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ALBANY (CBS/AP) ― New Yorkers have been hit from all sides -- the failing economy, Wall Street layoffs and some of the highest taxes in the nation. Now their governor is warning that the hardest choices have to be made as the crisis worsens and they also face rising unemployment and cuts in wages.

Gov. David Paterson said the recession, overspending by the state and Wall Street's meltdown will result in a $47 billion deficit over the next four years if nothing is done. From a budget of just more than $120 billion, the state just has $54.9 billion left to spend this fiscal year.

Paterson said New York will need federal funding before the situation looks up and he will testify at a Congressional Ways and Means Committee meeting this week that the nation needs a second stimulus package.

Paterson said his administration projects more than 160,000 New Yorkers will lose their jobs during this downturn and the unemployment rate, now 5.8 percent, will reach 6.5 percent. He said personal income is projected to decline 1 percent in 2009 and wages will drop 2.1 percent. By comparison, he said personal income rose 6.5 percent and wages grew 8.6 percent in 2007.

He says the current budget's shortfall is $1.5 billion and the next fiscal year beginning April 1 will include a $12.5 billion deficit. A month ago, the current deficit was estimated at $1.2 billion. Paterson is calling on Legislators to find $2 billion in spending cuts to avoid the deficit this year.

"There will be hard and painful cuts -- there will be no segment of this budget that will not be cut," Paterson said.

The challenge for lawmakers will be to find recurring cuts instead of a series of "one shot" infusions of cash that won't make a difference in deficits projected for next year. Spending for the 2009-2010 fiscal is projected to increase 11.9 percent at this point, while revenues are expected to drop by 5.8 percent.

"Recurring spending reductions that occur in the final quarter of this year could have savings next year between $2 billion and $8 billion," said E.J. McMahon, director of the fiscally conservative Empire Center for New York State Policy, a project of the Manhattan Institute.

But the state made commitments to increase spending in years past when the economy was performing better and Wall Street was funneling more tax money to the state. Schools are promised another $2 billion increase in spending next fiscal year, and Medicaid has a $1.6 billion increase on the way. State school aid is now more than $20 billion a year and per-pupil spending -- as a statewide average -- is among the highest in the nation.

Paterson has called for a special Legislative session on Nov. 18 to address the fiscal woes. He says lawmakers have agreed to propose $2 billion in cuts.

One of Paterson's strongest tools in the fight for budget cuts is a freeze on state hiring, but it may not be enough to fight unions and special interests, said Elizabeth Lynam, deputy research director for the Citizens Budget Commission, an independent fiscal and government watchdog group. Paterson and officials in his office have met with union leaders in all sectors.

"It really is important for the governor to get organized labor to the table, they need to be part of the solution," Lynam said.

An analysis by The Buffalo News found that state agencies have hired 31,684 people since Gov. David Paterson imposed the hiring freeze July 30, though 24,730 were for the fall semester in the state and city university systems, which were excluded from the freeze. The state Division of Budget said the overall trend has left the state with fewer employees.

"We're now actually anticipating a decline in the work force," Budget Director Laura Anglin said.

Senate Majority Leader Dean Skelos said he objects to cuts in aid to schools and local governments, as well as increases in taxes. He did not say what areas he would consider cutting, but said he would work with the governor and Assembly.

"We will not shrink from tough choices," Assembly Speaker Sheldon Silver said in a written statement. "We will need to tighten our belt and make deep cuts in spending. At the same time, we must ensure that the burden of New York's fiscal crisis is not borne exclusively by working families and the middle class."

"Spending cuts alone are not the answer," Senate Minority Leader Malcolm Smith said in a written statement.

Paterson's dire budget announcement came the same day state Comptroller Thomas DiNapoli said New York's public worker pension fund has lost about 20 percent of its value -- almost $31 billion -- since April 1.

Meanwhile, the state Association of Small City School Districts announced Tuesday it will sue the state for more funding, similar to the way New York City schools sued to get billions of dollars more in operating and capital funds.

(© 2009 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)

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