New York is about to achieve a dubious milestone: For the first time in history, the state’s main bank account is poised to end the year in the red.

After months of plunging revenues and weeks of budget battles, New York had a negative balance of $174 million in its general fund on Wednesday, with nearly $1 billion in bills owed by day’s end. Every sign pointed to the account’s still being in the hole when 2010 begins. To fill the gap, New York will be forced to rely on its own version of overdraft protection by raiding its short-term investment pool — a kind of statewide checking account. But that account itself is dangerously low, with only about $800 million on hand, compared with a balance in more flush years of as much as $16 billion.

And the lower the short-term balance falls, the harder it is for the state to cover its day-to-day bills and the closer New York moves toward a previously unimaginable eventuality: A government check that bounces.

“New York State is officially living paycheck to paycheck,” said Thomas P. DiNapoli, the state comptroller, whose responsibilities include managing New York’s finances. “The state is starting the new year by scrambling to make payments and juggle money.”

While New York’s fiscal year does not end until March 31, its cash shortage could force it to borrow more money to pay for its daily operations, adding to the interest on loans that already costs $1 billion a year. And the financial problems will raise alarms among rating agencies that are already keeping a close eye on New York’s credit-worthiness, with the risk of a lower credit rating — and higher interest payments to future bondholders — already looming.

Emily Raimes, an analyst at Moody’s Investors Service, said, “We will be closely monitoring the following things: actions the state takes to preserve cash; actions the state takes to close budget gaps and their effect on structural balance; and whether personal income tax receipts come in above or below state forecasts.”

Unpaid bills are already piling up. In September, the shrinking general fund balance forced Gov. David A. Paterson to delay a billion-dollar payment into the state’s pension system. This month, he delayed $750 million in payments to school districts and local governments in the hopes that revenues start rebounding enough in January, when Wall Street bonuses start arriving, to restore the payments.

Mr. Paterson has been warning for months of the state’s depleted accounts, including those outside the general fund, to try to compel the Legislature to address the state’s $3.2 billion budget deficit. But while the governor and the Legislature reached agreement this month on about $2.7 billion worth of savings, the Democratic-controlled State Senate has resisted any more cuts to schools and health care.

The Paterson administration has raised the possibility of layoffs, furloughs and the partial shutdown of state government if the stalemate with lawmakers persists. And the situation will grow more serious next year when the budget deficit is expected to be even higher.

Months ago, state budget officials said that without significant cuts, spending out of the general fund was projected to grow 37 percent through the 2013 fiscal year, while revenue was expected to grow only 3.4 percent. “I’ve never seen it this bad,” said Thomas Mahoney, an official in Mr. DiNapoli’s office, whose official title is director of state accounting operations but who is unofficially known as New York’s accountant. “We’ve had difficult times, but nothing like this.”

While the general fund does not account for all the state’s money — it does not include billions of dollars in transfers from the federal government, for example — it is the only portion of the total budget that must by law be balanced.

In fact, until this year, the general fund had to be balanced at the end of each calendar month, even if it dipped into the red on any given day. But a provision quietly slipped into the budget in the spring gave officials a far longer grace period, allowing the general fund to run in the red for as long as four months or until the end of the fiscal year, whichever is shorter.

The deficit, analysts said, was a barometer not only of the New York’s fiscal peril, but of the political stalemate in Albany that has left the state spending more money than it can afford for months.

“You basically start depleting your last cushion,” said Edmund J. McMahon, director of the Empire Center for Public Policy, a research group that favors reduced government spending. “And the less cushion you have, the riskier and scarier it gets if there is an unanticipated further downturn. You are cutting away what’s left of your safety net.”

Read article here