New York Gov. David Paterson ordered mass layoffs of state workers yesterday as new revenue projections showed the state’s budget deficit grew by $3.2 billion since the beginning of February to $16.2 billion for fiscal 2010. The layoffs of 8,900 workers will be first of their kind in the state since the late 1990s, state budget director Laura Anglin told the Associated Press. The state employs about 200,000 people.

The main cause of the increased deficit was a $2.8 billion drop in projected tax revenues due to job losses, falling wages, declining consumption and reduced profitability of businesses. The widening gap increases lawmakers' challenge to complete a budget by the April 1 beginning of the fiscal year.

"I will take whatever actions are necessary to get our fiscal house in order and eliminate this deficit," Paterson said in a press release. "I will continue to fight every day to enact a fair and responsible on-time budget that makes the difficult choices needed to confront our new fiscal reality."

Though Paterson has repeatedly argued against increasing taxes on the wealthy, Division of Budget spokesman Matthew Anderson yesterday would only say that negotiations are ongoing to find ways to close the budget gap.

The state also lost out on a $370 million, one-shot deal with Delaware North Cos. when the company said two weeks ago it couldn't get the financing it needed due to the tight credit markets.

Delaware North was to make a one-time payment to the state for the right to develop and operate a video lottery terminal facility at the Aqueduct Racetrack. The state in turn was to sell $250 million of bonds in fiscal 2010 to finance the development of the facility. The state chose the firm from among three bidders in October. Anderson said the state is looking at its options for the VLT terminal.

In December, Paterson proposed a $121.1 billion budget for fiscal 2010, assuming a $13.7 billion deficit. When lawmakers agreed to a $1.7 deficit reduction plan for the current fiscal year in the beginning of last month, recurring cuts shaved the projected deficit to $13 billion.

"The revenue situation of all states, especially those that rely on income tax is very fluid right now," said Standard & Poor's analyst Robin Prunty. "This time of year when it's a recessionary period is usually pretty pivotal for states in terms of their overall estimates."

The states "had pretty horrid tax collections in the October-December quarter," said Donald Boyd, senior fellow at the Rockefeller Institute. "What little information we have in January certainly looks bad. We're very reluctant to draw too many conclusions from a single month but January's numbers were way down around the county, including way down in New York."

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.