The Clinton administration and Gov. Pataki deadlocked on Thursday over a plan to ease the effect on New York of the president's August line-item veto of the way the state finances its Medicaid program.
In Albany, the governor said a proposal made by the Department of Health and Human Services is unacceptable.
"It is too little and too late, and the administration has an obligation to go back and do better," he said.
Health and Human Services said it would consider approving some of the state taxes it has been questioning for more than three years. The plan would relieve $1 billion in liabilities -- less than a third of what the state may owe the federal government as a result of Clinton's veto.
The standoff increases pressure on New York City Mayor Rudolph Giuliani to challenge the constitutionality of the 1996 line-item veto law in federal court. Giuliani reportedly was prepared to sue two weeks ago but held off at the request of the governor who hoped to reach a settlement with Clinton.
Targeted by Health and Human Services were state taxes the state has charged to health-care providers. These taxes, in turn, were included in the state's bill to the federal government for its share of the Medicaid program.
The federal government pays half the state health-care program for the poor, children and the elderly.
A division of Health and Human Services, the Health Care Financing Administration, lumped New York's problems in with eight other states and the District of Columbia.
But Health and Human Services said the rest of the solution would have to be spelled out by Congress.
"This proposal would leave New York's poor and neediest children not much better off tomorrow than they are today. It relies heavily on a legislative solution that we have not seen and are not certain can pass Congress," Pataki said.