Facing a deficit of at least $1.2 billion that he said could reach $2 billion in the current fiscal year, New York Gov. David Paterson on Friday called for a special legislative session next month to cut the budget.
"We are going to have to take drastic actions, " Paterson said at a public meeting with legislative leaders and state Comptroller Thomas DiNapoli in New York City. Next year's "budget has a possibility to hit the type of deficit that we've never seen before."
The turmoil in the financial industry has led to revised projection from the state division of budget for a $1.2 billion shortfall, with Wall Street bonuses sinking by 43% over last year to $27.5 billion and capital gains taxes falling by 35%. Paterson said that given the rapid deterioration of the economy Wall Street bonuses could be down 60% and capital gains down 50%.
In July the state estimated bonuses would fall by just 20% and capital gains by 24%. New York gets about 20% of its revenue from the financial sector, which officials project will shed 40,000 jobs during the downturn.
Paterson Friday asked the Legislature to find $2 billion of cuts. The governor called for submissions of cuts by Nov. 7 ahead of a Nov. 18 special session. The state has already cut $1.77 billion since the budget was enacted in April, including $427 million of cuts at a special session in August.
While Paterson pledged not to raise taxes at this time, few ideas for cuts were discussed at the meeting. Division of budget spokesman Jeffrey Gordon said that they are not currently considering cutting back on any bond deals. Senate Majority Leader Dean Skelos, R-Rockville Center, warned against raising taxes and called for the state to keep its budget increases at the rate of inflation.
Paterson said he would issue his executive fiscal 2010 budget on Dec. 16, more than a month ahead of the statutory Jan. 20 deadline. He also said he wants the budget to be passed before April 1, the beginning of the fiscal year.
"With the tremendous amount of deficit hanging over our economy it appears clear that we are going to have a downgrade in our financial ratings by the ratings agencies," Paterson said. "I want to try to avoid that."
The governor said he hadn't received any official notice that state was facing a downgrade, but said rating agencies had said "they would expect a downturn in our ability to have credit and to borrow money."
"Rating agencies respond to action and this is why we're taking actions to show them that they should have confidence in us, because we are addressing the situation and we are meeting the challenge," he said.
Eden Perry, a director at Standard & Poor's said she wasn't aware of any comments made by the agency to the state about a potential downgrade. Standard & Poor's rates New York's general obligation debt AA with a stable outlook.
"If you look back at Sept. 11 [2001], which was also a really tough time for the state, they managed through that, and our assumption is if they're proactive and they continue to work through the budget, a balanced budget, the stable outlook will continue," she said. "In terms of making your bond rating, management is the key."
Standard & Poor's is concerned about the state of the economy and New York's budget but "the positive here is that he is addressing it right away," Perry said.
"The real test is will it be enough to keep the budget in balance, not only in terms of what's proposed but what's agreed upon and implemented," said Robert Kurtter, senior vice president at Moody's Investors Service. "The current fiscal crisis has disrupted the financial markets has created huge disruptions in the financial services industry upon which New York state is very highly dependent for employment and state tax revenue."
