N.Y. deficit

Vilifying corporate America over executive salaries and bonuses may be great populist politics, but it is adding up to a gaping hole in the state budget.

Barely two weeks after Gov. David A. Paterson released his proposed budget for the fiscal year starting April 1, the state's fiscal picture has worsened sharply. Most of it is attributed to a drop in Wall Street revenue.

Gov. Paterson foresees an $8.2 billion deficit in the next fiscal year, up $750 million from what he anticipated when he released his $134 billion spending proposal for next year. An estimated $400 million of the higher deficit is attributable to increased Medicaid costs, but much of it stems from lower revenues.

The state has collected about $400 million less than projected from last year's "millionaire's tax" tax on high-income New Yorkers. However, Wall Street's response to the national outrage over huge year-end bonuses has reduced state revenues by about $1 billion less than expected at the end of January.

"We know that the big guys typically pay us at the end of January," Robert L. Megna, state budget director, told the New York Times, referring to major banks and leading investment firms. "Last week, after the budget came out, they didn't pay us."

Restrictions on compensation forced on banks that accepted federal bailout funds have not only limited cash bonuses but also caused firms to alter how they pay their top executives in order to remain competitive. More companies are using restricted shares of stock that cannot be sold for a year or more and leaves it for recipients to decide when to pay taxes on the shares. Most have chosen to defer their tax obligations.

The changed compensation payments and the timing of the bonus payouts each account for about half of the tax shortfall, Mr. Megna said. The state could recover by April about half the taxes not paid by Wall Street. The rest could take two or three years to recoup.

But it doesn't end there. The lost income ripples throughout the regional economy with less spending on dining out, new clothes or new housing that sustains jobs and generates additional income and sales tax revenues.

Wall Street's losses are being felt by other state taxpayers who will make up for them.