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Paterson withholds school aid payments; suit likely

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

School districts will take the biggest hit, receiving 10 percent less in state aid and 19 percent less in STAR property-tax reimbursements for December. Many districts are likely to raise property taxes next year to pay for borrowing or to replenish reserve funds used to make up for the delayed payments, said a spokesman for the New York State School Boards Association.

The boards, together with the New York State United Teachers union and others, believe Paterson's move is unconstitutional. A lawsuit could be filed as early as Monday.

Others receiving less in state funds this month include Long Beach, Glen Cove and other cities, and counties such as Nassau and Suffolk that are owed for providing welfare, foster care and other services for the poor. Health insurers also will see smaller premium payments for coverage of state workers.

Paterson defended reducing this month's $4.9 billion in state payments, saying not doing so would produce $1 billion of red ink in the general fund by Dec. 31. He blamed the State Legislature for failing to completely close this year's deficit of $3.2 billion.

"This is tragic that we're put in this situation. . . . This state is projected to be insolvent by the end of the month, but because of the . . . [delayed payments] we are making today that will not happen," Paterson told reporters at his Manhattan office. "I will not let this state run out of money on my watch."

If tax collections pick up in January as expected, Paterson said he would try to pay the postponed funds or recommend to lawmakers that the fundsbe eliminated in the next budget.

Foes think money's there

The school boards association and 600,000-member teachers' union have questioned whether Albany's cupboard is really bare, saying federal stimulus money and uncollected taxes could forestall postponing payments.

There also is concern about a second round of reduced payments next year, which Paterson wouldn't rule out Sunday.

"I think you will see higher tax increases than you would have seen if the governor hadn't done this," association spokesman David Albert said.

Midyear reductions in school aid haven't occurred since 1990, when Mario Cuomo lived in the Executive Mansion.

The school boards, teachers' union and their allies "are looking at our legal options," said union spokesman Carl Korn. Sources familiar with the groups' legal strategy said a suit would probably come early this week because school aid payments are due Tuesday.

Is move unconstitutional?

The union, Korn said, believes Paterson is violating the constitutional prohibition against unilaterally making changes to spending approved by the legislature. He cited a 1980 decision by the state's highest court saying the governor isn't required to keep the budget balanced if the state's finances are deteriorating.

Paterson shot back that he was acting appropriately by using a certification provision in the budget whereby the budget director confirms the state has sufficient funds before the comptroller can make payments.

School aid is being lowered temporarily by $146 million, or 10 percent, from a total of $1.5 billion owed this month to 700 districts statewide. They also will receive $436 million less, or 19 percent, of $2.3 billion in STAR property-tax reimbursements.

Cities will see $45 million trimmed from $450 million in revenue sharing. For Glen Cove, that's a $280,997 reduction of a $2.8 million payment. Long Beach will receive $36,727 less than the $367,272 it is due.

Peter Baynes of the state Conference of Mayors said, "Cities will now have to incur the costs of borrowing funds to pay their bills . . . rather than solving the state's deficit, this is a shifting of the problem onto another level of government with even less fiscal capacity."

Still, economists doubted Paterson could have avoided delaying payments. Tax collections have plummeted in the recession, while rising unemployment has increased spending on welfare.

"This is painful, but it's the prudent course of action," said Elizabeth Lynam of the nonpartisan Citizens Budget Commission. "The governor and the legislature now need to be thinking about next year because the deficit is much larger, $6.8 billion, and spending levels have to be reduced significantly."

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