Paterson Warns of Higher State Deficit

By BRIAN TUMULTY
Gannett Washington Bureau

WASHINGTON - Don't expect New York and other states to help cover the estimated $1 trillion cost of health care reform, Gov. David Paterson told the nation's top health official on Friday.

"States right now are not in a position to really create matches to any new federal programs that will come out of the health care plan,'' Paterson said in an interview after meeting with Health and Human Services Secretary Kathleen Sebelius.

Paterson traveled to Washington on Friday to warn the Obama administration and Congress that the fiscal picture in the Empire State is getting worse and that state government can't be expected to help foot the bill for health reforms.

New York budget officials are scheduled to release a mid-year budget report next week that will show a ballooning state deficit for the fiscal year that began April 1.

"We are just starting to nail the numbers down now, but it will be significant, and we will be obviously calling the Legislature back in the beginning of September to address that,'' Paterson said, noting that he previously had predicted a shortfall of between $500 million and $1 billion. Now, he said, "I think it will be more than that.''

Paterson, accompanied by state Comptroller Thomas DiNapoli, met earlier with Democratic Rep. Charles Rangel of Manhattan, who chairs the tax policy-writing House Ways and Means Committee. Rangel's controversial plan to cover much of the cost of health reform by imposing an income tax surcharge on individuals making more than $280,000 and couples making more than $350,000 has been criticized even by some Democrats within the state delegation.

Recently, Democratic leaders have talked about limiting the surcharge to people earning more than $1 million, but no alterative has been announced for filling in the resulting shortfall.

At least 48 states are facing budget shortfalls averaging 24 percent of their total spending in the current fiscal year, according to the Center on Budget and Policy Priorities, a liberal-leaning Washington think tank. Cumulatively, that's a $163 billion shortfall.

"I think a lot of states are going to be asking Washington for more money,'' said Robert Ward, deputy director of the Nelson A. Rockefeller Institute of Government in Albany. "Things are bad for virtually every state right now. In some ways, New York is doing a little better than most.''

Employment losses in New York have not been as dramatic as in many other states, according to Ward. And the stock market's recent rebound could fatten the paychecks of high-income traders and investors who pay state income taxes.

New York is better off than many other states, agreed Frank Mauro, executive director of the Fiscal Policy Institute in Albany. Mauro said the governor and state Legislature adopted a conservative budget that anticipated income tax revenue would decline by about 25 percent a year. Revenue fell more than projected in April and May, but less than projected in June.

In addition, the federal economic stimulus legislation signed into law in February helped plug budget holes and has softened the impact of the recession on the state. About 31 percent of the money used to narrow New York's budget gap for the current fiscal year came from $6.2 billion in federal stimulus funds, according to a recent report by the Government Accountability Office. Most of that - $5 billion - was in additional Medicaid money for the poor.