The state's budget outlook is worsening by the day, pushing Gov. David A. Paterson on Friday to propose $2 billion in spending cuts, refusing to rule out public school and hospital reductions or state worker layoffs.
"This is an emergency," Paterson said in calling the Legislature back into special session next month and warning legislative leaders the state faces the same kinds of service cuts witnessed in California if action isn't taken now.
Tax increases, however, are off the table for the Nov. 18 special session, the governor and legislative leaders agreed. That means potentially $2 billion in cuts from a budget that began in April and that will be 56 percent spent by next month. That leaves state officials with far fewer -- and more painful -- options.
Legislative leaders did not immediately agree to $2 billion in cuts, though they pledged to cooperate to reduce spending.
Although state officials say they do not want to reduce spending for the state's 700 school districts, they did not rule it out. And that could affect everything from classrooms to property taxes.
The potential hit list is long: nursing homes, law enforcement, parks, transportation, low-income housing, environment, the state's university system and thousands of other entities that get state funding each year.
And the problem only gets worse next year.
"Everything is on the chopping block," Paterson warned.
The problem is on two fronts: how to balance the remainder of this fiscal year, which ends March 31, and what to do about the 2009 budget.
The revenues needed to pay for New York's current $120.9 billion budget are falling so swiftly that Paterson believes the current year's spending plan will be $800 million deeper in the hole than the $1.2 billion deficit his own budget office projected Friday.
The situation is so dire -- made worse in New York because of such a heavy reliance on taxes from Wall Street activities -- that Paterson said he will unveil his plans for the 2009 state budget in December, a full month before it is due.
That budget is already $6.4 billion in the red -- if spending and taxes already on the books remain in place -- and state Comptroller Thomas DiNapoli this week released numbers suggesting a shortfall approaching $9 billion.
The governor said his aides are looking at the extraordinary step of how to legally start the next fiscal year before its April 1 beginning, in order to give recipients of state money more time to deal with the cuts and to show bond rating agencies that New York "is going to attack this problem," Paterson told legislative leaders in a meeting in Manhattan on Friday.
But it is a risky plan because Paterson will try to determine 2009 revenue numbers nearly four months before the fiscal year even starts and amid an uncertain national economy.
"We recognize we are going to have to take drastic actions," Paterson said in the public meeting.
The numbers appear ominous.
Earlier this year, the state projected Wall Street would pay its employees $48.2 billion in bonuses on stock and other trading activity. In turn, those workers would pay New York $3.3 billion in income taxes.
With the recent meltdown on Wall Street, the state now estimates bonuses will total only $27.5 billion. That translates into just $1.9 billion in state tax revenue.
Groups that rely on state funding are already bracing.
"It's got to be a worrisome time for every school district in New York State," said Gary Crosby, the chief financial officer of the Buffalo schools.
He is optimistic Albany will not cut state aid in the middle of the school year -- as happened during a 1991 recession.
Next year is a different story.
"There is no doubt that we'll be dealing with cuts next year," Crosby said. It will hit poorer cities like Buffalo -- which gets 80 percent of its school funding from the state -- especially hard.
The situation already pits special interests against each other. Some health care advocates, which absorbed a round of state budget cuts in August, were quick to note Friday that public schools went largely untouched during the summertime special budget session.
"Hospitals are in fragile condition. We already gave at the office last time," said John Bartimole, president of the Western New York Healthcare Association.
In their public meeting, the governor and legislative leaders tried to display a united front. But that broke down when Senate Majority Leader Dean Skelos, a Long Island Republican, cautioned that the state must "act prudently." He then checked off a number of items he thought should go untouched: schools, local governments and taxes.
Paterson attacked the comments.
"I don't think we get how serious this problem is," Paterson said to Skelos sitting next to him. "We've got to address this situation severely and we've got to address it quickly."
The governor dismissed a suggestion by Skelos that more time is needed to assess the numbers.
"This is a time when you can't wait for all the statistics," he said.
"I'm not in college," Skelos snapped back, "I don't need to be lectured."
The Republican challenged Paterson to take other actions first. He urged him to collect taxes on sales of cigarettes and gasoline by Native American retailers, which lawmakers say could be worth upward of $1 billion annually.
About the only specific thing Paterson and lawmakers agreed not to consider next month are personal or business tax hikes.
School aid will be a major political problem for officials to cut. As of Friday, the state had so far this year sent $3.6 billion to schools out of a total school aid package of $21.4 billion. That means the vast majority of the education funding has not been spent yet. That could make schools a target.