ALBANY, N.Y., July 20 (Reuters) - More than two dozen judges, lawyers and experts testified at a public hearing Wednesday in favor of granting New York's trial-court judges substantial pay increases, but the state's budget director said the raises are unaffordable.

The hearing was convened by the Special Commission on Judicial Compensation, a seven-member panel tasked with making recommendations regarding pay for judges, who have not received a raise since 1999. The commission's directives, expected at the end of August, will take effect on April 1, 2012, unless modified by state lawmakers.

Most of the three dozen witnesses who testified Wednesday said judges should receive raises of at least 41 percent to reflect cost-of-living increases over the last 12 years. That would raise compensation to $192,500 from its current level of $136,700.

"Anything less than that ignores the nearly 13 years judges have continued to work and address rising caseloads," said Ann Pfau, the state's chief administrative judge.

Others called for an increase of up to 67 percent to ensure talented judges remain on the bench and to spur recruitment of young attorneys.

But the state's top fiscal official, budget director Robert Megna, said New York's current economic crisis, which includes a projected $2.4 billion deficit in the 2013 fiscal year, makes the cost of the raises prohibitive.

"We don't even have the ability to finance the spending commitments that are already in place," said Megna, who was speaking on behalf of Governor Andrew Cuomo, who appointed three of the commission's seven members.

$170 MILLION CUT

The state budget for the current fiscal year cut spending across the board, including a $170 million from the state court system, to close a $10 billion gap.

Megna noted that other state officials, including the governor, agency heads and lawmakers, have not received raises in years, and the state's two largest public-employee unions recently agreed to three-year wage freezes and other concessions.

"A conscious decision has been made across all branches of government to keep salary structures relatively constant," he said.

Pfau said the 41-percent raises represent 58 one-thousandths of one percent of the state's $133 billion budget. She also said the state has saved more than $500 million since 1999 by not approving judicial pay increases.

Kings County Supreme Court Judge Martin Solomon pointed to what he called positive numbers on the economy, in particular income-tax revenue. A report released Wednesday by State Comptroller Thomas DiNapoli showed that total tax collections in New York are up about 25 percent over last year and that the state has $2 billion more in its general fund than expected. This shows the state can handle the cost-of-living adjustment, Solomon said.

"Our economy is definitely on the mend," Solomon said.

But Megna contended that income-tax collections, which are a vital source of revenue for New York, are unlikely to reach pre-recession levels for at least five years. Capital-gains tax revenues may not bounce back for a decade, he said.

'MIDDLE-CLASS PEOPLE'

Adam Skaggs, a senior attorney at the Brennan Center for Justice at New York University School of Law, who was not at the hearing, said this year's cuts to the court system -- which have forced courthouses to cut hours and lay off hundreds of employees -- should be kept in mind when mulling judicial raises.

"While it is crucial that salaries be adjusted to reflect current economic conditions, it's equally important that adequate resources be provided to ensure court services for all New Yorkers," Skaggs said.

Brooklyn Family Court Judge Daniel Turbow, the head of the state Family Court Judges Association, said that while affordability is an important factor, all other considerations underscore the need for raises. He also said most of his colleagues have refinanced their mortgages, borrowed money and foregone vacations and other luxuries.

"We're middle-class people who are unable to live a middle-class life," he said.

A handful of the three dozen speakers on Wednesday opposed all raises absent an overhaul of the Commission on Judicial Conduct, the state's judiciary watchdog, which they characterized as corrupt and ineffective.

"There must be no increases in judicial compensation until mechanisms are in place to remove justices who deliberately pervert the rule of law," said Elena Sassower, the head of the nonprofit Center for Judicial Accountability.

AUGUST DEADLINE

The commission has until the end of August to make salary recommendations, which would be effective for four years. Lawmakers are mindful of the fact that they could step in, but it is premature to say whether they would do so, said Republican Assemblyman Sean Hanna, who was not at Wednesday's hearing.

"One of the things people will be looking at is, 'Are we going to be paying a regular first-level Supreme Court justice as much as or more than the governor makes?' That would be problematic to some," said Hanna, who represents the suburbs of Rochester and sits on the Assembly's Judiciary Committee.

In January, Cuomo said he would return 5 percent of his $179,000 annual salary to the state this year, or $8,950, because of New York's budget woes.

(Reporting by Dan Wiessner; Additional reporting by Jennifer Golson)