By Erik Engquist

Gov. David Paterson Tuesday morning said cuts to education and health care spending and possibly a tax increase will be needed to erase a projected $24.1 billion state budget deficit over the next three years.

But he declined to specify how the cuts should be made or whose taxes should be raised while speaking to 1,100 business executives at the Crain’s New York Business breakfast forum. He added that the public would not object to a tax hike if Albany first cut spending.

Before even uttering a word, Mr. Paterson received a standing ovation from the audience, which matched the largest attendance for a Crain’s forum. He did not disappoint the executives, taking a hard line on state spending without resorting to rhetoric and false promises. “I don’t think we can solve the whole problem by just taxing people…or by cutting spending,” he said. “We may have to do both.”

In fact, he reminded the audience, he was a “proud supporter” of a 2003 tax hike as a state senator, but lamented that the Legislature used the revenues to increase spending. “I have never ruled out a tax increase,” he said. “[But] if that’s the first solution, we are continuing the addiction. The first solution has to be to cut spending.”

The governor also said he hopes to bring the state Senate and Assembly back to the negotiating table after the November election to curb property taxes. Among the possibilities, he said, were to have school districts tax themselves, to fold school districts into county government, and to enact a “circuit breaker” to limit increases to a certain percentage of a taxpayer’s income.

He noted that Senate Republicans had passed a property tax measure in early August without any expectation that it would become law. “It’s an election year,” he said. “Maybe they had to do that for political reasons.” Assembly Democrats followed with their own one-house bill, Mr. Paterson noted.

The governor avoided controversy at his first Crain’s breakfast, declining to say whether high earners are entitled to rent-regulated apartments, or if city government should extend term limits without voter approval. “I’m sure they can do it without my intervention,” he said, “because I’m a little busy right now.”

He also backed off his comment that legislators are akin to Count Dracula when they entertain powerless voters during the day and then vote against their interests at night. “I don’t think my colleagues are bloodsuckers,” he said. But he noted that campaign finance reform would empower them to do right by groups that don’t make big donations and hire high-powered lobbyists.

Most of his appearance was devoted to warnings of the state’s dire financial outlook, which necessitates spending cuts on top of those agreed to last month. He predicted that projected state deficits would grow in October because new financial data would show Wall Street doing even worse than current forecasts estimate.

The fiscal woes jeopardize grandiose visions for the renovation of Moynihan Station and a Javits Convention Center expansion, the governor said. “I don’t see any way that they can all go forward if resources aren’t there,” he noted, referring to large infusions of state capital. The Moynihan project could proceed as a transportation project, not a massive real estate deal, he suggested.

“This isn’t fiscal conservatism,” he said. “This is fiscal reality.”