New York Local News

NEW YORK (CBS/AP) ― The meltdown on Wall Street has dealt New York state a $1.2 billion shortfall in the current fiscal year -- even after budget cuts over the summer -- and pushed unemployment levels above 6 percent.

New York Gov. David Paterson and Legislative leaders discussed the stumbling economy and its impact on the state during a meeting in New York City on Friday.

"We're going to have to take drastic action," Paterson said, referring to cuts needed this year and for the 2009-10 fiscal year beginning in April.

At the end of the meeting, Paterson said he would risk his friendship with legislative leaders by saying publicly what politicians would normally only say in private:

"I don't think we get how serious this problem is," Paterson told legislative leaders, noting the executive branch has already cut $1.5 billion.

"What we have to do now is cut from the Legislature," he said. Then he demanded to know specifically what the lawmakers would do to cut substantial spending.

"This is an emergency, this is one of the times you can't wait for all the statistics to come in," Paterson said. "You have to feel it and you have to respond to it."

The legislative leaders bristled a bit at that.

"I think you're being a little unfair in lecturing us," said Republican Senate Majority Leader Dean Skelos of Long Island. "I know what my responsibilities are." He then got Paterson to "stand firm" on a pledge not to raise taxes.

"The lecture part was unfortunate," Skelos said. "I don't need to be lectured."

"I apologize if I hurt your feelings," Paterson said, adding that the legislative leaders need to act faster and cut deeper than they have previously.

Paterson said he expects the deficit to grow to $2 billion by the end the fiscal year in March. He called for a special emergency session of the Legislature on Nov. 18, two weeks after elections so lawmakers won't have to consider cutting politically sensitive spending like school aid before voters go to the polls.

Paterson said lawmakers will likely need to convene on additional days after that and predicted a difficult negotiating meeting leading up to the Nov. 18 session.

Assembly Republican leader James Tedisco said his honeymoon is Nov.
14 and asked what he should do.

"Whatever you were going to do in seven days, do in four days," Paterson shot back.

Paterson, a Democrat, said he is trying to avoid a downgrade of the state's credit rating, which would make borrowing far more expensive for the state.

A report from the Division of the Budget said unemployment statewide is the highest it's been since 2001, after the Sept. 11 terrorist attacks.

Paterson also said Wall Street bonuses could be down 60 percent this year. Twenty percent of New York revenues come from Wall Street and the huge bonuses are a big part of it.

"This has the potential of hitting deficits we've never seen before," Paterson said, calling the future an "economic blood bath."

Skelos warned against "acting hastily by cutting spending in the wrong areas ... or enacting job-killing tax increases." He said the state shouldn't shift the economic burden to local school districts or local governments, which would increase property taxes that are already the nation's highest.

"You are acting in a very bold and definitive way," Skelos told Paterson. Skelos pledged the Senate's support.

"We need to act," said Democratic Assembly Speaker Sheldon Silver of Manhattan. "Delay will only put off the inevitable."

Silver pledged a bipartisan effort with the Senate to get to work earlier than usual on the 2009-10 budget.

Paterson had said he wanted to adopt a budget before the April 1 deadline in part to show credit raters that the state was dealing with the economic crisis.

"We also need to insist that government does more to help middle class people and small business people," Silver said. "It is precisely times like this that government must step in." He called for help for business operators and for people to pay home heating bills.

"We will be prepared for Nov. 18, that special session," said Senate Minority Leader Malcolm Smith, a Queens Democrat. "We are prepared to make very tough choices and when we do make those choice we will do them in a bipartisan way ... to lead this state into a new era."

"New York state has always risen to challenging times," he said.

(© 2009 CBS Broadcasting Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.)