In a speech to a Wall Street audience this week, Governor David Paterson said that he would delay payments to localities and schools funded under the current  budget  in order to keep the state from ending this month in the red, even if he gets sued for it  -- as in fact he has.

The state's main operating fund will have a negative balance of $1 billion by December 31, even if the state exhausts its  $1.5 billion in cash reserves and delays a $1 billion payment to the state pension fund.

State Sen. Eric Schneiderman, (D-Manhattan), said it would be "unconstitutional" for Paterson to unilaterally withhold the payments rather than look to the state legislature for budget concessions.

But the legislature's $2.7 billion deficit reduction package fell short of the $3.2 billion Paterson said is needed to balance the budget by the end of the fiscal year -- and cannot produce the savings Paterson is looking for in the short haul.

Among the unfunded items: $2.5 billion in property tax rebates, $1.6 billion to schools, $800 million to transit authorities, $500 million to nonprofit service providers and $500 million to local governments.

State legislators are hoping that Wall Street bonuses in January will yield income taxes that will pump up the state's cash flow.

The article from Crain's New York.