NY Nearly Goes Broke Again, Delays Paying Bills

New York state delayed paying $2.5 billion of bills as a short-term way of staying solvent but its cash crunch could get even worse in August and September, Budget Director Robert Megna said on Tuesday.



"Had we not done that, I think we would have been close to broke," Megna told reporters in Albany. This is the third time since December the cash-poor state has withheld funds.

This time, the state's general fund, which counts everything but federal aid and some specific revenues, ran in the red by about $500 million to $600 million, Megna told reporters.

The state was able, however, to borrow from other funds, including the short-term investment fund. About $1.5 billion of the withheld funds must be paid to schools in June. The rest of the total could be paid in July.

"The next big bottleneck is in August and September," Megna said, adding that tax revenues have recently improved slightly, which is a slight bright spot.

Democratic Governor David Paterson's $135 billion budget has not been enacted by the legislature though it was due on April 1.

Megna said that the longer the budget battle grinds on, the less time there is to wring out savings. Paterson and the Democratic-led legislature must close a $9.2 billion deficit.

They are feuding over how deeply to slash health and education programs. The legislature has enacted several short-term spending measures to avoid a shutdown.

Paterson, who is not running for re-election in November, is now mulling whether to lay off state workers. He expects to leave the final decision to his successor.


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Megna said layoff plans cannot be finalized until the state sees how many of its workers opt for early retirement under a new incentive plan.

About 4,000 to 5,000 employees took the last early retirement plan, he said. "We have to do at least as well as we did the last time," Megna said. Paterson's budget relies on getting $250 million of savings from the public workforce.

Megna did not completely reject a Senate Democratic plan to refinance tobacco bonds by replacing them with personal income tax debt, which likely would have lower interest rates.

"At this point, we're still listening," he said, adding that one advantage of tobacco bonds is that they are not state debt.

Further, Paterson has made it clear he does not want to borrow any money and "That's our starting point," Megna said.