Paterson warns that taxes may climb, services decline

NEW YORK — New Yorkers should prepare for fewer services and potentially higher school and local property taxes under the most stern budget warning yet from Gov. David Paterson.

“Everything is on the chopping block,” Paterson said Friday at a meeting with legislative leaders in New York City, where he told every level of government to brace for the financial blow as lawmakers try to close a projected $1.2 billion budget gap.

Paterson expects the deficit to grow to $2 billion by the end the fiscal year and noted an unemployment rate above 6 percent for the first time since the aftermath of the Sept. 11, 2001 terror attacks. He called for a special emergency session of the Legislature on Nov. 18 to make budget cuts that will likely hit every state agency, health care programs and even school aid, which the Democrat said he didn’t want to change in the middle of the year but could be reduced next year.

Because cuts at the state level could mean costs passed along to local residents if municipal governments and school districts increase taxes to maintain spending, Paterson advised all levels of government to rein in expenses.

“People should really expect to hear about government shortfalls, and that their local governments are going to be lean,” said Elizabeth Lynam, deputy research director of the Citizens Budget Commission, an independent fiscal and government watchdog group. “It’s tough times, it’s not going to be back to business as usual for quite awhile.”

Paterson rejected the idea of a tax increase, instead calling on legislators to make hard decisions and accusing them of not understanding the severity of the crisis. It was a tough stance for a politician known for his congeniality and popularity on both sides of the aisle.

Paterson said he was willing to risk friendships by criticizing lawmakers for not offering specific budget suggestions. The leaders committed to talking about cuts and returning for a special session, but they were only specific about areas they weren’t willing to touch. Senate Majority Leader Dean Skelos got a commitment from Paterson that he wouldn’t raise taxes, and Assembly Speaker Sheldon Silver balked about potentially hurting schools and low-income families.

Paterson pointed out that the executive branch already cut $1.5 billion.

Skelos, a Long Island Republican pledged the Senate’s support, but warned against “acting hastily by cutting spending in the wrong areas ... or enacting job-killing tax increases.”

Silver pledged a bipartisan effort with the Senate to get to work earlier than usual on the 2009-10 budget.

“We need to act,” the Manhattan Democrat said. “Delay will only put off the inevitable.”

One of the greatest obstacles to cutting state costs will be the powerful public employee unions.

“Even as the crisis unfolds, school districts, local governments, the city of New York and the state of New York have been committing themselves to generous long-term contracts,” said E.J. McMahon from the fiscally conservative Empire Center for New York State Policy.

Paterson didn’t call for layoffs or concessions from public employee unions. But if they are needed, he said he would have private discussions with the state’s powerful union leaders before speaking about them publicly.

Civil Service Employees Association President Danny Donohue urged Paterson to consider raising taxes.

“As the governor considers the destruction of the quality of life in New York that another $2 billion will cause, he should remember that it is largely the result of greed and unethical business practices by an unchecked corporate sector,” Donohue said. “Working New Yorkers will end up paying the price for this reckless irresponsibility and lack of government oversight.”

The special session will be two weeks after elections, so lawmakers won’t have to consider cutting politically sensitive spending before voters go to the polls. Paterson said lawmakers will likely need to convene on additional days after that and predicted a difficult negotiating meeting before the Nov. 18 session.

Paterson said he is trying to avoid a downgrade of the state’s credit rating, which would make borrowing far more expensive for the state.

He’s preparing for even more budget strife by promising to deliver his executive budget for the next fiscal year more than a month early — Dec. 16 instead of Jan. 20.

“Local governments and the school districts need to prepare for this right now,” McMahon said. “They have to understand that there’s going to be a big change. That was good — I think he’s continuing to show the right kind of leadership.”