The executives complied with the urging of New York Attorney General Andrew Cuomo and others who said in November that major Wall Street companies benefiting from federal bailouts shouldn't pay out the usual huge bonuses to executives.

Mr Paterson says it was the right thing to do, but the result is a further hit to the state treasury.

The financial sector is the bedrock of New York's economy and it usually pays the state 30 per cent of all its tax revenues in the January to March quarter, Mr Paterson said in a telephone call with reporters.

The heavy share of taxes paid in the first quarter of each year occurs because this is when the companies often pay their employees the lion's share of generous bonuses.

In mid-November, Goldman Sachs Chief Executive Lloyd Blankfein and six other top corporate officers said they would forego their 2008 bonuses.

'We are in recession-ville,' Mr Paterson said, adding he did not think the economic crisis was fully appreciated by legislators who have criticised his array of proposed education and health care cuts and fee and tax increases but have failed to come up with other options.

Mr Jeffrey Gordon, a spokesman for the state Division of the Budget, clarified late on Friday that the US$178 million figure reflected an estimate of the loss of income that might be taxed, rather than the loss of tax revenue.

'Because Goldman is an industry leader, this and other developments have caused us to lower our bonus projections by US$1.4 billion since our last projections in October,' Mr Gordon said.

Officials now project Wall Street bonuses for the year will total US$27.2 billion - almost halving the roughly US$50 billion handed out last year.

On Tuesday, Mr Paterson proposed cutting spending by US$9.6 billion and raising more than US$4 billion in fees and taxes - including new levies on Internet music downloads and luxury goods - to close a 15-month, US$15.4 billion deficit.

'If the states and federal government do not get spending under control, we will graduate to a 10-year recession,' Mr Paterson told reporters in a conference call, warning a depression could follow.

'I am sensitive to the queasiness of legislators about taking these positions,' Mr Paterson said. But he said credit rating agencies would frown if the state failed to swiftly close its budget, warning any delays would worsen the problem. -- REUTERS, AP