Report: NY recession beginning, slow recovery expected

ALBANY, N.Y.

A fiscal analyst for Gov. David Paterson said Thursday a recession is beginning in New York and should continue into early 2009, followed by a slow recovery.

New York Budget Director Laura Anglin says that while the national recession should be short and relatively mild, New York historically starts later and lingers longer in economic slowdowns.

Some indicators and forecasts in a new report show New York's recession could rival the recession of the 1970s.

So what can New Yorkers do?

Anglin said taxpayers could help if they use their federal economic stimulus checks for new purchases, rather than to pay off old bills and sock away in savings.

"We're concerned the worst is yet to come for New York," she told reporters Thursday. Although state income tax collections ended up much higher than expected by April 15, that was the result of profits from buyouts and other investments from the relatively hotter early part of 2007. It's not expected to be repeated, she said.

The annual report came as a poll shows most New Yorkers already are tightening their belts. The Siena Research Institute poll released Thursday found 80 percent of New Yorkers plan to cut back on the amount they spend on their summer vacation because of gas prices.

The Siena College poll also says 14 percent of New Yorkers are behind on their bills because of rising fuel prices, a driving force in what economists say is an all-but-official recession. Half of New Yorkers say they are cutting back on restaurant dining and a third are delaying home repairs, which could worsen an impending recession.

"New Yorkers should know we're aware of that, and that the state has to do the same thing," she said.

The report backing up Paterson's call for Albany to tighten its own belt served as a warning to the Legislature that state government spending growth -- which has been around 10 percent a year -- must be cut drastically.

Anglin says that unlike past years, eventual increases in revenue will no longer be enough to avoid billions of dollars in deficits because the state is spending so much.

She said the current budget, adopted in April at $121.6 billion, filled a $5.2 billion deficit -- higher than what was revealed before the budget was passed a week late.

She said the 2009-10 fiscal year is projected to have a $5 billion deficit, the 2010-11 budget is projected to have a $7.7 billion deficit, and the 2011-12 fiscal year is expected to have an $8.8 billion deficit.

Those deficits rival the shortfalls after the Sept. 11, 2001, terrorist attacks and are higher than most past years' gaps.

And while the post-2001 downturn was forced by a terrorist attack in lower Manhattan, the current and projected deficits "are entirely due to spending," said E.J. McMahon of the Empire Center for New York State Policy, part of the fiscally conservative Manhattan Institute.

"The only way to get out of this is for the people who got us into this mess to fix it, to clean up what they did," McMahon said.

History gives two examples: Former Gov. George Pataki cut spending and taxes which helped revive the economy in the mid-1990s; but the Legislature, with Pataki in office, raised taxes and spending after 2001. McMahon said that prolonged for years a recession that could have ended in six months.