Cash-poor NY state may issue IOUs like California

NEW YORK (Reuters) - Cash-poor New York state might have to pay its bills with IOUs next week to avoid the “anarchy in the streets” that could result from a government shutdown, Governor David Paterson said on Thursday.

It’s a political variation of “Hotel California,” a game the Democratic governor doesn’t particularly want to play.

Like California, which last year issued $2.6 billion of IOUS during a lengthy budget battle, New York might have to pay its bills this way for the first time since the 1980s because the Legislature has not enacted a $135 billion budget more than two months after the deadline.

So far, New York state has dodged a shutdown -- the equivalent of a mass strike by public workers -- because the Legislature has enacted Paterson’s emergency spending bills.

But now two Democratic senators have suggested they might reject next week’s temporary spending bill, forcing Paterson to seek the votes of Republican senators.

“You could have anarchy literally in the streets if the government shut down,” Paterson told WBEN radio.

Experts are unsure if the police, firefighters, prison guards, emergency and healthcare workers can go to work if they cannot be paid.

“We are meeting with the comptroller. We are talking with different agencies about how to manage a government shutdown,” Paterson said.

Government shutdowns can have severe consequences for politicians, as former Republican House Speaker Newt Gingrich found out in 1995, Paterson said. New Jersey furloughed 45,000 workers and closed 12 Atlantic City in its 2006 shutdown.

However, IOUs are not without risk: Banks that do business with the state could reject them, a problem New York’s former Democratic Governor Hugh Carey had in the 1980s, Paterson said.

Last year, California had a similar problem with big banks.

MORE UNKIND CUTS COMING

The Democrats who run New York’s Legislature have rejected over $2 billion of cuts in education, healthcare and the like that Paterson says are needed to close a $9.2 billion deficit.

In a first, Paterson got the Legislature on Monday to approve a full year’s worth of healthcare cuts totaling $775 million by including them in his one-week spending measure.

His next emergency bill will slice human services and mental health care by hundreds of millions of dollars.

To woo Republican Senate Minority Leader Dean Skelos, Paterson said his next bill will also have the deeper cuts Skelos wants.

Skelos in a statement recommended $775 million of cuts -- $276 million more than Paterson. The GOP would, for example, delay hikes in welfare grants and lower personal allowances for people in drug and alcohol rehabilitation centers.

Medicaid, which costs the state about $1 billion a week, should be cut another $400 million, Skelos said.

Skelos told WCBI radio that Lieutenant Governor Richard Ravitch, who can preside over the Senate, should be able to cast a tie-breaking vote to avoid a government shutdown.

Democratic Assembly Speaker Sheldon Silver said there was still no agreement on any tax hikes or borrowing plans.

“I am hoping that we can come to an agreement on everything and begin to enact it next week,” he told WCBI radio.

Comptroller Thomas DiNapoli, a Democrat, outlined the risks of a shutdown.