The City Council and the Bloomberg administration reached a budget deal last night, which will preserve the city's six-day library service but also raise the sales tax.

Though the agreement, which was solidified with the quintessential handshake, was announced two weeks before the city's budget deadline of July 1, it comes with a cloud of uncertainty since all of the city's proposed tax increases, worth a total of $887 million in revenue, need approval from the State Legislature. Though city officials say the state Assembly is ready to move the legislation forward, the State Senate is mired with political infighting over which party is in control, and it is in the process of settling the dispute in a courtroom.

"The story of this budget won't quite end with tonight's announcement," Mayor Michael Bloomberg told a crowd of reporters in City Hall's rotunda last night. Because all of the tax proposals need an OK from the State Legislature, the mayor added, "that makes approval of these measures in Albany the final step."

When the mayor first released his budget proposal in May, the city's workforce reduction climbed to 13,541 positions -- 9,782 would be from attrition. As of last night, it was unclear how many of those positions were saved or who was being sent pink slips.

The total $59.4 billion budget is a 2 percent reduction from fiscal year 2009, said the mayor. It cut total agency spending by the city, over the course of 18 months, by $3 billion. The cuts and tax increases address the loss of $5 billion in tax revenue due to the financial crisis on Wall Street and nationwide recession.

What's In and Out

According to City Council Speaker Christine Quinn, libraries, the Administration for Children's Services and the Fire Department were all reprieved from the mayor's budget ax. At least 100 positions at the Administration for Children's Services will be kept on from the original 361 positions that were slated to be cut through attrition, according to the council. The council also allocated $8 million to preserve 31 classrooms at the administration's childcare centers.

Also, said Quinn, the city will no longer close 16 fire companies, four of which would have been shuttered in July. The $17 million that was restored to the Fire Department will save 400 positions, according to the council.

"In the budget we reached tonight, I believe, we've sent a message to New Yorkers that even in a recession, government's job is to protect and support New Yorkers," said Quinn.

By far, the largest program the council saved is the six-day library service, which is worth $46.5 million.

Unlike last year, where the council made the city's Department of Education its first priority, the fate of the city's public school system this year was also unclear last night. According to the mayor's proposal in May, the department was slated for a more than $1 billion cut. Council Finance Chairman David Weprin said the agreement reduced that by half.

"On the education cuts, we are not sure what it is going to mean to the classrooms in September," said Weprin. "I think we are going to have an ongoing dialogue with the Department of Education, with the administration."

Also included in the budget, according to Quinn, are cuts to the Police Department's civilian workforce, which is facing a reduction of 989 positions, according to the mayor's May plan. Police Commissioner Ray Kelly has said in the past that the work done by civilian personnel, like paperwork, would still have to be done. Kelly warned he would have to take cops off the street in order to make sure this administrative work was completed.

A Tax Package

On the revenue side, last night's agreement will repeal both a sales tax exemption for clothing sales of more than $110 as well as an exemption for customers who purchase energy from non-utility companies. It will revise the city's corporate tax structure -- no longer basing its formula on property, payroll, and sales, but only on a company's sales. The move is expected to spur companies to headquarter in the Big Apple.

The city also will give a tax break to about 11,000 freelancers and small businesses, which currently fall under its unincorporated business tax.

The council has already endorsed the city's revenue package, voting 48 to 0 to send most of the proposals to Albany for approval yesterday. The council voted 37 to 10, with one abstention, to send the increase in the sales tax to Albany as well. The sales tax increase, likely the most controversial part of the mayor's plan, will raise $518 million for the city.

The plan does not include a five-cent plastic bag tax or the creation of a new pension tier for city employees, which the mayor had been pushing for in Albany.

Despite last night's handshake, there are many questions that remain over the city's budget agreement, not only on what could happen in Albany, but what programs have been saved or slashed and what the effects of those funding cuts may be.

"It is better news, but the concern is these are difficult economic times and these are the programs that see increased demand," said Bich Ha Pham, the director of policy advocacy and research at the Federation of Protestant Welfare Agencies. "When people lose their jobs or have their hours cut, they go to nonprofits to get services."