ALBANY — Eleven years into the Pataki administration, the state of New York is in disarray, an influential think tank is warning.

The Manhattan Institute, in a major report released yesterday, sounded the alarm about what it describes as the deteriorating condition of New York, a state that it says is burdened by bloated spending and borrowing and is pushing away frustrated residents. The group is challenging how the state is governed in a way that is reminiscent of its policy battles that shaped the fate of New York City in the 1990s.

Its depiction of a state in decline contrasts sharply with the vibrant image of New York that came across in the governor’s State of the State speech last week. Governor Pataki insisted in that address that New York “is strong and getting stronger every day.” Though the report does not assign most of the blame for the condition of New York to Mr. Pataki, it threatens to tarnish his legacy as he considers running for president in 2008.

It’s the most damaging report on the state of Albany since the Brennan Center for Justice at New York University in 2004 said the state’s legislative process led the nation in dysfunction. But unlike the Brennan Center report, the institute says the problem with Albany goes beyond concerns over the monopoly over power wielded by Mr. Pataki, and the leaders of the state Assembly and Senate.

“Empire State government has become an industry run for the benefit of the few rather than in service to the many,” the report states. “This monolithic industry churns relentlessly in Albany to preserve and expand its power over New York’s economy and citizens. Efforts to reduce the swelling in New York’s government sector are fiercely resisted by the powerful interest groups — especially public-sector unions, trial lawyers, healthcare providers, and other state-subsidized industries — that have become most adept at gaming the system in Albany.”

Responding to the report, leaders in Albany insisted that its bleak portrayal of New York is grossly inaccurate. The governor’s office said the facts prove that New York is in better shape than when Mr. Pataki took the reins in 1995. A spokesman for Sheldon Silver, the speaker of the Assembly and a Democrat of Manhattan, said the expansion of the Democratic majority in the Assembly in recent elections showed that the policies pushed by Mr. Silver “resonate” with New York voters.

Pooling together recent economic and demographic data, the institute’s report paints a picture of a state that has become the sick man of the union. Between 1979 and 2004, New York created jobs at half the national pace, it says. During that period, New York’s share of total personal income in America fell by 10% and its share of economic output in America declined by 12%, according to the report. As of 2005, the total state and local personal income taxes in New York was below the national average by 20%. At the same time, New York has seen its budget grow by 28% since 2001 and can expect additional growth of another 23% by 2008, according to the report.

Part of the problem, it says, is caused by New York’s “sprawling network of public and private hospitals,” resulting in per-capita hospital spending that is three times the national average. New York spends more on Medicaid than Florida and Texas combined, the report says. Also contributing to the high level of spending is the extra staffing of state schools, the report says. New York State public schools hired 75,000 more employees between 1982-1983 and 2001-2002, without significant changes to student enrollment. New York also employs 7.5% of the nation’s government employees and represents 9% of the nation’s total government payroll spending.

Accompanying the high rate of spending is one of the highest levels of borrowing in the nation. New York’s state debt burden for each person is second to Alaska’s in the country, and in 2005, New York owed bondholders $48.2 billion, a 236% increase since 1990, according to the report.

The high rate of taxes and spending, the report argues, has contributed to the state’s population decline. Between 1995 and 2004, the number of New York residents fell by 1.7 million residents. The institute yesterday released new data suggesting that the population has yet to reach its nadir. In a poll conducted by the Siena College Research Institute that was prepared for the institute, 41% of New Yorkers said they had considered moving from New York State in the past year; 58% said they were dissatisfied with the performance of their state government, and slightly more people predicted that the situation would get worse over the next five years than said it would improve.

“The sad part is that people are voting with their feet,” said Lawrence Mone, the president of the Manhattan Institute. “You can fight it or flee, and unfortunately people are making the latter decision.” Mr. Mone compared the grim outlook in the state today with the attitude of New Yorkers in the early 1990s. What Mayor Giuliani “had to fight was a pessimism that the city was in decline and it was ungovernable. And I think we’ve gotten to that point in terms of cynicism about Albany.”

A spokesman for Mr. Pataki, Kevin Quinn said he found the premise of the report “dead wrong.” He said since Mr. Pataki has been in office, “New York has seen a dramatic turnaround in tax policy, crime reduction, job creation, and environmental clean-up.” He also pointed out that welfare rolls have fallen by a million people.

The chairman of the Empire State Development Corp., Charles Gargano, said he strongly disagreed with the Manhattan Institute, saying that New York “is an attractive place to be and the policies that Governor Pataki has put in place have certainly shaped the economy,”which he said is “doing quite well now.”

Much of the tax burden in New York is in the local level. Since entering office, Mr. Pataki has lowered many taxes, including reducing the top rate for personal income to 6.85% from 7.875% early in his administration. Yesterday, he said he would propose a series of business tax cuts, including reducing the corporate franchise tax rate on net income to 6.75% from 7.5%. The tax package would amount to $1.1 billion by 2008 when all of its parts are enacted, officials said.

Cutting taxes isn’t among the primary recommendations of the Institute’s report. It calls for a cap on spending growth, giving New Yorkers more control over their health insurance coverage, offering low-income parents vouchers to help get them out of failing schools, and repealing the state’s Wicks Law, a statute intended to limit corruption in public construction bidding but that has boosted construction costs. The report also calls for ending gerrymandering to restore competition in local elections.

The study of New York comes on the heels of another report on New York’s condition that was released yesterday by several Albany watchdog groups, including the New York Public Interest Research Group.

The report said Albany since the 2004 election, when the issue of “reform” was hotly debated in the Capitol, has made mediocre progress. The report praised the governor and the Legislature for tightening lobbying regulations but, like the Manhattan Institute report, it criticized Albany leaders for a redistricting system that creates “a body of legislators who need not be responsive to their constituents’ concerns.”