New York City will face a $3.5 billion deficit in fiscal 2010, with that funding gap to grow to $8 billion in fiscal 2011, according to a report released last week by New York State Comptroller Thomas DiNapoli.

The report acknowledged Mayor Michael Bloomberg and the City Council’s spending cuts, but indicated that a deteriorating outlook and declining revenues will widen future budget shortfalls. Fiscal 2009 will end June 30.

In addition, Gov. David Paterson’s proposed fiscal 2010 budget, which begins April 1, could affect the city’s current budget and beyond by $1 billion if the governor’s plan to end New York City’s municipal aid passes the Legislature, according to the comptroller’s report. That would take $328 million out of the city’s fiscal 2009 budget. Paterson’s proposed budget also includes a $669 million cut in educational aid to the city in fiscal 2010.

“The mayor and the City Council have taken a proactive approach to the city’s budget problems,” DiNapoli said in a press release. “But the economic outlook continues to deteriorate with every new forecast. We don’t know how long the recession will last, or how deep it will be, but it’s clear that New Yorkers should brace themselves for possibly the worst fiscal crisis since the 1970s. And the city cannot look to Albany for much help. The state faces its own fiscal crisis. Balancing the state budget will require sacrifices that could hinder the city’s efforts to balance next year’s budget.”

DiNapoli anticipates the state will lose more than 225,000 jobs over the next two years, including 175,000 in New York City. The city lost nearly 20,000 jobs in November, the largest one-month loss since October 2001.

In addition, even after a 20% reduction in its capital program, the city’s debt service costs will increase to $6.5 billion by fiscal 2012, double the current year’s amount. Debt service will account for 14.2% of the city’s fiscal 2012 budget, up from 10.5% in fiscal 2009.

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