By James T. Madore

Gov. David A. Paterson is warning that next year’s budget will be “grim,” with retrenchment virtually everywhere, from schools and hospitals to building projects and social welfare agencies.

The cuts will probably be deeper because of last week’s failure by Paterson and lawmakers to close a $2-billion hole in the 2008-09 spending plan. That red ink now must be rolled into the projected $12.5-billion deficit for 2009-10, precipitating reductions in spending rather than slowing its growth.

With the Wall Street meltdown pinching state revenue, Paterson and his fiscal advisers are racing to craft budget proposals by Dec. 16, five weeks earlier than the usual deadline. They are expected to include a scale-back of the promised increase in education aid, overhaul of Medicaid to emphasize outpatient clinics, consolidation of state agencies and asking state workers to pay more for health insurance, according to sources.

Long Island has a lot at stake in the 2009-10 budget. Area public schools received $2.6 billion in aid this year and a future reduction would probably spark a hike in school property taxes. The region’s hospitals rely on billions of dollars in Medicaid reimbursement, nearly $2.9 billion in 2005.

And Long Island Rail Road customers are facing possible fare hikes and service cuts as the cash-strapped Metropolitan Transportation Authority struggles with little hope of help from the Capitol.

“This is going to be an extraordinarily difficult budget that is actually unprecedented in the lifetimes of most of us,” said Assemb. Robert Sweeney (D-Lindenhurst). “The governor probably will call for cuts across the board. I don’t know if he will propose any new revenues, but I think it’s inevitable.”

Seeks early budget adoption

Paterson isn’t ready to show his hand. But as talks collapsed last week over his fix for this year’s $120.8-billion budget he spoke about next year’s.

“It is grim,” he told legislative leaders. “All segments of society are going to feel pain. This is not your regular budget-cutting procedure.”

The governor is lobbying for budget adoption by March 1 rather than the April 1 start of the fiscal year. Such a move would save 8 percent, he said.

New York traditionally has had late budgets. A 20-year string of tardiness was broken at the end of Gov. George Pataki’s 12 years in office. But the past two fiscal plans missed the April 1 deadline by 11 hours and nine days, respectively.

Paterson said he would reluctantly target education and Medicaid for trimming because they account for 52 percent of state expenditures this year. He dismissed the suggestion that schools and hospitals be spared by putting a surcharge on the income of millionaires, as was done in 2003 to close an $11.5-billion deficit.

“Raising taxes right now would diminish the number of people who live in this state,” Paterson said.

Fiscal experts were divided over whether Democrat Paterson would succeed in shelving the millionaires’ tax, given strong support for it among the Assembly’s Democratic majority. But even if Albany were to soak the rich a bit more, the experts said, only about $2 billion would be produced, far short of closing the two-year, $15-billion deficit.

“They can’t close this gap by raising taxes because the gap is too big,” said Republican John Faso, who ran unsuccessfully for governor in 2006. “We need to reduce the cost of state and local governments and school districts because we can no longer afford them.”

Not much federal aid seen

Federal aid, probably in the form of up to $2 billion in additional Medicaid reimbursement, also won’t remedy the shortfall significantly.

“The billions and billions from Wall Street that the state relied on in the past simply aren’t there anymore,” said Robert Ward of SUNY’s Nelson A. Rockefeller Institute of Government. “Washington is likely to help New York … but it’s certainly not going to bail us out entirely.”

Some lawmakers and economists were hopeful that budget director Laura Anglin would advise Paterson to use the huge budget deficit as an excuse to reinvent government. Some suggested merging agencies and authorities with overlapping responsibilities such as the Transportation Department and Thruway Authority.

“If you just craft a budget from the point of view of cutbacks without looking at the opportunity for reform, you may not be in the strongest position to leverage support for what’s going to be some very tough medicine,” said state Comptroller Thomas DiNapoli.
State Sen. Craig Johnson (D-Port Washington) agreed, adding that adoption of a lean budget wouldn’t be effortless just because Democrats will control both houses of the legislature and the governor’s office come January. “You are going to have a better working relationship between the three parties,” he said, “but there are going to be challenges.”

Budget imbalance

In his 2009-10 budget proposal, Gov. David A. Paterson must close two huge deficits and reduce spending because of declining tax revenue.

DEFICITS:

Nearly $15 billion in the next 16 months

2008-09 fiscal year:

$2 billion

2009-10 fiscal year: $12.5 billion

REVENUE DROP:

5.8 percent

less than in 2008-09, including:

PERSONAL INCOME TAX:

Down $2.5 billion

MANDATED SPENDING:

Up 11.9 percent

over 2008-09

SOURCE: NYS Budget Division; Compiled by Albany bureau chief James T. Madore