Paterson Sees $12.5 Billion Deficit for ’09; Plans “Painful” Cuts


To relieve some of the angst of his mid-year update to the State Financial Plan, Governor David Paterson asked reporters this rainy Tuesday morning to think of pleasant warm beaches in Hawaii. It didn’t help.

According to Paterson’s projections, New York faces a shortfall of $1.5 billion this year and $12.5 billion next year. Over the next four years, he said, the cumulative budget gap will reach $47 billion, the largest in state history. (Compare that to a budget that was balanced on April 9, back when Lehman Brothers still existed, and before Goldman Sachs and Morgan Stanley were brought low.)

With the ’09 deficit representing 22.3 of the state’s General Fund, Paterson said he would require “very hard cuts. We’re really going to feel the pain,” he said. “Because when you have to cut 25 percent of your General Fund, you are in dire circumstances.”

The main reason for the projected deficit is Wall Street: the source of 30 percent of state revenues in the last quarter is drying up, meaning a $19.2 billion revenue loss over four years. And state spending continues to rise, especially via the hard-to-cut General Fund (school aid, Medicaid, state operations, etc), which commitments State Budget Director Laura Anglin expects to grow by 11.9 percent next year.

Paterson said he’s confident that after the election, state legislators will present him with $2 billion in savings before a special legislative session called for November 18, where he expects to cut even more.

However, when questioned, Paterson declined to identify specific targets of cuts. 

”I don’t want to get ahead of them by marking out the actual areas,” he said. “Don’t get me wrong, there will be hard and painful cuts. There is no segment of this budget that won’t be cut.”

Taxes would be one obvious way to address the shortfall, but Paterson said he still believes that tax increases would be “exacerbating” to the situation right now. He also plans to release his Executive Budget one month early, on December 16, in the hope that legislators will be able to pass it well before the April 1 deadline.

Finally, Paterson said he will head to Washington, D.C. tomorrow to be the first witness in a House Ways and Means Committee hearing on the need for a second economic stimulus package to provide federal aid to states. He plans to remind the Committee that New York gets very little in return for what it pays in federal taxes, especially compared to states like Arizona and Alaska.

“That’s why they’re so comfortable,” he said of the home states of John McCain and Sarah Palin.