Gov. David A. Paterson and Mayor Michael R. Bloomberg warned on Monday of further deterioration in state and city finances, with each saying that he or his successor would have to grapple with huge budget deficits in the years ahead.
Both men appeared at a meeting of the State Financial Control Board, where Mr. Bloomberg and the New York City comptroller, William C. Thompson, said that the city’s budget shortfall would balloon from $68 million in fiscal 2009 to more than $2 billion in 2010 and more than $5 billion the following year.
But Mr. Bloomberg also said that the city was well prepared to endure a recession and the drop-off in tax revenue that is expected to follow mounting Wall Street losses and slowing real estate sales.
“The good news is, we know very well how to do this, and do it right,” said Mr. Bloomberg, who sits on the Financial Control Board, along with the governor and other officials. “We showed that in the way that we managed the city budgets during the recession that followed 9/11.”
In remarks after the same meeting, Mr. Paterson said he would deliver a rare live televised speech at 5:10 p.m. on Tuesday to emphasize the precariousness of New York’s financial position.
“There will be no confusion about the gravity of the situation,” said Mr. Paterson, who has been sounding the fiscal alarm repeatedly in recent months, as state budget officials began forecasting large budget gaps and a prolonged and deep recession in the state.
Risa B. Heller, a Paterson spokeswoman, said that the governor would do more than merely warn of worse times ahead.
“The governor will put forth proposals to both get the state’s fiscal house in order and ease the burden on New Yorkers,” Ms. Heller said.
The state budget office’s last official estimates, issued in May, projected a $5 billion budget gap next year, increasing to $7.7 billion for 2010 and $8.8 billion for 2011, owing in large measure to layoffs and billions of dollars in losses at Wall Street firms, which account for a fifth of state tax revenue.
An update to the state’s financial plan will not be officially released until Wednesday, but most experts expect it to mirror the city’s worsening fiscal picture. A report issued two weeks ago by Thomas P. DiNapoli, the state comptroller, showed tax receipts from businesses at $453 million below projections during the first quarter of the state’s fiscal year, which Mr. DiNapoli called “a strong signal that the state must spend with caution.”
Mr. Paterson hinted that in warning New Yorkers on Tuesday night of the tough times ahead, he was also hoping to send a message to their elected officials. “My concern is that people sitting in their homes already know what the pain is,” Mr. Paterson said. “I want to make sure that people in Albany understand as well.”
The governor has so far taken only a few concrete steps to retrench state spending, mostly in areas under his direct control, like asking state agencies last spring to cut their planned spending.
The budget he signed earlier this year continued the Albany tradition of increasing spending at a rate faster than inflation, and months after suggesting that he would seek to reopen the budget for midyear spending cuts — a step that could provoke confrontation with the Legislature — Mr. Paterson has made no move to do so.
Tuesday’s speech could be an opportunity for Mr. Paterson to declare a bold plan for fixing the state’s finances and, in the process, carve out for himself a signature political issue, adding definition to what is still a largely unformed agenda.
If he presses the Legislature for more cuts, however, he will be negotiating an uncertain path with the new Senate majority leader, Dean G. Skelos, rather than with his old friend and partner, Joseph L. Bruno, who retired from the Senate this month.
Mr. Paterson will also be faced with the possibility that his political future hinges on how well he handles the state’s looming fiscal problems.
His potential opponents in the 2010 election include his fellow Democrat Thomas R. Suozzi, the Nassau County executive; Mr. Bloomberg, an independent; and former Mayor Rudolph W. Giuliani, a Republican. All three have earned reputations among voters for fiscal probity.
“The state economy is in trouble, and he wants to get out in front of it,” Douglas A. Muzzio, a political scientist at Baruch College, said of the governor. “I think being fiscally prudent is always a wise thing to be, particularly so for him. This is his big test that he can both deliver the message and then deliver on the message.”
Edmund J. McMahon, director of the Empire Center for Public Policy at the Manhattan Institute, a conservative-leaning research group, praised Mr. Paterson for reining in agency spending but noted that much of the state’s budget consisted of money that was funneled to local governments, like school aid.
“You can’t address those without the Legislature,” said Mr. McMahon. “And the Legislature doesn’t volunteer for gap-closing duty. Aside from stepping up his efforts to control state operations spending, is he going to implicate them in this? Is he actually going to challenge them to work on this? Otherwise, the speech is fairly predictable.”
Tuesday’s speech will be part of a weeklong drive by Mr. Paterson to focus attention on the state’s fiscal situation and comes one day before budget officials release an updated picture of the state’s balance sheet, with most experts expecting yet more bad news on the way. The New York Post reported on Monday that the governor would be delivering the speech.
Last week the administration hinted at further cutbacks in state agency spending, with Mr. Paterson’s budget director, Laura L. Anglin, asking agency officials to prioritize the programs they oversee, noting that “many lower-priority programs may have to be eliminated.”
And in recent weeks, Mr. Paterson has met with economic experts and former aides to Hugh L. Carey, who was governor during the 1970s fiscal crisis. On Monday, he also met with Joseph E. Stiglitz, a Columbia University professor and former chairman of the president’s Council of Economic Advisers.
Mr. Paterson’s appearance Monday at the Financial Control Board meeting provided a telling symbolic backdrop. Mr. Carey and the Legislature created the board in 1975 to rescue the city from financial collapse, eventually ordering hundreds of millions of dollars in budget cuts and demanding the layoffs of thousands of city workers.
Mr. Bloomberg, for his part, praised the governor for confronting the state’s economic woes. “The fact that David Paterson is willing to address the issue and understand that we’re going to have problems I think is very encouraging,” he said.
But the mayor, who has battled repeatedly in Albany with municipal unions and their allies in the Legislature — often losing — said the real test for Mr. Paterson would be selling such restraint to lawmakers.
“Hopefully they have come to understand that the downturn has arrived,” Mr. Bloomberg said.
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