YELLIN: My next guest is turning this year's conventional wisdom on its head. Not only did businessman and developer Carl Paladino beat former Congressman Rick Lazio (ph) in New York's Republican primary for governor, but today the front page of "The New York Times" cites recent polling to say he's dealing a blow to Andrew Cuomo's unbeatable image.

He joins us now from Buffalo and Mr. Paladino, thank you for being with us. You have unquestionably tapped -- tapped into voter anger that's really out there this year. You said that you are mad as hell. You would take a baseball bat to Albany. It's one of your key mottos this year. The question is, how do you plan on convincing voters you'll be able to get anything done with a state assembly that's more than 70 percent Democratic?

CARL PALADINO (R), NEW YORK GOV. CANDIDATE: We've been convincing them right along, and we're going to continue. We're staying on message, same message. This isn't a race between Republicans and Democrats or conservatives or working family party members. This is a race between the people and the establishment. And the establishment sees us coming now. Clearly, the people are speaking. They're listening to our message. They're engaging.

YELLIN: OK, well let me play you the Cuomo campaign's latest ad because it goes after you pretty aggressively and then we'll discuss it.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE POLITICAL AD: Carl Paladino got a $1.4 million empire zone tax break to create jobs, but his official filing show only one job was created, a $1.4 million tax break for one job?

(END VIDEO CLIP)

YELLIN: All right, that's also the cover of "The New York Daily News" today. You used to be a businessman. You are a businessman and Governor, you pledged that you would drastically slash government spending. So would you return that $1.4 million by your own estimation created one job?

PALADINO: That's not the truth because the truth is that the forms that are sent out by the state requesting information on the success of the empire zone treatment only asked how many jobs you as a developer created.

In actuality we created jobs through tenants. We improved state. We leased to tenants and the tenants made the jobs. There were many, many jobs created by these benefits the state gave us.

We complied with every element of the state requirements and complied to a greater extent than the minimum requirements, to a much greater extent. We were only required to show one --

YELLIN: All right, well, this is a similar argument to what the White House makes about stimulus spending. So why don't we move on to ask you about the landlord issue.

You're the landlord of many buildings that currently house New York government agencies. New York "Daily News" columnist Michael Daly had a suggestion for you. He says, if you want to cut government spending, why don't you just cut the $5 million a year they pay you in rent?

PALADINO: Well, they pay us $5 million a year in rent for roughly 37 leases that we have successfully bid over the years. That means we were the low bidder by far. Our margins are very, very thin.

And the majority of that money goes to pay for the cleaning, the maintenance, the utilities and the property. It's not -- it's not a matter of us putting $5 million in our pocket.

Our margins are very, very thin probably only 1 percent or 2 percent profit on the state leases. By the way, Mr. Cuomo's office has approved every one of those leases. So has the state controller's office.

YELLIN: You're not going to cut the rent? You're not going to return the $1.4 million?

PALADINO: No, I don't think -- no.

YELLIN: Now you have accused Andrew Cuomo of being part of the corruption in Albany, repeatedly you said that. But the Coumo campaigns reply is that they're the ones the exposed much of the corruption including some of the politicians you've highlighted in your campaign materials. So, is it legitimate to say some of these attacks are more rhetoric than reality?

PALADINO: Mr. Cuomo has been very selective in his prosecution, hasn't he? Probably the number one -- the number one conflict at a minimum if not criminal activity is Sheldon Silver, but has he prosecuted Sheldon?

Sheldon blatantly is the one-man dictator in the state of New York. He controls our government with an absolute dictatorial hand. The man takes outside income from Whites and Luxemburg, a law firm in which he is a general partner.

And he draws that income, but he doesn't have to under ethics laws explain how he earns that income and how much, and who he's representing in earning that income.

He uses his public office for private purposes, for private gain. Where is Andrew Cuomo? Why haven't you prosecuted him, Andrew? YELLIN: Let's get to one of the controversies surrounding you in this campaign, ongoing question about racially insensitive comments in e-mails.

Today, you're hometown newspaper, "The Buffalo News." We have a piece of it that says when Betty Jean Grant was a council member you said she and other African-Americans weren't fit for being on the council and has said something worst.

Now you've denied saying this so why do you think these kinds of accusations keep following you?

PALADINO: Because they're surrogates of Andrew Cuomo. What do you expect them to say? They're surrogates of him. He sent out in the past week and a half every surrogate he could from the pool of Albany and city government in Buffalo.

He sent them out. We bloodied them up and sent them back to him in a package. Betty Jean Grant is from the same place, OK? These are Andrew Cuomo's surrogates. He doesn't want to face me himself, but he sends out surrogates to do his dirty work.

YELLIN: You never said it?

PALADINO: Andrew, we're not affected.

YELLIN: And you've never said that?

PALADINO: No, I've never said it.

YELLIN: OK, well, we look forward to continuing our discussions with you in the future and we thank you for being with us tonight. And we should also say that we welcome Andrew Cuomo to be on our show any time.