trembling at the opportunity to paint Cuomo as a tax-and-spend Democrat if he tries to close the gap with a tax hike. Though Cuomo has presided over a large cut in the state’s top income tax bracket, the combined state and local tax burden in New York still exceeds all states but Alaska.

But some Democrats believe the budget may instead provide Cuomo with an anvil on which to reshape his national image as an unreconstructed liberal. In campaign appearances, Cuomo repeatedly insisted he plans to meet the crunch without raising taxes “if we can avoid it.”

With crack, AIDS, and homelessness imposing enormous demands on social spending, liberal activists--some of whom already consider Cuomo’s rhetoric grander than his programs--are certain to resist the cuts that could be necessary to fulfill that promise. But, for now, Cuomo is bracing New Yorkers for a “period of pain.”

At the same time, Cuomo has begun erecting his political defense for any cuts by blaming the federal government for transferring responsibilities to the states without providing offsetting resources. Strikingly, he does not spare the Democratic-controlled Congress--thus positioning himself as another outsider enraged at the insular Washington Establishment.

Cuomo’s challenge is further complicated by the $1.7-billion budget shortfall facing New York City. In the mid-1970s, the last time New York’s finances hit such a low, state aid was instrumental to its revival; now, by talking down the prospect of a tax hike, Cuomo is signaling that “the state will not be able to bail out the city,” said NYU’s Moss.

But many observers here say Cuomo cannot allow New York City to collapse into disarray, especially if he plans to run for President. If the city’s fiscal situation corrodes enough, that would automatically trigger reactivation of the State Financial Control Board that took over city finances during the 1970s--a move that could provide political cover for Draconian cuts. But, with the city already racially strained, a state takeover would inevitably generate criticism for usurping the city’s first black mayor, David N. Dinkins.

While Cuomo works through these difficult choices, he continues to thrill Democratic audiences here with passionate denunciations of the Reagan years and tantalizing hints that he may step forward in 1992. At a recent Liberal Party dinner in a Manhattan hotel, he sounded like someone who felt the times rolling toward him despite all the fiscal turbulence ahead.

“When was the last time in our history that the contrast . . . between the progressive agenda and the reactionary impulses of your political opponents . . . was as sharp as it is right now?” he asked.