In the latest episode of Albany's failure to address a worsening state deficit, Gov. David Paterson declared negotiations with the Legislature have ended.

He angrily stated on Monday that lawmakers' "last, best offer" of a $2.8 billion package falls far short of what's needed to fill a deficit of more than $3.2 billion.

Meanwhile, legislative leaders emerging from the same closed-door negotiations say progress is being made and a deal with Paterson that would avoid midyear school aid cuts could be final as early as Tuesday.

The contradictory views from the same closed-door talks by the leaders even had rank-and-file lawmakers wondering whom to believe.

Paterson, however, said the Legislature's failure to address the full deficit will force him to possibly delay and reduce state aid to schools, hospitals and local government services to make sure there is enough cash for the state to pay its bills and protect its credit rating.

That would force schools to tap into reserves and could increase property taxes in the spring. Paterson proposes a 4.5 percent midyear cut to school aid, while other areas were cut 11 percent.

But lawmakers have refused to support cuts to school aid, which is protected by Albany's strongest lobbies and public employee unions.

"If the Legislature won't stand up for the people of New York because they're worried about the next election, then I will do so on my own," Paterson said.

It's clearly a different tone than from lawmakers, some of whom said a deal appeared to have been struck Monday and others who said a final deal is expected to be voted on the Senate and Assembly on Tuesday.

"We are making progress," said Dan Weiller, spokesman for Assembly Speaker Sheldon Silver, a lower Manhattan Democrat. Weiller wouldn't comment further.

"We're optimistic we can reach an agreement on a bipartisan and fiscally prudent deficit reduction plan that protects jobs, prevents tax hikes, and saves critical funding for our schools," said Austin Shafran, spokesman for Senate Conference Leader John Sampson, a Brooklyn Democrat.

Sen. Bill Perkins, a leading rank-and-file Democrat, stopped short of saying a deal is final. But the Harlem senator said he is confident one will be struck by late Tuesday.

Paterson dismissed the Senate-Assembly proposal totaling $2.8 billion as containing no more than $700 million in cuts, while boosting the total with $1.6 billion in spending cuts and cash transfers announced by Paterson on Sunday.

However, Paterson accepted the $600 million to $700 million in cuts, adding: "I intend to go much further."

Legislators have already urged Paterson to cut his executive branch more as a way to avoid cuts in aid to schools and hospitals, which lawmakers argue would force layoffs and hinder an economic recovery.