Despite a "dismal" record in office, David Paterson (along with another predecessor, George Pataki) "helped blaze the path that Cuomo followed," wrote the Post's state editor, Fred Dicker, who had previously accused Mr. Paterson of lying about everything from smearing Caroline Kennedy to accepting free World Series tickets.

The ironic circumstances of this minor correction to the legacy of the former governor--who left office with a 32 percent approval rating--by one of his fiercest critics is not lost on Mr. Paterson himself.

"Oh my Lord, there is a God," Mr. Paterson laughed upon being told of Mr. Dicker's grudging praise on Tuesday afternoon.

Last year, long after Mr. Paterson had ceased to be a credible candidate for governor--but while he still had seven months left in the term he was serving as Eliot Spitzer's replacement--he and his budget director stumbled upon a strategy for forcing its budget cuts upon the recalcitrant Legislature: If legislators wanted the money to keep state government afloat while they debated their own budget well past the April 1 deadline--through the so-called "extender bills"--they would have to approve Mr. Paterson's reductions.

For four heady weeks, Mr. Paterson was on the offensive against a Legislature that had taken to ignoring him, and was able to ram through a package of corrective cuts, followed by a big omnibus extender that finally prompted the Legislature to write its own budget, much of which he selectively vetoed.

It was an amazing thing to be a part of, apparently.

"It was a game-changer," Mr. Paterson said. "It really shocked everybody."

And it had come about because of a miscommunication, after his budget director, Robert Megna, suggested that his stopgap measures were already stripped down.

"So one time I said in a radio interview--about a month and a half late--that people shouldn't worry because it's a bare-bones budget and we're getting cuts now," Mr. Paterson explained. "In other words, we're already reducing spending even though we haven't passed a budget yet.

"So Megna calls me up and says, 'You can't say that because that's not exactly what we're doing.' He said, 'We're just not adding anything.'

"So I said, 'In other words, we're continuing the same spending level?'

"He said, 'Yeah.'"

This bothered Mr. Paterson, who would now have to squeeze a year's worth of cuts into almost 10 months.

"I said, 'Well, why can't we put the cuts in?'" he recalled.

Mr. Megna, according to Mr. Paterson, cautioned that the tactic had never been tried before.

"In my interpretation of Albany, when someone says that, it means it's time to do it," Mr. Paterson said.

The administration vetted the idea through their legal counsel, which researched the history of extenders in the context of the broad authority granted the governor under the Silver v. Pataki decision in 2004.

It looked legal enough.

So, emboldened by a prior win in his fight to appoint a lieutenant governor, and having already decided not to run for reelection, Mr. Paterson began including them.

On Sunday, in the Red Room of the Capitol, Mr. Cuomo announced his deal to close a $10 billion budget deficit, an agreement he was able to compel the Legislature to accept in no small part because of the threat of using the Paterson-conceived budget-extender trick to threaten a government shutdown for which the lawmakers would almost certainly be blamed.

"It's almost like [Paterson] snuck in this strengthening of the governorship, right at the end," said Doug Forand, a longtime adviser in Albany, who is now working on behalf of rent regulations. "And this is his legacy item. This is the thing above all else, coming off his tenure as governor, that is going to change how Albany does business, and I'm not sure it was intended to be that."

This year, in the hands of a powerful executive with staggering poll numbers, the game of chicken devised by Mr. Paterson wasn't much of a game.

In private conference meetings, Assembly Speaker Sheldon Silver urged his members to take the meager restorations Mr. Cuomo was offering rather than test the mettle of the popular governor.

Some legislators objected to the strident focus on such a hard-and-fast deadline.

"I think it's important for people to understand that timeliness is not the most important thing about a budget," said Dick Gottfried, one of the longest-serving members of the Assembly. "I think the substance of the budget is at least as important."

Although Mr. Gottfried said he planned to vote for the budget, he worried about the shifting power dynamic.

"I think 200-plus years ago, the Founders had a pretty good idea about balancing power in the government," he said. "I think the Silver v. Pataki court decision and its aftermath has really undermined the checks-and-balances concept."

Mr. Paterson said he agreed with that kind of criticism, at least in theory.

"I actually think, believe it or not, as the architect of this, that they're right," said Mr. Paterson, who cited the chronically late budgets as a "catalyst" for the public's negative opinion of Albany. "This isn't the best government; I actually think it's a blunt instrument. ... But these critiques are coming out of the mouths of people who were willing to let the budget go until August of last year. And now they're going to give us a lecture on government?"

"It's kind of nuclear deterrence," said Carol Kellerman, president of the Citizens Budget Commission, who said Mr. Paterson would be an "unsung hero" if Mr. Cuomo's budget deal does get certified on time.

Whether history will sing Mr. Paterson's praises is another matter.

"Someone is floating that it's all Cuomo's idea," noted Ms. Kellerman, "which shows how great it is, that now everyone is trying to take credit."

Ms. Kellerman was referring to Monday's New York magazine cover story, which reported that the current governor had been working through Mr. Paterson even before taking office, and had "quietly encouraged" the outgoing governor to set a precedent he could use to balance future budgets.

That was news to Mr. Paterson.

"Nobody knew that we were going to do this," he told The Observer. "Nobody suggested this to us. This is just something we did."

For his part, the former governor says he found Mr. Cuomo's new-and-improved use of his extender tricks to have been masterful.

"He's gone through the entire budget process, which usually cuts everyone down to size and he's still prevailing," Mr. Paterson said.

The two have spoken a handful of times since Mr. Cuomo took office, and Mr. Paterson insisted there are no hard feelings, even though the two were briefly rivals.

Now that the "rumors and innuendo" have faded, Mr. Paterson sensed that people might be able to begin considering his own record as a government official, "rather than as a cartoon character in the newspapers."

"When there's a great deal of scrutiny on a lot of things, as there was with me, it blurs some of the areas that you would like people to focus on," he said. "And you know, perhaps with risking a second glance, there were a number of things that we were able to accomplish that will stand for a long period of time."

Mr. Paterson said he began to feel a growing goodwill even before he left office. In the fall, he was at the Crossgates Mall in Albany with some longtime friends who were surprised at the number of people who wanted photographs and autographs, despite all the governor's bad press.

"This one kid comes up and he's looking at me and he shakes
my hand, and I don't see anybody with a camera," Mr. Paterson said. "And he says, 'Hi, how are you?' And I said, 'I'm fine how are you?'

"And he says, 'You're Mr. Cuomo, right?'"

rpillifant@observer.com

Acknowledging he hadn't yet done much introspection, he took a Chris Christie-esque line—albeit with less zeal—and pointed to his proven record as a budget slasher:

"In the last two and a half years that I've been governor, we have cut nearly $43 billion off of our deficit. There is no three-year period where we even cut a third of this. It doesn't make you popular, it doesn't exactly instill a feeling that you can spend money on projects so that you can go around and claim victory. But it does present the next governor with a far more balanced budget and a debt reduction than many governors around the state are going to get in the beginning of 2011."

He also talked about his unfinished business—a property tax cap—and then had a classic invented idiom: "I think we're on the right track, now we just have to get on the right train," he said. 

Speaking to the governors on Sunday, the co-chairman of the National Commission on Fiscal Responsibility and Reform, Erskine Bowles and Alan Simpson-formerly chief of staff under President Clinton and Republican senator from Wyoming, respectively-described the current direction of public finance as "a cancer ... that will destroy the country from within." While their comments may have been in reference to the precarious state of federal finances, the states' predicaments are already at the fore.

Here in New York State, a multibillion-dollar gap between projected revenues and expenditures has resulted in a drawn-out and piecemeal adoption of the fiscal year 2011 budget. A revenue bill is still outstanding, but the timeline for its passage is undetermined. As my colleague Bob Knakal described in his mid-June Concrete Thoughts column on Albany's budget process, "[W]ithout a state budget in place, municipalities are unable to set their own budgets with confidence, as the level of the state's contribution is uncertain."

Clarity on the state budget is necessary for an effective local budgeting process. Similarly, how effectively the state addresses the budget gap-and whether the remedies help or hinder business and household growth-is critically important for the health of the New York City economy and our commercial real estate sector.

The States of the States

According to the Fiscal Survey of States, 46 of 50 states are on track to report fiscal year 2010 revenues below their originally proposed budgets. Only two states, Florida and Virginia, have bucked the broader trend. In Florida, corporate tax collections have exceeded original projections by almost 15 percent. In both states, additional spending cuts were still required after the adoption of the 2010 budget.

In spite of the nascent economic recovery, many states face more difficult budgetary choices in the next fiscal year than in the last. Thus far, federal transfers of $135 billion authorized under the American Recovery and Reinvestment Act have offset shortfalls in state tax revenues. Roughly two-thirds of the federal support was for Medicaid; the balance, for education. Even then, 37 states, including New York, cut education spending to the tune of $7.8 billion in 2010. New York was also among the 30 states cutting Medicaid spending by $1.5 billion.

The benefits of the Recovery Act support will taper off in 2011, exposing states to the full extent of their budget gaps. Persistent unemployment will undermine growth in sales and personal income taxes. Together, these two inflows account for almost 75 percent of general fund revenue. Corporate tax revenues will exceed projections in some states, but are a relatively small 8 percent of total state revenues.

In all, combined state revenues from sales taxes and personal and corporate income taxes in 2011 are projected to fall 8.4 percent below their 2008 peak levels. To close the gap, and apart from idiosyncratic cuts in each state, 34 states will cut education spending in 2011; 20, public assistance; 26, Medicaid spending. As of the governors' most recent update, planned cuts still leave $62.3 billion in deficits unresolved.

Why Does It Matter?

In a recent briefing note, Mark Muro, policy director at the Brookings Institution's Metropolitan Policy Program, points out that "federal, state, and local government can make up 17 or 18 percent of a state's or metro's employment. Local government alone accounts for one in 10 nonfarm jobs in large metros."

In New York City, government payrolls account for 15 percent of all jobs, exceeding financial services in number of jobs, though not in dollar value of payrolls. Expanding the scope of jobs dependent on some level of state and local funding to include education and health services, the relevant share expands to 36 percent of the city's jobs. In the most basic analysis, the rebalancing of state and local budgets will mean workforce cuts that sap local demand for a wide array of goods and services.

Painful job cuts aside, budgetary rebalancing is even more important because of its implications for the long-term health of the local economy. Closing the budget gap inevitably means some combination of higher taxes and diminished services. The states and cities that find the most efficient balance of taxes and services will, in the long run, outperform their less efficient nearby peers. Charles Tiebout (famous among urban economists for his 1956 paper "A Pure Theory of Local Expenditures") outlined the basic conceptual framework still used in thinking about tax and service efficiency in local competition for jobs and residents.

New York's choices must be evaluated against measures taken elsewhere. In this regard, Albany has proven a weak steward of the state's and city's futures.

If New York City is to prosper in the long run, our elected officials must find dramatically more effective ways of working together when confronted with difficult choices.

schandan@rcanalytics.com

Sam Chandan, Ph.D., is global chief economist and executive vice president of Real Capital Analytics and an adjunct professor of real estate at Wharton.

This year, the Council approved about $375 million a year in city spending for such additions, which typically go to schools, museums, and non-profit groups toward capital investments like new buildings, renovations, supplies or other infrastructure.

Council Speaker Christine Quinn has the most at her personal discretion out of her speaker pot, and more senior members seem to be bigger winners than the incoming members.

The full list is on the Office of Management and Budget's website, and here's a list of some of the biggest beneficiaries, along with a few other groups of interest (listed by the receiver of the funds; the amount; and the sponsor Council member):

Irish Arts Center; $7.5 million over three years; Christine Quinn

New York Shakespeare Festival; $4 million; Manhattan Delegation

Whitney Museum; $4 million over two years; Quinn

Manufacturing and Industrial Investment Fund; $10 million; Quinn

Brooklyn Public Library; $8 million; Brooklyn Delegation/Quinn

New Westchester Square Branch Library; $8 million over four years; James Vacca

Queens Public Library; $7.5 million; Queens Delegation/Quinn

New York Public Library; $10 million; Quinn

Abyssinian Development Corp.; $1 million; Inez Dickens

Ridgewood Bushwick Senior Citizen Council; $1.8 million; Steve Levin/Domenic Recchia/Brooklyn Delegation/Quinn

Urban Homesteading Assistance Board; $3 million; Quinn

But the criticisms were usually delivered with the disclaimer that the plan had its good individual elements. And even as it became clear the plan as a whole was unlikely to be approved, there was an emerging consensus on at least one point: Democrats in the Senate and Assembly both voiced support for a move to GAAP budgeting, a widely accepted superior system of bookkeeping. The Assembly passed it as part of its own budget package, and a set of key Senate Democrats announced a budgetary reform package of their own in April, GAAP included.

But even the relatively slight measure of GAAP—at least when compared to some of the other elements of the Ravitch plan—was apparently too much of a jump for Albany.

Last week, as the legislative session ended for the season—save the minor detail of a fully balanced budget—legislators left town without passing any major elements of budgetary reform, GAAP included.

Of course, while proposals such as GAAP are hailed by fiscal advocates and good government groups, they are not loved by everyone. GAAP is a budgeting format that ties the hands of lawmakers in some decisions on the budget—it limits the number of gimmicks that have long been used to balance a budget—something that legislatures are never eager to bring upon themselves without some sort of added benefit elsewhere.

One need only look at the revenue package proposed by the Senate and Assembly leaders to understand this. That package contains a plan to put off paying numerous tax credits to businesses until 2013, deferring $100 million in payments this year. In the state's existing method of budgeting, that $100 million actually appears as a savings (allowing for a "balanced" budget), while, in reality it is simply putting off a payment, and, under GAAP, would be counted as such (according to multiple people familiar with GAAP).

The Assembly did not simply agree to GAAP on its own, and voted for the new restrictions only when they were coupled with a carrot: an allowance of $2 billion in borrowing.

"We were willing to adopt all these changes as part of the package," said Dan Weiller, a spokesman for Assembly Speaker Sheldon Silver. "They were included in our Assembly budget proposal. The assembly voted to approve all of this."

The Senate, which did not display the same alacrity for borrowing, never ended up voting on its budget reform package, as there apparently was not the support in the chamber.

Katie Kincaid, a spokeswoman for State Senator Liz Krueger, who was spearheading the package in that chamber, last week said the Senator is behind the budget reforms "either as an entire package or as free standing pieces. Either way, these reforms will go a long way in fixing Albany's broken budget process."

In theory, this is supposed to encourage an on-time budget.

Not enough, apparently.

With a budget now nearly three months late, the state has withheld $4,212,114 in pay to legislators. According to figures from the state Comptroller's office, $702,019 is withheld every pay period, and today marks the sixth round of forgone paychecks. For the Assembly, this includes a base salary and lulus for committee chairs and leadership posts, although the Senate hands its lulus out in checks and thus just the salary has been withheld.

So why doesn't it work?

Many of New York's 212 legislators have other jobs to supplement income, for one.

And, as Carol Kellerman, president of the Citizens Budget Commission points out, it would be pretty easy to get a loan given that one can assume that, eventually, a budget will be passed.

"They can borrow, they can get loans from friends, and I think banks are willing to loan on this," she said. "So it's not that much of a deterrent."

And finally, not all pay is withheld. Based on the law from 1998 (which was tied to a legislative pay raise), legislators still get per diems--late budget or not. (Per diems are separate from salary--they are reimbursements that legislators submit for days in Albany).

As of Thursday, that meant that $1,156,353.84 has been paid out to legislators since April 1 in per diems, according to a spokeswoman for the Comptroller's office. 

In debate in the Senate Chamber this evening, Diaz made very clear he would not vote for an emergency bill that contains cuts, making it look like Democrats, with a slim control of the Senate, will need Republicans for every week until the budget is done.

Just in case anyone thought he wasn't serious, Diaz reiterated his point - over and over.

"I said it last week, I'm not voting anymore. And people said, 'Oh, he's gonna vote, he's going to vote,'" he declared. "Listen to me, ladies and gentlemen, I'm not voting for cuts. Not today and not next week.

"We're at 62, I'm only one vote, so don't put that on me. I'm a Democrat, as a Democrat, I will fight for services," he continued. "I will not cut more benefits to the people that send me here, and I'm willing to take the consequences."

His floor speech was full of other fun tidbits: He voted for last week's budget a day after leaving the hospital, where he said Senate Democratic leader John Sampson came to see him, asking him to vote on the budget extender. (He also said Sampson calls him "Red.")

"I said Senator, I'm here in the hospital, they haven't even found out what I have yet," Diaz said. "He told me, 'Red, we need you Monday.'"

Diaz voted for those cuts, but this round apparently is too much (he said today's vote is his wedding anniversary, incidentally).

His solution?

Some of the typical revenue raisers that usually are too good to be true, and, even if true, would not go far enough to close the gap: collecting taxes on cigarettes sold on Indian reservations, and buying pharmaceuticals from Canada.

"If it is not illegal for the city of Schenectady," he said, referencing a city that buys drugs from up north, "it cannot be illegal for the state."

The bill, introduced by Housing Committee Chairman Vito Lopez, comes as many tenant advocates had been requesting, in the very least, that the Legislature reauthorize the existing laws some time this year. "People have been asking for us to get the extender in, and take it beyond next year," Mr. Lopez said via phone. "Some of the housing advocates wanted it; we're responding to them."

Mr. Lopez's action comes in response to the uncertainty looming in the Senate—Democrats currently control it, but Republicans could conceivably retake it come November. Tenant advocates therefore worry that rent regulations could be weakened if reauthorized next year rather than now. Republicans have generally opposed rent control and rent stabilization, while Democrats have pushed for stronger regulations.

Whether or not the bill can get through the Senate is another question, and at this point it seems unlikely. Either way, it will be answered in the next few weeks, as the legislative session ends this month (although there's still no budget, which was due in March). As on most any other contentious issue, the chamber has been torn on rent issues, primarily between two factions: those allied with the tenant advocates—Manhattan Democrats like Liz Krueger and Tom Duane—and those who are skeptical or against expanding rent regulations, such as Majority Leader Pedro Espada and Carl Kruger. The result is a stalemate in which few significant housing bills get passed (although the perennial push for the Loft Law, also sponsored by Mr. Lopez in the Assembly, was finally successful this year, as the Senate and Assembly both passed the bill).

Also in the mix on rent regulation is the governor's bill on the issue, one that is pushed by his housing chief, Brian Lawlor. That bill would extend rent regulations this year as well, but with some modifications, including raising the rent level at which a vacant apartment converts to market rate, to $3,000 a month, up from $2,000.

There have been some talks and negotiations between the legislative houses and the governor's office on that bill, and there has been discussion of including it in the budget, likely assuring its passage should there ever be a budget. Mr. Lopez said the governor's office is currently modifying the bill. 

ebrown@observer.com

Espada, who has injected fear into the Capitol by threatening to vote against a must-pass budget extender Monday, told me late this morning that he has been "assured" major cuts to health care and education will not be included in the extender, and expects to vote "yes," based on the information he has so far.

"We've seen the language that's going to be used for the extender, and it will not include major cuts" to the services that he has resisted cutting, he said.

He continued:

"The negotiations are going on now--I was updated on that--I know staff has draft language. I don't have it, but the bottom line is, the report around the table that I've just received gives me crystal clear and great confidence that our next extender will be our last extender."

Espada also said—repeating a line he said on TV this morning—that a budget is not all that far off, and could come as early as next week. "We're making great progress toward getting a budget deal done," he said.

(The governor didn't seem to agree this morning, calling Espada's summary of budget talks "obtuse.")

I've reached out to the governor's office for comment.

Austin Shafran, a spokesman for Senate Democratic leader John Sampson, suggested in a statement that negotiations are focusing on avoiding major cuts in Monday's extender:

"Working with the Assembly and Governor, we are making substantial progress toward a final and fair budget which would nullify the need for a broader reaching emergency appropriation next week."

Speaking on The Brian Lehrer Show, Paterson responded to Espada's statements that he would not vote for cuts that are slipped into weekly emergency budget extenders, and that a budget deal is close—with only a gap of about $1 billion to close.

"That is absolutely incorrect—that is so obtuse," Paterson said. "That is a gimmick designed to make everyone think everything is fine. He should have been an orchestra soloist on the Titanic."

Violinists-on-sinking-ship references aside, Paterson had five radio appearances scheduled for this morning, part of an effort to highlight the logjam he's currently in with the Legislature, as it's unclear whether there will be enough votes in the Senate  on Monday to pass the weekly extender. Without the extender, state government would shut down, a first in New York's history.

Espada, Senator Ruben Diaz and the Senate Republicans have said they may vote against the budget extender, as the governor has started to include some of the less contentious cuts into the weekly legislation. The Senate would need all 32 Democrats or some Republicans to vote in order to pass the bill. Seeing the slim margin, Paterson yesterday publicly pressured Senate Republican leader Dean Skelos on the issue, asking for a few votes.

"We are living on the margin of our means; we're getting closer and closer to an insolvent state," Paterson said.

The governor was apparently calling in from home for the interview, as he was repeatedly interrupted by a barking dog in the background.

He was asked about the sound:

"That's my wife's puppy in the background, probably expressing his view about the state budget."