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State's deficit forcing 'painful cuts' Governor Firm On No Exceptions Recent high spending rates are back to haunt in crisis

When the good times were rolling in recent years, New York State, not unlike Wall Street speculators, rode the euphoria with big budgets that spread around the cash at double and triple the rate of inflation.

Now, with the nation and Wall Street in economic chaos, the state faces the consequences: $14 billion in red ink over the next 17 months.

The spending, critics say, left the state's finances with an unsettled foundation that now in troubled times is unable to cope with a sudden economic downturn on Wall Street, which provides 20 percent of the state's revenues.

The result is likely to mean major cuts coming to schools, hospitals, local governments and the thousands of entities that rely on state aid each year. An assortment of services faces retrenchment after years of growth. And, depending on which cuts are made when state leaders get down to business, increases in income or property taxes are not being ruled out for next year.

"There will be hard and painful cuts. There is no segment of this budget that will not be cut," Gov. David A. Paterson warned Tuesday.

In a midyear update on the state's finances, Paterson shocked Albany with word that not only had the current year's deficit swelled to $1.5 billion, but the state is now staring at a $12.5 billion shortfall in the fiscal year beginning next April 1. Over four years, the gap is a staggering $47 billion -- nearly double what was projected just before the recent Wall Street collapse.

Among the most troubling projections is that the state will be losing 160,000 private-sector jobs by the end of next year, with higher-paying financial-sector layoffs 50 percent higher than after the terrorist attacks of Sept. 11, 2001.

"These are going to be very hard cuts. We're really going to feel the pain," said Paterson, who is traveling to Washington today to seek federal bailout money for the state.

While state officials blame the fiscal nightmare on the nation's economic turmoil, there have been warning signs over the years. Deep within Paterson's budget office's dire presentation Tuesday was a not-so-insignificant fact: The state budget has grown each year since 1994 by an average of 4.9 percent, while the inflation rate has averaged 2.7 percent. Exclude most of the 1990s, when some years were flat or below the inflation rate, and the gap between spending and inflation is far greater.

Fiscal watchdogs said past warnings that the state was not prepared in the event of a sudden slide in the economy are now coming true. Spending increases of triple the inflation rate in some recent years contributed to a culture in Albany of being unable to say no to popular spending programs. "We knew things were starting to get shaky," said Elizabeth Lynam of the nonpartisan Citizens Budget Commission.

For groups that rely on state spending, and have become accustomed to largely getting sizable aid hikes, the coming months will be a time of broken promises from Albany.

State operating aid to education, for instance, is slated to grow by $2.2 billion next year, or 12.3 percent more than this year. Medicaid is supposed to grow by $1.6 billion, or nearly 20 percent. The cost to run state agencies is to grow by $533 million, or nearly 10 percent.

All those numbers will be changing now, with the state's finances looking at the greatest-ever deficit in terms of dollars. Indeed, Paterson's budget director, Laura Anglin, said that even if next year's budget was kept within the inflation rate, the projected deficit still would swell to $6.8 billion. That means real cuts, the Paterson administration says.

"Inflation-level growth will not solve the problem," blared a headline on a budget briefing document Tuesday.

Paterson noted that while the state's overall budget is about $120 billion, the $12.5 billion deficit will have to be solved by dealing with the state-funded portion of the budget, which totals about $56 billion.

Before the governor even finished his presentation Tuesday, groups emerged to oppose cutbacks. A coalition of more than 100 nonprofit, labor and faith-based groups urged him to avoid cuts to a whole range of health, housing and other programs for lower-income people. Instead, they said Paterson should dip into a rainy day fund, cut corporate subsidies, raise taxes on wealthy people and collect taxes on Indian cigarette sales to help close the gap.

"These across-the-board budget cuts will be devastating to state services and will disproportionately hurt New York's most vulnerable populations," warned the Better Choice Budget Campaign.

Asked if the state should still keep its commitment to boost school spending by 12.3 percent in 2009, the head of the state's powerful teachers union said it will be a challenge. "I would hope that a scenario can be developed that allows the state to meet its commitment to education," said Richard C. Iannuzzi, president of the New York State United Teachers.

In a case of curious timing, a coalition of smaller school districts from across the state -- including Niagara Falls and the City of Tonawanda -- announced a lawsuit against the state Tuesday to get a greater share of state school aid.

Lynam said the first task of Albany is figuring out what funding promises will be broken. "It's not realistic that they're going to keep all those promises that were made at a different time when things looked better," she said.

The state's unemployment rate, at 5.8 percent, is the highest in more than four years. Officials predict that next year it will reach 6.5 percent. Employment is expected to decline in all economic sectors except two: education and health care.


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