Paterson delays $750M in payments; schools hardest hit

December 13, 2009 by JAMES T. MADORE / james.madore@newsday.com

With New York running out of money, Gov. David A. Paterson today delayed $750 million in state payments to school districts, cities, counties and health insurers.

The reductions equal between 10 percent and 19 percent of the $4.9 billion in state money owed to the recipients, depending on payment type.

School districts will be hit particularly hard.

Of the $1.5 billion in school aid expected on Tuesday, districts will receive $146 million less, or a 10 percent reduction. There hasn't been a midyear trim to school aid since the early 1990s under Gov. Mario Cuomo.

Schools also will receive $436 million less, or 19 percent, of the $2.3-billion STAR property-tax reimbursement due the week of Dec. 28.

"The money isn't there, that's why we have to do it," Paterson told reporters in Manhattan. "If we didn't do this, people wouldn't get paid at all."

Asked about the impact on schools, Paterson said he hoped they would dip into reserves to limit the impact on students. "School districts have reserve funds - they can absorb these cuts," he said.

Last week, the 600,000-member New York State United Teachers union, school boards and others vowed to file a lawsuit to stop Paterson. They said he couldn't unilaterally withhold payments that had been approved by the legislature.

Paterson shot back today that he was abiding by constitutional restrictions by delaying payments, not rescinding them. He said the state's general fund - which excludes federal grants - would have a deficit of $1 billion this month if all bills were paid in full.

The payment delays also affect cities, towns and villages. They will receive $45 million less, or 10 percent, of the $450 million due Tuesday. Counties will receive $76 million less, or 19 percent, of the $398 million owed to them for services provided to the developmentally disabled and others.

The state also is delaying $47 million of the $247 million owed for health insurance benefits to state employees.

Budget director Robert Megna said some of December's bills, most notably Medicaid, aren't being delayed because to do so would reduce federal matching dollars to New York.

Megna also said the payment delays only impact state funds, not federal grants that Albany passes directly on to localities and others. If all funds are included the state's bills total $11.7 billion this month and it probably will have a surplus of $36 million on Dec. 31.

Paterson wouldn't rule out future payment delays but said he hoped tax collections would pick up in January. He held out hope that the reductions would be paid in full by the end of the fiscal year on March 31.

He said, "If revenue comes back we would replenish the entities we've had to reduce today."

In addition to delaying state payments, Paterson also plans to borrow $250 million from the state's short-term investment pool to cover the general fund's remaining shortfall.