New York Gov. David A. Paterson has warned of tough times ahead for the state, which faces a $1.2 billion shortfall this fiscal year despite budget cuts enacted this summer.

The governor met with legislative leaders in New York City Friday to discuss the economy and its effect on the state. "We're going to have to take drastic action," Mr. Paterson said.

He made reference to more cuts needed this year and the 2009-10 fiscal year beginning next April. The governor said that he wanted to handle the financial crisis without raising taxes.

While schools are probably safe this year, he warned they should prepare for spending cuts in the next fiscal year. Every area of state spending must be considered for potential reductions, he told the Associated Press.

"I don't believe in layoffs. I don't believe in taxes. I don't believe in taking money out of school aid. (But) we are in an economic crisis," Gov. Paterson said.

The governor told state legislative leaders: "I don't think we get how serious this problem is." Pointing out that the executive branch has already cut $1.5 billion, he said: "What we have to do now is cut from the Legislature."

Expecting the deficit to increase to $2 billion by the end of the fiscal year in March, he called for a special emergency session of the Legislature on Nov. 18.

The governor said that Wall Street bonuses may drop 60 percent this year. Wall Street provides about 20 percent of the state's revenues, and the bonuses are a big part of that.

Unemployment now exceeds 6 percent in the state, the highest since immediately after the 9-11 attacks.

State Senate Majority Leader Dean Skelos and Assembly Majority Leader Sheldon Silver pledged to work with Gov. Paterson and with each other.

"This has the potential of hitting deficits we've never seen before," Gov. Paterson said, alluding to a potential "economic blood bath."

The governor has sounded the warning.