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Paterson Demands Spending Cuts, Tax Amnesty to Close Budget Gap

By Michael Quint

Nov. 9 (Bloomberg) -- New York Governor David Paterson, saying, “we cannot live beyond our means,” called on lawmakers to approve spending cuts to help close $10 billion in estimated budget deficits in the next two years.

Paterson, in an address to a joint session of the Assembly and Senate in Albany, repeated his plan to close this year’s $3.2 billion deficit and make a $2 billion down payment on next year’s $6.8 billion gap with a program he proposed Oct. 15. The governor called for $1.2 billion of one-time revenue measures, including reducing some penalties on unpaid taxes, and $3.8 billion of spending reductions over two years.

“I will mortgage my political career on this plan,” said Paterson, 55, who supported increased spending on education and health care as a state senator. “I will not mortgage the state of New York.”

Paterson’s popularity is near record-low levels, with a 27 percent favorable rating and 61 percent unfavorable, according to a Siena Research Institute poll last month with a margin of error of plus or minus 3.9 percentage points.

Spending cuts recommended by Paterson include $480 million in aid to local school districts and $287 million to Medicaid. He called in his speech for lawmakers not to raise taxes or resort to borrowing or unrealistic revenue assumptions to close budget deficits.

New York, the third-largest U.S. state by population, was hard hit by losses and firings on Wall Street, where bank and securities firms lost $42.6 billion in 2008 and year-end bonuses fell 44 percent to $18.4 billion. In past years, the state relied on financial companies and their workers for 20 percent of its taxes.

No Budget Deal

Paterson asked to speak to the joint session after weeks of talks with legislative leaders failed to produce a budget agreement. He called lawmakers back to Albany for a special session tomorrow to consider issues led by the spending program, same-sex marriage and a bill to give the Comptroller’s office more oversight of state authorities.

While Republicans, a minority in both chambers, support the idea of spending cuts, Senator Dean Skelos of Rockville Centre has objected to Paterson’s plan to impose the biggest reductions in education aid in the wealthiest school districts.

Senate Democratic Leader John Sampson of Brooklyn has objected to planned cuts in education and the Medicaid health insurance program for the poor, and proposed the state raise $500 million or more by refunding bonds backed by payments from tobacco companies.

“We believe there are better ways to generate revenue without dismantling vital services in the areas of education and healthcare,” he said in an Oct. 29 statement.

Tobacco Bonds

Patterson has twice rejected Sampson’s tobacco-bond proposal in public meetings.

Senate Democrats recognize the fiscal crisis is real and “are continuing to negotiate in good faith on a fiscally prudent agreement that will balance the budget and maintain vital services without imposing any new taxes on the state or local level,” said Travis Proulx, a spokesman for Sampson.

The budget gap for the year ended 2012 is projected at $14 billion as increased federal aid provided under President Barack Obama’s stimulus program is scheduled to expire.

Ending the extra federal assistance would be “cataclysmic” and should be opposed by New York and other states, Lieutenant Governor Richard Ravitch said last month.

New York’s budget at Sept. 30, including federal aid, was estimated at $133.2 billion, up 9.6 percent from a year earlier. The state-funds budget, including capital spending and excluding federal assistance, was $85.5 billion, up 2.8 percent, government documents show.

To contact the reporter on this story: Michael Quint in Albany, New York, at mquint@bloomberg.net.

Last Updated: November 9, 2009 16:58 EST