With the state still in the midst of the rough economic climate, Governor David Paterson presented an annual budget Tuesday that he called "not a budget of choice, [but] a budget of necessity."

The governor's nearly $134 billion spending plan is an increase of $787 million from last year's budget.

It includes about $5.5 billion in recurring spending cuts, aimed at closing the state's $7.4 billion deficit, which could reach $8 billion by the start of the fiscal year in April.

If the proposed budget is passed, the 0.6 percent increase in spending would be the lowest increase the state has seen in about 30 years.

"The days of continuing taxation and the days of continuous spending have got to end," said Paterson. "The era of responsibility has got to stop. The age of accountability has arrived."

The governor blames the economic crisis on both mistakes of the past, saying the state has relied on gimmicks to sustain its finances, and the current fiscal climate, where revenues have crumbled and unemployment is up and will remain above 8 percent until 2012.

In the 2010-2011 budget, Paterson's unpopular proposals include $1.1 billion in education cuts and $1 billion in health care cuts.

The governor said he wants to change the financial outlook of the state's educational system – proposing a $95 million cut to State University of New York schools and nearly $48 million in savings from City University of New York's budget, while giving them the power to control tuition increases.

There is also said to be $1 billion in agency reductions. Yet the governor has avoided major state layoffs through attrition.

"There's no doubt that these will be difficult, they will be painful and they will affect the lives of our citizens," said governor. "But they are necessary, because if we put these cuts off into the future, we will make our problems even worse."

Among the governor's $1 billion in proposed tax and fee increases are a tax on sugary drinks and a $1 cigarette tax that could both bring in about $680 million. He says that all of the revenue from these taxes will go toward health care, preventing even greater cuts.

He is also calling on lawmakers to lift the ban on Ultimate Fighting Conference contests, let grocery stores sell wine and overturn restrictions on Quick Draw lottery games.

Additionally, there are substantial cuts in aid to the city, including more than $400 million in school aid and $302 million in local government assistance, as well as slashes to social services and transportation funding.

Mayor Michael Bloomberg said while some of the governor's proposals are reasonable, there are others that are neither proportional or fair to New York City.

Paterson has said that if a proposed spending cap is enacted, the state could actually have a surplus in the fiscal year that starts in April.

State Comptroller Thomas DiNapoli said that the financial health of New York now depends on Albany lawmakers.

"We need to make better choices that we have in the past, and that requires a complete dialogue and mutual trust," said DiNapoli. "We may not agree on everything, but we need to come together and recognize that for New York fiscal future to be secure, we need to make some tough choices."

State legislators said they need time to look over the governor's proposals, and many lawmakers are expected to oppose the cuts to education and health care. It is uncertain whether the governor's constant criticism of the state Legislature may hurt budget negotiations.

Nevertheless, lawmakers have promised to work with the governor.

"He's doing his job, we're doing our job," said Assembly Speaker Sheldon Silver.

The Legislature has already rejected the governor's plan to increase the state's eligibility for federal Race to the Top grant money. It would have granted up to $700 million in extra education aid, and Paterson had already counted on the aid in his budget proposal.

Both the State Assembly and Senate spent most of Tuesday trying to hammer out their own deal to win more education funding, but their efforts fell short of the 4:30 p.m. deadline. Paterson said the missed deadline will weaken the state's application and possibly generate less money for New York's schools.

This year's budget deadline is April 1.