New York Gov. David Paterson yesterday proposed spending cuts and revenue-raising measures to close a $3 billion gap in the current fiscal year.

Most of the closing would come from $1.8 billion of spending cuts — including large cuts to education and Medicaid — but would also include some measures that rely on bond transactions. He said he would not consider tax hikes.

“This is a very painful plan but we will share the burden,” Paterson said. “All of us are going to have to sacrifice in order to save our state.”

He also brought up the spectre of a state rating downgrade.

“I don’t think that people in this state understand what a downgraded credit rating can actually produce,” the governor said. “Not on my watch am I going to allow this state to go into default and not on my watch am I going to allow us to fritter around and make reckless decisions.”

Paterson announced the proposals the day after state Comptroller Thomas DiNapoli projected that falling personal income tax collections could push the deficit to $4.1 billion. The state’s fiscal health has deteriorated since lawmakers passed a $131.9 billion budget for the fiscal year beginning April 1.

State revenue has fallen 36% compared to last year, Paterson said. Unemployment in New York City increased to 10.3% in September from 10.2% in August, according to preliminary estimates released yesterday by the state Labor Department. The state lost 18,300 private sector jobs last month, though the state unemployment rate remained unchanged from August to September at 8.9%.

Paterson’s gap-closing proposals include bond transactions through two public authorities that aren’t new, just modified. The state expects to receive a $200 million payment from a yet to be announced bidder to operate the Aqueduct racetrack casino or racino.

Last year, the state said it planned to sell $250 million of bonds backed by personal income tax revenues to develop the video lottery terminal facility at the Aqueduct racetrack in Jamaica, Queens. In return the state expected an upfront payment from a racino operator. The original deal fell through and New York is now weighing other bids. The state’s financial plan assumes the payment would be made in the next fiscal year, but governor’s plan puts that payment in the current fiscal year.

Another bond transaction would have the Battery Park City Authority sell $250 million of bonds and turn the proceeds, along with $50 million of surplus funds, over to the state. Paterson made a similar proposal last year but but was not included in this year’s budget after New York City Mayor Michael Bloomberg and Comptroller William Thompson, who both would have to approve it, raised objections.

Paterson’s plan also calls for $295 million savings from administrative actions that include “further debt management to lower state interest costs” by $100 million, more aggressive Medicaid fraud enforcement, and a higher estimate of fees assessed on utilities. It was not clear yesterday what the debt-management reductions were and a spokesman for the state Division of Budget did not return calls by press time.

The plan cuts $125.4 million of funding for mass transit in the current fiscal year, which presumably means cutting aid to the Metropolitan Transportation Authority, though the proposal did not explicitly state where the cuts would come from.

The MTA anticipated that any funding cuts would be used in its 2009 budget and would require legislative approval because the funds had already been appropriated, authority spokesman Jeremy Soffin said in a statement.

“The $3 billion deficit reduction program proposed today by Gov. Paterson includes a diversion of $113 million in state taxes and fees collected on behalf of the MTA,” Soffin said. “Whatever reduction to existing appropriations may be ultimately enacted will be incorporated by the MTA in a revised budget that will be balanced as required by law, implementing cash management strategies, revenue actions, and expenditure reductions as necessary.”

The $1.8 billion of proposed cuts would reduce $1.3 billion from local assistance in the current fiscal year. It includes cuts of $480 million from school districts, $287 million from Medicaid, $184 million from mental health programs, $125 million from mass transit, and $62 million from higher education programs.

Paterson also proposed a tax-amnesty program that would reduce penalties and fees on outstanding state tax liabilities to encourage delinquent taxpayers to resolve their cases. The proposal could generate an estimated $250 million in the current fiscal year.

The plan assumes that voluntary compliance would generate an estimated $100 million in fiscal 2011 and provide recurring revenue to the state. Paterson also repeated calls for a state spending cap that would peg budget increases to inflation and for pension reform. He also said proposals would also shave $2 billion off next year’s budget deficit which DiNapoli said this week could top $9 billion. 

Senate Majority Leader John Sampson, D-Brooklyn, and Assembly Speaker Sheldon Silver, D-Manhattan, separately released statements yesterday saying they were reviewing the proposals, were committed to working with the governor, and would begin hearings on the measures next week.

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