Politics on the Hudson

   Gov. David Paterson’s budget director, Robert Megna, issued a statement this evening on the dire state of New York’s finances and said there is an urgent need for action. The governor plans to call lawmakers back into special session to close a $3 billion hole in the budget.

   This is what Megna had to say:

   “Unless action is taken to address New York’s current-year budget deficit, our State government is likely to face significant cash-flow difficulties beginning in December. During that month, several substantial local assistance payments are scheduled to be made, including $2.5 billion in STAR (tax rebates) and $1.6 billion in School Aid funding for school districts, $500 million in funding for city governments, and $500 million in funding for county governments, among others.

   “Based on current revenue trends, the state may not have the resources necessary to make all of those expenditures. If no corrective action is taken, we will have to begin to make difficult choices about which payments to delay. These delays could create a trickle down effect on local governments and service providers across the state as those organizations continue to face similar cash-flow difficulties of their own. And if revenues further deteriorate beyond current projections, the State’s cash-flow difficulties may become even more severe.

   “New York also faces the possibility of a credit rating downgrade. A credit rating downgrade makes it more expensive for the State to borrow money, which means that fewer tax dollars will be available for critical priorities like education, health care, and other policy areas. In 2002-03, when the State delayed $1.9 billion in payments because of a mid-year deficit, its credit rating was lowered from AA to AA-.

   “Across the nation, we can see the potential consequences of failing to address our fiscal problems in an expeditious manner. California was forced to issue IOUs and saw its credit rating downgraded to BBB—the lowest in the nation and one notch above junk-bond status. In Pennsylvania, school districts were forced to turn to short-term borrowing when the state delayed nearly $1.5 billion in school aid payments during a 101-day budget impasse. Governor Paterson has said we cannot and will not allow New York to face a similar calamity. He believes that we need to act and we need to act now.”