N.Y. faces crushing crisis, governor warns

New York Governor David Paterson announces a deal to provide loan assistance to insurer AIG, in New York
‘There will be no segment of this budget that will not be cut,’ New York Gov. David Paterson said as he released dire economic projections Tuesday.Chip East / Reuters
/ Source: msnbc.com and NBC News

Calling the impact of the national economic crisis and the Wall Street meltdown worse than the terrorist attacks of Sept. 11, 2001, Gov. David Paterson said Tuesday that New York faced a mammoth budget deficit of $47 billion over the next four years that may require a 25 percent across-the-board spending cut.

“New York is at the epicenter of an extraordinary financial crisis on Wall Street,” Paterson said at a news conference where he released the state’s mid-year financial reports. “We will have no choice but to take bold and aggressive action to reduce state spending.”

Paterson, who has called the state Legislature back to Albany for an emergency session on the budget on Nov. 18, projected that more than 160,000 New Yorkers would lose their jobs during the downturn, pushing the  state’s unemployment rate from 5.8 percent to 6.5 percent and driving wages down by 2.1 percent.

Paterson said the state raised spending this year just as the economy was collapsing and financial firms began failing on Wall Street. The projected shortfall is worse than what the state faced after the Sept. 11 attacks and requires drastic action to reduce spending, he said, adding that if urgent steps were not taken, the deficit would hit a record $47 billion within four years.

All told, the state will have to cut spending by 25 percent to get back in the black, he said. The first step would be to find $2 billion in budget cuts immediately, he said, followed by further cuts to make up a deficit of $12.5 billion in the fiscal year beginning April 1. That is nearly double the $6.4 billion deficit the state made just two months ago.

“There will be hard and painful cuts,” he said. “There will be no segment of this budget that will not be cut.”

Big cuts in health care, education predicted
Assemblyman Joseph D. Morelle, a senior Democrat on the Economic Development and Ways and Means committees, said the state would have no choice but to cut deeply into health care and education programs.

“That’s where the money is,” Morelle said, noting that the state spends more than $20 billion on schools, with the highest per-student spending in the country. The state Association of Small City School Districts, however, said it would sue the state for more funding, not less.

Paterson said officials would try to find spending cuts “as carefully and fairly as we can.” But, he said, “we are really going to feel the pain.”

The budget projections, if they hold true, would put New York in a far worse economic hole than California, where Gov. Arnold Schwarzenegger has called the Legislature back into session Nov. 5 to address a deficit forecast at $3 billion.

Earlier in the day, state Comptroller Thomas DiNapoli announced that the state’s pension fund had lost almost $31 billion, about 20 percent of its value, since April 1.

Paterson was scheduled to testify Wednesday in Washington before the House Ways and Means Committee, where he said he would ask for intervention by the federal government.

“In order to get through this, we are going to need federal assistance,” he said.