PATERSON, NJ – For the second time this month, the state has refused to allow Paterson to spend money on a holiday celebration.

As a result, the city’s Memorial Day Kick-Off that had been planned for Friday outside City Hall has been canceled. Two weeks ago, Paterson was forced to scrap its Mother’s Day breakfast.

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Under an agreement that provides Paterson with $21 million in state transitional aid, the city cannot spend money on certain activities without getting approval from the New Jersey Department of Community Affairs (DCA).

Mayor Jeffrey Jones said his administration asked the DCA for permission. “We called and they said no,’’ Jones said.

“It’s fair,’’ the mayor added. “It’s just our reality. There are events we’re not going to be able to do.’’

“It definitely doesn’t bring high morale,’’ said City Council President Anthony Davis. “It definitely hurts the self-esteem of the city. Events like this bring our city together. We need them.”

The Memorial Day kick-off event was supposed to feature artist exhibits, a drum circle, “characters,'' food vendors and a free showing of the movie "The Green Lantern.'''  Winning entries from the 2012 Passaic County Film Festival also were to be shown.

City documents show the estimated cost of the event this Friday would have been about $3,500. That included $2,500 for police overtime and $1,000 for public works overtime.

 “I was very disappointed with the verdict from the state,’’ said Jamie Dykes, president of the Greater Paterson Chamber of Commerce.

Dykes said events like the Memorial Day celebration enhance Paterson’s vitality and improve its reputation. Forcing the city to cancel them is “short-sighted,’’ Dykes said, because it limits Paterson’s ability to promote itself.

Moreover, Dykes said, such events are one of the ways city businesses get a return on their taxes. “You have to start to wonder what businesses get for their taxes,’’ he said.

Davis said residents, businesses and community group may have to “dig into their pockets” if they want such events to continue.

The city’s July 4 fireworks celebration is safe, according to Dykes. That event is paid for by the Downtown Special Improvement District as well as the chamber of commerce and those entities are ready to pick up the cost of the police and public works overtime stemming from the event.

Back in April, when the city held a parade to celebrate Victor Cruz’ Super Bowl season, the chamber of commerce covered the $16,285 cost of that event. But the city will have to pick up the tab for other parades run by various cultural groups as a result of a settlement of a federal lawsuit filed last city challenging the fees Paterson had tried to impose for such events.

Meanwhile, the Paterson Municipal Utilities Authority is not sure whether it will hold the Great Falls jazz concerts it sponsored last year, said the agency’s chairman, Erik Lowe.

Lowe said the agency is reconsidering whether to hold the concerts because of “individuals making an issue out of the MUA’s efforts to help the community through entertainment and donations.’’ The MUA’s decision last year to donate money to a summer education program run by St. Luke’s Baptist Church without advertising that the funds were available to community groups has come under fire from city activist David Gilmore.