ALBANY - Gov. David Paterson is calling New Yorkers and almost every business sector to pitch in for at least the next couple of years to end what he calls the worst economic downturn since the Great Depression.

His play book is a proposed 2009-10 budget of $121.1 billion, which includes layoffs, a cut in school aid, 88 new or higher fees, and the early release of 1,600 inmates.

The proposal he released Tuesday to the Legislature would increase total spending by 1.1 percent - or $1.3 billion - and close $15.4 billion in deficits over two years.

The plan includes cutting school aid by 3.3 percent, or $698 million; increasing public college tuition by 14 percent; increasing some motor vehicle and fishing fees; allowing wine to be sold in grocery stores; increasing the sales tax on luxuries; and new state and local sales taxes on music, movie and game downloads through services like iTunes.

Paterson's plan also calls for cutting 3,108 jobs from the state work force of 196,000. Attrition would account for most of the reduction, but the proposal includes 521 layoffs in 2009-10, largely through consolidating state offices.

New York City would get whacked for more than a half-billion dollars in reduced school aid, municipal aid and school tax relief. And because the city's fiscal year is different from the state's, these cuts would hit current operations without time to prepare.

“There is no sharing of the sacrifice here,” said Danny Donohue, president of the Civil Service Employees Association union, which represents state workers who will face a brief delay in pay to save the state money. “It's working people getting stuck with the bill.”

Paterson used history to underscore his plan, even as it was immediately criticized by lawmakers and lobbyists for nickel-and-diming the middle class.

“In his inaugural address, President Franklin Roosevelt told a nation in the grips of the Great Depression that now is ‘the time to speak the truth, the whole truth, frankly and boldly,”' the Democratic governor said.

“He warned the American people must not shrink from ‘honestly facing' the dark reality of the country,” Paterson said. “Today, we, too, cannot shrink from the challenges ahead.”

Paterson said that while annual spending growth in the last five years averaged 7.8 percent, the first budget he's proposing would increase state operating funds by just a half of 1 percent. That would put state funds - the figure that excludes federal aid - at $79.8 billion, which he said is the lowest figure in 14 years.

The budget is far from final. The Legislature would have to agree to the spending plan due April 1, but Paterson hopes to seal a budget deal earlier to more quickly enact spending cuts attacking the deficits. He has blamed the deficits on decades of overspending, often for special interests led by labor unions, and on the Wall Street meltdown hitting an industry that has provided 20 percent of state revenues in recent years.

“It's going to be a very difficult year,” Assembly Speaker Sheldon Silver said Monday night after he was briefed privately on the budget. “But I'm confident the Assembly, Senate and governor will be able to work together.”

Most sectors whose funding would be held flat from the current year say that amounts to a cut, one they can't afford.

“The governor has shifted the unbearable burden of closing the budget gap onto the shoulders of school children, while sparing the wealthiest New Yorkers,” said Billy Easton, executive director of the Alliance for Quality Education. AQE supported a tax on New Yorkers making over $1 million, which Paterson has so far rejected.

School districts and the New York State Association of Counties have warned that reduced state funding, more unfunded mandates like a 2010 hike in the welfare grant that Paterson proposes, and even flat funding could force higher local property taxes.

“The spending reductions in this budget proposal are painful,” said NYSAC President Sarah Purdy. “County leaders are engaged in this process and are willing to work through this crisis together with the governor and state Legislature to continue essential services in a way that does not increase the burden on New York's taxpayers.”

Taxpayers will feel the pinch in several ways. Besides potential increases in local property taxes, Paterson wants to boost income tax revenue by closing what he considers to be loopholes and making other adjustments short of changing the rates. In addition, Paterson proposes eliminating the STAR rebate program - a state subsidy that he said has failed to achieve the promised goal of reducing local school taxes.

He would end the rebate checks sent to homeowners and the corresponding enhanced New York City personal income tax credit. That will save more than $1.7 billion. Paterson would continue at previous years' levels the STAR tax exemption - a savings off tax bills rather than through a rebate check often delivered at election time - and the New York City rebate.