Albany, NY —

In the midst of a busy election day, more bad news about New York state's budget was overshadowed. Governor David Paterson’s budget director Robert Megna said a new $315 million budget gap has opened up midway through the fiscal year. He said it’s largely due to the continuing recession, which has created lower than expected tax collection revenues and higher spending on Medicaid and other social services due to higher unemployment rates.

The state is also a bit short due to legal delays in collecting taxes on cigarettes sold to non-Indians on Indian lands.

Paterson has less than two months left in office, his term ends December 31, but Megna said he’s determined to close the gap.

“This governor has never taken the view to shirk his fiscal responsibility,” said Megna, who said Paterson considers it a “mandate” to ensure the state’s financial health through the end of his term.

Paterson would like to close the gap through an already existing mechanism. Earlier this year, New York did not know the exact amount it would receive from the federal government in additional stimulus monies for Medicaid, known as FMAP funds. The governor convinced the legislature to approve a contingency plan that required across the board spending cuts, in every agency, in case all of the money promised did not materialize. In the end, the state got most of the funds, but Paterson believes the legislation could be used as a framework to make the cuts to close the $315 million gap, said Megna.

“We’re certainly open to suggestions from the legislature,” said Megna. He adds that the governor has made clear that he’d like to fill the gap through spending cuts, and won’t agree to close the gap through any new taxes, fees or borrowing.

The legislature would have to vote to reauthorize the contingency plan, if they were to use it to close the gap. Lawmakers are due back at the Capitol on November 15 and could consider the matter then, or devise a new plan. Uncertainty over which party will control the Senate in the future might complicate any new negotiations on the gap.

Megna says the deficit would have been even higher if Paterson had not vetoed $1 billion in additional spending authorized by the legislature earlier this year. Still, he said New York is in better financial health than it was in the past two years: there was a $3.2 billion deficit in the 2009-2010 state budget, and a $1.5 billion deficit the year before. And Megna says unlike last year, the state will likely be able to make large payments due to schools and local governments in December. The quarterly payments had to be postponed three times in the past year.  

“We think we’re in a little bit better shape,” said Megna.

If Paterson is successful in getting the legislature to agree to close the new budget gap, his efforts could help smooth the way for governor–elect Andrew Cuomo, who will have to grapple with an over $8 billion gap in next year’s budget.