Most New Yorkers would probably agree with Mayor Michael Bloomberg when he said that there was "good news" in the city's new $47 billion budget, passed last week and going into effect on July 1st.

The city's economy has improved and for the first time in two years, there were no massive layoffs of police or sanitation workers, no threats to close firehouses or zoos, and no new tax increases. The mayor and the City Council even set aside additional money to build day-care centers, to help the unemployed find jobs, and to build 76 new schools over the next five years.

But the good news did not extend to everyone.

Some critical programs — like summer jobs for young people — were still cut. Teachers, police officers, firefighters and other city workers still have no contracts. And as more details of the budget have emerged, many New Yorkers learned that they may have to give back a portion of their promised $400 tax rebate.

The worst news about the budget does not come from City Hall, but from the State Capitol.

The governor and State Legislature in Albany, which has been called the most dysfunctional legislative body in the nation, have burdened New York City with additional problems. For the 20th year in a row, the state failed to meet its budget deadline. Lawmakers left for summer vacation without complying with a court order requiring them to give more aid to city schools or approving a portion of the city budget that gives tax breaks to residents — and have no plans do so until August.

As a result, the city's budget, which depends on $8 billion in state money, is still in limbo.

WHAT'S IN THE CITY BUDGET

This year an improving economy and higher than expected tax revenues produced a $1.9 billion surplus in the city's budget. The major battle between the mayor and the City Council was over how to spend it.

The new $47 billion budget is divided into the usual manner, with nearly 80 percent of the money going to education, social programs like health and homeless services, and police, fire, sanitation, and corrections (in that order.)

In addition to the regular expenses, this budget also includes $291 million in spending that was not in the plan the mayor outlined earlier in the year, including:

• $38 million to hire elementary school teachers
• $29 million for youth and after school programs
• $22 million to extend library hours
• $19 million for 3,900 day care slots
• $11 million for Legal Aid which offers legal representation to people who can not afford a lawyer
• $10 million to train unemployed New Yorkers for new jobs
• And $7 million for City University of New York scholarships.

"I think the whole city will fare better under this budget," said Washington Heights Councilmember Robert Jackson.

Individual City Council members also lobbied hard for their personal budget requests.

Each council member is given $240,000 to allocate in the neighborhood as they wish. In addition, grants for local initiatives, neighborhood organizations, and cultural events, often called "member items," are part of the mix.

For example, Friends of the High Line, a group working to build a park on an abandoned railway in Chelsea that Speaker Gifford Miller supports, received one of the largest grants of $200,000. A group called Black Veterans for Social Justice received $50,000. And the Garibaldi-Meucci Museum, a cultural institution of Italian-American heritage in Staten Island, was able to secure $15,000. Even the Huskers, a lacrosse team from Far Rockaway got a piece of the pie, with $3,857 for equipement.

WHAT'S NOT IN THE BUDGET

Even with a surplus, some budget items still went on the chopping block.

Summer youth employment, for example, was a major point of disagreement between the mayor and the City Council in this year's budget. More than 5,500 jobs for young people were eliminated.

Council members also complained the District Attorneys were not being given adequate funding. The result, they argued, is that prosecutors are often forced to plea bargain cases and to make decisions based on money.

And while tax breaks were given to New Yorkers wealthy enough to own their own home and families who make less than $20,000 a year, there are no tax cuts for those in the middle of the economic ladder.

"I am disappointed we couldn't get tax benefits for renters or the working people who also need it," said Brooklyn Councilmember Tish James.

Police officers, firefighters, and teachers were also left out.

Most city workers have been without a contract or a pay raise for several years, and although the budget contains about $657 million to pay for salary increases, union representatives say that is not enough to pay workers what they deserve.

"If Bloomberg wants a safe city, a well-educated city, a great city, then he has to offer us a fair contract," said Randi Weingarten, head of the teachers union. "We have all waited long enough."

GIVING TAX BREAKS

Tax cuts sparked the major debate in this year's city budget.

Both Mayor Bloomberg and Council Speaker Miller who raised property taxes 18.5 percent two years ago produced rival plans to give some of that money back. Mayor Bloomberg proposed giving $400 to each owner of a co-op, condo, or private house. Speaker Miller wanted to reduce the property tax rate for all homeowners and businesses by two percent.

In the end, Mayor Bloomberg's plan won out and Miller agreed to the rebate that he previously described as a "Bush-style gimmick."

"Budgets are the process of compromise," Miller said later. "I think this is the budget in the best interest of the city. Obviously, it wasn't my first choice."

But as more details of the tax rebate began to emerge, some homeowners learned that they might have to pay taxes on their refund.

That is because the $400 rebate is not an actual reduction in the tax rate, but a check from the city that some New Yorkers may have to report as taxable income. A homeowner who claims property taxes as a deduction and is in a 25 percent income tax bracket, for example, could have to pay as much as $100 in federal income taxes on the $400 rebate.

For his part of the negotiations, Speaker Miller was able to secure a city version of the Earned Income Tax Credit that will give 700,000 low-income New Yorkers up to $215 in tax relief.

Together the two tax relief plans will cost the city $300 million.

But both of these plans have been delayed because the city needs state approval to raise and lower taxes and state legislators in Albany refused to approve the measures. Governor George Pataki, Assembly Speaker Sheldon Silver, and State Senate Leader Joseph Bruno all said they supported the idea in general, but the three men could not work out the details to pass it by the deadline.

"It is an aberration of the law that we need to go to Albany to adjust our own taxes," said Mayor Bloomberg.

If the state passes the measure in August, New Yorkers could get their rebate by October. If not, they may have to wait even longer.

ALBANY INACTION

New York City is required by law to pass a balanced budget each year by July 1, but there is no such law requiring the governor and the State Legislature to do the same.

This year, the usual gridlock in Albany was even worse than usual. State lawmakers missed their April 1 deadline to pass a $100 billion state budget and have no plans to meet again until August.

Albany's inaction has put New York City's budget on hold.

A plan to transfer private bus lines to the Metropolitan Transportation Authority, which will cost the city about $159 million, is delayed.

In addition to the city's operating budget, which covers the day-to-day expenses of running the city, the mayor and City Council approved a separate $13 billion, 5-year capital budget plan to build and improve schools across the city. The city has asked the State Legislature to pay for half of it, but no agreement has been reached.

And even though the state's highest court has ruled that the state system of funding schools is unfair and gave legislators until July 30 to provide more aid to New York City schools, lawmakers have not agreed on a plan to do so. This means that the city is missing out on $2.5 billion a year in school aid, according to estimates from the Independent Budget Office, and many of Mayor Bloomberg's education reforms are dependent on this additional money. Until the funding comes through, city officials are trying to make do.

"Obviously until we get [this] money from Albany it's not as if we have lots of resources to move," said Schools Chancellor Joel Klein.

For the time being, the governor has passed an emergency spending measure that keeps funding for programs at their current levels, but no one knows when the state will get around to passing a real plan that accounts for about 17 percent of the city budget.

"In the immediate short-term it is not a problem," said Doug Turetsky of the Independent Budget Office, "But if it drags on for months and months, state aid becomes a more serious question."

UNCERTAIN FINANCIAL FUTURE

But even if Albany does come through, the city still faces serious challenges in the next two years.

Earlier this year, the New York State Financial Control Board reviewed Mayor Bloomberg's proposed budget and found that the "city's finances remain structurally unbalanced."

Medicaid payments, employee pensions, and union contracts are expected to increase dramatically in the future. The city is also relying heavily on temporary increases to the personal income and sales taxes that will expire over the next two years. Fiscal watchdogs warned the mayor and the council that their tax breaks and increases in spending could create problems in the future.

This year's surplus of $1.9 billion is expected to turn into a $3.7 billion deficit by next summer.

That means that cuts to social programs, layoffs, and tax increases: The "doomsday" budgets of the past two years may return.