NEW YORK (AP) – The economic downturn and slumping real estate market have left the city facing a $2.3 billion budget shortfall in the next fiscal year and even larger deficits in subsequent years, Mayor Michael Bloomberg said Monday.

Bloomberg presented the city’s financial plan to the state Financial Control Board as Gov. David Paterson prepared to discuss the state’s financial straits in a live television address Tuesday.

“Because of the severity of the situation … I want to talk to New Yorkers personally,” Paterson said. “We don’t have to panic because there are ways that we can respond …”

As for the city, Bloomberg said that even if he rescinds the 7 percent property tax cut that was approved a year ago, the city faces budget shortfalls of $5.2 billion in fiscal year 2011 and $5.1 billion in fiscal year 2012.

“Every economic indicator says that we have a problem and that we should act in advance of the problem,” he said.

Bloomberg said the city would prepare for the gloomy forecast by cutting spending 5.6 percent and delaying some capital outlays.

“In the months ahead, we’ll have to keep a close eye on the economic indicators and take whatever steps are necessary to keep our budget for fiscal year 2009 in balance and keep our city moving forward,” he said at the annual meeting of the board, a body that was created by the state Legislature during the fiscal crisis of the 1970s to oversee the city’s finances.

State Comptroller Thomas DiNapoli said in his own report released Monday that Wall Street, which drives the city’s economy, lost a record $11.7 billion in 2007 and another $22.4 billion in the first quarter of 2008.

He said the city expects Wall Street to cut 25,000 from its recent peak of 188,000 jobs in September 2007, a 13.4 percent decline.

DiNapoli projected city budget gaps of $4 billion in fiscal year 2010 and $7.4 billion in each of the succeeding years.

But he commended Bloomberg for his “conservative approach” to the city’s four-year financial plan. “I’m confident the mayor and the City Council understand the need for prudent fiscal practices,” DiNapoli said.

Board members pointed to retiree health benefits as a ballooning expense for the city.

Member Jeffrey Halis, president of Tyndall Management, projected health coverage for retired city workers to reach more than $85 billion by fiscal year 2012.

“We urge the city to develop a strategic plan to deal with this growing problem,” he said.

Bloomberg and Paterson both sit on the board, which met in Paterson’s Manhattan office.

Asked after the meeting if the situation was grave enough to call the Legislature back for a special session, Paterson said, “I am thinking that over and will come to a final determination tomorrow as to what is the best course to respond, but there is no secret that this is serious enough that I would like to address the public directly on this.”

Despite Paterson’s calls for action on the state budget since he took office in March, New York has made only small cuts after years of historic increases in spending. The current budget includes further increases sought by unions representing teachers and public workers.

AP-ES-07-28-08 1744EDT