Governor Paterson today took a large but sure-to-be contentious step toward driving down next year’s spiraling deficit, submitting to lawmakers a plan for reducing the gap by $1.6 billion that would compensate hospitals and nursing homes at lower Medicaid rates, force insurance companies to pay more than $100 million in additional fees, and place greater financial burdens on local governments.

Mr. Paterson unveiled his proposal eight days before lawmakers are set to return to Albany for a special session that was called by the governor to address what he said was a fiscal “emergency.”

Originally, the governor had said he would ask lawmakers to plug only $600 million of next year’s estimated $6.4 billion deficit.

The plan he put forward this afternoon, after meeting personally with legislative leaders yesterday, calls on lawmakers to enact much deeper cuts, totaling $1 billion this fiscal year and $1.6 billion in the 2009-2010 year.

“I want to change the culture of how New York State views deficits,” Mr. Paterson said on a conference call with reporters. He said he wanted New York to be a model for other states grappling with their own budget problems.

More than half of the savings proposed by the governor would come from the Medicaid program, which is projected to grow by $1.7 billion next year. Mr. Paterson proposed reducing Medicaid reimbursements by 7% for the remainder of the year and 3.5% next fiscal year, as well as eliminating inflationary adjustments. His plan includes similar cuts to nursing homes.

Under the governor’s plan, the annual covered lives assessment paid by insurance companies would go up by $120 million to $1.04 billion.

“No one understands better than me the magnitude of what I’m proposing,” Mr. Paterson said.

While it was the hardest area, Medicaid was one of only several areas of spending targeted by the governor. Mr. Paterson proposed slashing aid to local governments, including New York City, by 6%, for the rest of the current fiscal year and next year, leaving localities with $670 million less than they expected from Albany.

The governor, who had already directed the State University of New York to trim its operating budget, also called on lawmakers to slash state funding for the City University of New York by 7%.

He also proposed that lawmakers slice in half this year’s so-called “member items” budget, a $200 million pool of pork-barrel money that is carved up among the two houses and the governor’s office and funneled to community groups of their choosing around the state.

Notably, Mr. Paterson left state aid to public education — which consumes a major portion of next year’s projected spending increases — off the cutting block. The governor said schools were already expecting the aid for the school year that begins in September, but said his administration’s budget office would “return to education perhaps next year.”