March 27, 2009 / 6:25 PM / 11 years ago

UPDATE 1-NY Gov: state nears "life threatening" budget cuts

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By Joan Gralla

NEW YORK, March 27 (Reuters) - New York state’s deficit likely will increase by $3 billion this year, even after enacting a new budget that must close a $16 billion deficit, Governor David Paterson said on Friday.

Paterson told Albany reporters the shortfall could even top $20 billion.

New York faces an April 1 budget deadline and Paterson, who has repeatedly warned that tax revenues are sliding along with losses at Wall Street’s financial institutions, said the legislature must make even deeper cuts before he would consider their proposals to raise income taxes on the rich.

Paterson, underscoring the severity of the situation, said the state “is on the verge of cuts and service reductions that I would have to describe as life threatening”.

He again declined to rule out higher income taxes for the many well-to-do who live in the state, saying: “obviously in situations like that everything is on the table.”

Paterson did not offer any details about further cuts. The New York Times reported on Friday that federal stimulus money will make up for some cuts planned for education.

The paper said insurers had beaten back a new $120 million tax the governor proposed for their industry the Senate had killed plans for a 5-cent deposit for water bottles, and the Assembly seems to have spurned a measure to let groceries sell wine.

Regarding an extra $4 billion or so raised by increasing the current top 6.85 percent state income tax rate, the Democratic-led Assembly wants to use it for the overall budget.

However the Senate, also run by Democrats, wants to use the extra revenue for the state’s mass transit agency.

Both houses want to save bus, subway, rail commuters and motorists from the 20 to 30 percent increases in their fares, tickets and tolls that the agency approved on Wednesday.

Asked if progress had been made in bailing out the Metropolitan Transportation Authority, Speaker Sheldon Silver said: “We are actively pursuing reversing the outrageous fare increase and service cuts that are proposed by the MTA Board and I am hopeful that we will have a deal before long to reverse it.”

Senate Majority Leader Malcolm Smith said his members had not yet decided how much people would have to earn before the new top income rates began.

“We are just trying to get a formula that gets us out of the hole,” he said. “We need some severe cuts and we want to do what is necessary.”

Reporting by Elizabeth Flood Morrow in Albany and Joan Gralla in New York; Editing by Chizu Nomiyama

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