NY governor sets budget deadline, rejects borrowing

NEW YORK Wed Jun 16, 2010 6:33pm EDT

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NEW YORK (Reuters) - New York's legislature must approve a budget by June 28 that does not rely on borrowing to close the deficit, Governor David Paterson said on Wednesday.

Otherwise, the Democrat said he would include his full-year financial plan in the next one-week emergency spending bill.

That could force lawmakers to choose between issuing IOUs the way California did last year or shutting New York's government for the first time in its history.

So far, cash-poor New York has been able to keep state workers -- from jailers to lifeguards -- on the job because the legislature has approved one-week spending bills after missing the April 1 deadline for a $135 billion budget.

On Monday, a shutdown was only avoided because a few Senate Republicans, who are in the minority, joined their Democratic colleagues in enacting the governor's one-week spending bill.

"Local governments, not-for-profits, and school districts will know exactly where they stand by June 28," Paterson said at a webcast meeting with legislative leaders in Albany.

"I will not sign a budget that has any deficit financing in it," said Paterson, saying talk borrowing was "obsessive.

Next year, the budget gap could hit $15 billion, and rise to $18 billion to $20 billion in the following year, he said.

A budget spokesman said Paterson also wants the legislature and comptroller to let the state and local governments stretch out their pension contributions over a longer period. New York state stands to save about $241 million in the first year of the plan, the budget spokesman said. He could not immediately say how much localities would save.

However, Comptroller Thomas DiNapoli will sue to block any "raid" on the pension fund, his spokesman said. Any delayed pension contributions must be balanced by requiring higher contributions during stronger economic periods, he said. DiNapoli wants the extra cash contributed during boom periods locked up in reserves so that it can be tapped in downturns.

Paterson also spurned Democratic Senate Majority Conference Leader John Sampson's plan to save $500 million by refinancing tobacco debt backed by payments from cigarette-makers.

All legislators stand for election in November, and Sampson supports the tobacco bond refinancing partly because it could pay for the property tax relief favored by upstate voters.

"I like my tobacco bonds. Let's not take that off the table yet," Sampson told Albany reporters.

Both the Senate and the Assembly have rejected about $2 billion of education and healthcare cuts Paterson proposed to shut this year's $9.2 billion deficit.

Though Assembly Speaker Sheldon Silver said he believed a budget could be approved before June 28 -- without borrowing -- this Democrat did not say how he would restore about $400 million for schools that Paterson wants to cut.

Saying broad-based tax hikes were not an option, Silver also said he did not anticipate selling New York Power Authority plants or "monetizing" parking garages.

(Reporting by Joan Gralla in New York and Elizabeth Flood Morrow in Albany; Editing by Andrew Hay)

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