ALBANY – Gov. Paterson sharply boosted his estimate of the state’s projected deficits yesterday, as he warned the Wall Street meltdown and deteriorating national economy could produce a massive, two-year budget gap of as much as $12.5 billion.
Paterson, appearing as a guest host on the morning business show on CNBC, said the deficit for the fiscal year beginning next April 1 could reach a whopping $10 billion, or over $2 billion more than previously estimated.
“That’s twice the deficit we’ve ever faced in this state,” Paterson said. “These are the very difficult circumstances that we’re going to have to try to ameliorate.”
He said the deficit for the current fiscal year may hit $2.5 billion, or $500 million more than previously projected.
“So obviously, we’re going to have to look at our greatest spending areas and try to reduce them,” said Paterson when asked how he planned to manage the massive shortfalls. Paterson, who has called a special budget-cutting session of the Legislature for Nov. 18, said the worsening budget picture was largely attributable to a hemorrhaging of Wall Street jobs and profits.
While the state had projected a 43 percent decline in Wall Street bonuses, he said the final number might be as much as 60 percent.
He also noted that while New York derives 20 percent of its total revenues from Wall Street profits, 30 percent of state revenues collected from January to March normally come from the financial industry – meaning the full impact of the Wall Street collapse has yet to be felt.
The governor rejected closing the deficit with a new round of state tax hikes, although he stopped short – as he has in the past – of ruling them out entirely.
He said tax hikes should only be considered “on the back end” of a comprehensive budget-balancing plan that starts with sharp reductions in state spending.
Assembly Banking Committee Chairman Darryl Towns (D-Brooklyn) said he was briefed last week on the state’s worsening financial outlook and therefore wasn’t surprised by Paterson’s latest budget forecast.
“We’ve got some real trouble heading down the pike because we’re so interconnected to the financial markets,” said Towns.
Meanwhile, state Comptroller Thomas DiNapoli warned that the state faced “potentially unprecedented deficits” in future budgets, even though personal income-tax collections jumped more than 15 percent during the first six months of the current fiscal year.
DiNapoli, however, said income-tax collections had already begun to slide while business tax revenues were down 13 percent – and would likely fall much further.
“The state started the fiscal year with surprisingly strong personal income-tax collections that fueled growth in state revenues,” said DiNapoli.
“But that growth is falling off, and things are looking very shaky.
“Personal income taxes will likely decline significantly when Wall Street bonus payments drop off in December and January,” he continued.
DiNapoli praised Paterson for calling a budget-cutting legislative session as he urged lawmakers to adopt “long-term solutions that don’t make an already bad situation catastrophic.”
Maggie Haberman contributed to this report.