[Guest post by DRJ]
New York State has run out of money:
“As he has threatened, Gov. David Paterson on Sunday said he is withholding $750 million in local aid that had been scheduled to go out starting Tuesday. The move was prompted by a looming shortfall for the current fiscal year that’s estimated to reach between $500 million to $1 billion.
The delays include more than $500 million in scheduled school aid payments and $112 million to cities and counties. Additionally, the governor will hold back $47 million set to go to health insurance firms that cover state employees. That change, however, should have no direct impact on those workers.
“I can’t say this enough: The state has run out of money,” Paterson said during a news conference in New York City to announce the move.”
Paterson describes this as a cash flow problem and says these are payment delays, not cuts, although they may be made permanent if the Legislature doesn’t act:
“The Legislature, under pressure from powerful teachers unions and school lobbyists, refused to cut any school aid midyear. School officials contended the midyear cuts would force layoffs and hurt instruction.
“The question is, who is going to wake up and face reality and who is going to continue sleeping on the job?” Paterson said.”
Some municipalities and local governments may have to borrow to cover short-term deficiencies. I’m not familiar with how New York financings work but in theory that won’t be good for their bond ratings.
UPDATE 12/16/09: Paterson’s polls aren’t great but his tough budget talk has reportedly helped his standing with New York voters.