NEW YORK (Reuters) - It's a new twist on the $64,000 question. That's what the richest schools in New York state spend per pupil.

And now the nonprofit Citizens Budget Commission says the state should phase out funds for the wealthiest public schools, or the top 10 percent, some of which spend $64,000 per student -- six times what the bottom 10 percent spend -- in a report released on Tuesday.

Though Democratic Gov. Eliot Spitzer, in his first budget, tried to make school funding more fair, his compromise with the legislature raised how much the richest schools got, according to the report by the Citizens Budget Commission.

All schools got at least a 3 percent increase in their base grants, increasing the total cost to $329 million from $149 million.

The 68 richest school districts raked in $229 million, the nonpartisan group's report said.

"The disparities in local wealth lead to significant per pupil spending inequities," it said, explaining that the richest school districts could do without state dollars because their tax base was 30 times more than the $129,694-per-pupil valuation in the poorest 10 percent of the state's school districts.

New York's $121 billion budget is the nation's third biggest, only topped by the federal government and California. Spitzer noted New York relies on Wall Street for 20 percent of its tax revenues. And banks and brokerages are slashing profit forecasts and thousands of jobs due to the mortgage morass.

Like many states, New York has long struggled to equalize spending between schools, a battle that pits its downtrodden urban and rural upstate areas against the well-to-do suburbs that ring New York City. It was only last year that the state agreed to give New York City billions more dollars to end a long court battle over claims its schools were short changed.

FINDING MORE FAT TO CUT

The Citizens Budget Commission's report, which listed other ways to close the $4.3 billion budget gap it sees next year, revealed how successful suburban, often Republican lawmakers were in keeping their urban, often Democratic colleagues from winning more dollars.

Spokesmen for Spitzer, Republican Senate Majority Leader Joseph Bruno and Democratic Assembly Speaker Sheldon Silver had no immediate comment on the report.

On Monday, Spitzer's estimate of New York's shortfall was a little lower, at $4 billion, in his second budget. The fiscal monitor sees these shortfalls soaring to $7.6 billion in 2011.

Spitzer inherited some excess state spending, which ballooned by $35 billion from 1995 to 2007, the report said. Education, health and welfare absorb 57 percent of the state's share of the budget, excluding federal funds and other aid.

New York spends $7,910 for each person on Medicaid, nearly 69 percent more than the national average, the report said.

"Unfortunately, New York does not have exemplary outcomes to show for its generous spending," the report added.

Rates paid to hospitals and nursing homes -- 15 percent above the U.S. average -- should be pruned, along with the number of long-term patients who are "non-poor," it said.

Some 28 percent of the nation's long-term patients are New Yorkers, and the state should stop letting spouses refuse to provide for each other, and bar people from transferring assets to qualify for Medicaid, which was designed for the poor.

Retirement and health benefits for public workers should also be cut, the report said, because "most government workers are now paid more than their private-sector counterparts."

Noting that unionized workers' contracts expired last spring, the report urged Spitzer to win a 40-hour work week at the bargaining table, up from the 37.5 hours now typical for non-managerial, civilian workers.

The commission also recommended centralizing capital programs now run separately by a myriad of agencies, pooling equipment purchases and curbing Empire Zone corporate tax breaks that failed to boost jobs in these development zones.

It urged streamlining the judiciary, which "is said to be one of the largest and busiest in the Western world."

Some prisons should also be closed, the report said, noting that the number of inmates has fallen 11 percent since 1999.