Citing Shortfall, N.Y.’s Paterson to Withhold Payments to Localities

New York Gov. David Paterson said yesterday that he will order the withholding of payments to local governments to deal with a $1 billion shortfall this month.

“I am directing the Division of Budget to limit payments so that we will have the cash to pay our debts through the end of December,” Paterson said yesterday. “I will continue to withhold payments until this economy is leveled off. I will probably be sued for this but I will not let New York State run out of money on my watch.”

The state has $5.9 billion of payments due at the end of the month.

New York can borrow on a short-term basis from various state funds called short-term investment pools, but Division of Budget spokesman Matthew Anderson said there may be periods during the month when those funds are insufficient. Even if the state made those payments by using such short-term borrowing, it would end the calendar year with a balance of about $36 million, he said.

A plan for reducing the state’s local assistance funding will be announced soon, Anderson said.

Counties are bracing for the details of the plan.

“In past years, counties would have been in a better position to absorb this move by the state,” said Mark LaVigne, spokesman for the New York State Association of Counties.

“After four quarters of declining sales tax revenue, increased demand for services, increased operating expenses, and years of tapping into reserves to keep property tax increases in check, counties can ill afford to sustain limited or delayed or eliminated state reimbursement for mandated programs and services already delivered by the state.”

Some counties may have to borrow in the short-term market to make up for the delayed reimbursements, LaVigne said. 

Last week the Legislature approved a $2.7 billion plan to reduce the state’s current-year $3.2 billion deficit.

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