Tags: new | york | bankruptcy

Is New York Headed for Bankruptcy?

Friday, 27 Nov 2009 01:44 PM

By Dan Weil

New York’s cash reserve is dwindling quickly, and the state faces a crisis if it doesn’t address its budget woes soon.

If the government can’t reach a budget agreement by Dec. 31, the state’s cash reserve will total only $36 million, and that’s only if the state dips to the bottom of its emergency reserve.

New York’s budget deficit totals $3.2 billion.

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Democratic Gov. David Paterson has urged the legislature to deal with the gap. But with public support for him virtually non-existent, his words carry little weight.

On the bright side, New York’s legislature is famous for waiting until the last minute to address budget problems. So many legislators and outside experts predict the government will act before it’s too late.

In addition, Wall Street bonuses are paid in January, and the state will receive withholding tax revenue from those payments.

But given the lack of progress in negotiations so far, state officials are readying for a cash crisis.

Some government services may have to shut down if no action is taken.

“Unless we act, New York will run out of money, even after we delay payments to schools and local governments,” Patterson said in a web cast Tuesday. “This is an unprecedented fiscal emergency.”

Credit rating agency Moody’s Investors Service wrote in a report last week, “The next three months will be critical to the state’s credit rating.”

Moody’s analyst Emily Raimes told The New York Times, “If they solve them [the budget deficits] with one-time measures, that’s going to increase the gaps in future years, and at some point they get so large it becomes difficult to solve them.”

California is in even worse shape than New York. The golden state’s budget deficit will soar to $20.7 billion over the next 18 months, according to a new report from the nonpartisan Legislative Analyst’s Office.

That’s nearly triple the estimate of just four months ago, and the office says $20 billion deficits will likely be the norm for years.

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