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New York is in big financial trouble

The governor says the state faces its largest budget deficit ever. He calls Wall Street's crisis a major factor.

October 29, 2008|Erika Hayasaki | Hayasaki is a Times staff writer.

NEW YORK — Gov. David A. Paterson on Tuesday said that the turmoil on Wall Street had upset New York's financial stability, forcing the state in the next four years to confront its largest projected budget deficit in history.

"New York is at the epicenter of an extraordinary financial crisis," Paterson said during a news conference in Manhattan.

With tax revenue sinking, he said, "we will have no choice but to take bold and aggressive action to reduce state spending."

New York is facing a budget shortfall of $1.5 billion for the current fiscal year, which started in April. A $12.5-billion deficit is expected in fiscal 2010, nearly double what the governor's office had projected two months ago.

Over the next four years, New York must confront a budget gap of $47 billion.

Paterson has called a special session of the Legislature on Nov. 18, when he will ask lawmakers to cut $2 billion from the budget.

He also is seeking assistance from the federal government and is scheduled to testify today before the House Ways and Means Committee in hopes of persuading Congress to support a second economic stimulus package that would help states.

New York budget chief Laura Anglin said 27 states were experiencing midyear shortfalls totaling $12.3 billion.

"Going forward," she said, "the problem only gets worse."

Projected state budget deficits nationwide are expected to total at least $100 billion by fiscal 2010.

During the last recession, people were still spending and consuming, Angling said.

"We are now forecasting three [consecutive] quarters of a decline in consumption," she said, "something that hasn't been seen since World War II."

In California, Gov. Arnold Schwarzenegger this week called for a Nov. 5 emergency legislative session to address that state's budget deficit, which has swelled by several billion dollars in recent weeks. Analysts predicted two weeks ago that it would be $3 billion, but now they are saying it could grow to at least $10 billion this fiscal year.

Last month, New York's unemployment rate reached 5.8%, its highest mark in four years. More than 160,000 New York state residents are expected to lose their jobs by next year, and unemployment is projected to reach 6.5%.

Paterson said the financial situation worsened to unanticipated levels over the last year because 20% of state tax revenue comes from Wall Street.

With the major stock market indexes all having lost more than 40% off their all-time highs, the New York financial sector is expected to see 45,000 layoffs this year, nearly 50% more than after the Sept. 11, 2001, terrorist attacks, Paterson said.

The failure of Washington Mutual Inc., the largest bank to collapse in U.S. history, and the bankruptcy of Lehman Bros. Holdings Inc., the largest filing in history -- along with the federal takeovers of Fannie Mae, Freddie Mac and AIG and a credit freeze -- have forced the state to freeze hiring and reassess its spending, he said.

"These are going to be very hard cuts," Paterson said. "We are really going to feel the pain."

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erika.hayasaki@latimes.com

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