From now through March 24, City Council committees will be holding hearings on the preliminary budget presented by Mayor Bloomberg on Jan. 28. The annual budget gains momentum amidst a civic fog of dismay and uncertainty – dismay over the ongoing chaos in Albany, and uncertainty about how that, and the state's generally poor economy, will affect the city's $63 billion budget.

Council will gather its findings into a report to be delivered by April 8, which should inform the mayor's Executive Budget to be released by April 26.

Economists say the nation's recession is technically over, but whether or not the economy is actually on the mend, the recession's impact on New York City and state budgets is only just beginning. Over the last three months, Gov. Paterson and Mayor Bloomberg have mapped out a set of austerity budgets that would slash billions in spending – with many of the reductions coming from education and social services.

This year marks a watershed for both City Hall and Albany, but for different reasons, says James Parrott, chief economist at the left-leaning Fiscal Policy Institute, which earlier this month issued extensive briefings on both the state and city budgets. The city has until now been sheltered from the worst of declining revenues by years of surpluses squirreled away by Bloomberg during the flush times of the Wall Street boom. Those are now beginning to run out, Parrott says, and will "completely dry up" by 2012. In response, the mayor has presented a city budget of $63.6 billion for fiscal year 2011, which begins July 1, nearly flat-lined from the current year’s budget of $63.1 billion, without any adjustments for inflation or rising expenses.

For the state, meanwhile, the economic slump has pounded receipts for both income and sales tax; even such things as Wall Street's shift from cash bonuses to stock have worked to widen the budget gap. (The city budget, because it relies more on property taxes than sales and income, is less volatile during economic downturns.) And 2011 looks even worse, as the state will lose an additional $5 billion that's been provided by the now-expiring federal stimulus package.

To help close what's now a $9 billion-and-growing projected state budget deficit, Paterson in January proposed billions of dollars in cuts, including slashing funding for education and youth programs, homelessness prevention and job training programs. That would yield a state budget for the 2010-11 fiscal year, which begins April 1, of $134 billion, up less than $1 billion from the current year's figure.

Also included in the Paterson cuts: $300 million in general aid to New York City, plus hundreds of millions more in budget items that would be shifted from the state to the city, including special education and homeless shelter funding. In response, the mayor – who had already announced his own round of "Program to Eliminate the Gap", or PEG, cuts amounting to $1.6 billion over the next two years – commissioned a second series of "contingency" cuts that he said would be necessary if the governor's budget were to become reality. Included are city employee wage and benefit givebacks and layoffs of 3,150 police officers, 1,050 firefighters, and up to 8,000 teachers – as well as the complete elimination of city aid to soup kitchens and food pantries.

'Unacceptable consequences'

"Some of what's in there is certainly theater to dramatize how problematic the state cuts could be," said Doug Turetsky, chief of staff of the city Independent Budget Office. Nonetheless, he says, it should be a warning sign that, especially if the state cuts go through, city services could be dramatically affected.

City elected officials have largely limited themselves to general expressions of alarm, laying low until budget hearings began in earnest this week. Public Advocate Bill De Blasio issued a brief statement saying the mayor's budget proposals would present "unacceptable consequences," while City Council Speaker Christine Quinn declared that "we will make every effort to find ways of generating revenue and seek out additional savings for the city."

The IBO issues an annual Budget Options for New York City report, and this year's includes plenty of gap-filling possibilities, ranging from charging for sanitation services based on how much garbage households generate (which could raise $327 million in new revenues) to increasing public-school class sizes by two children per class ($221.6 million in savings). Other possibilities in the IBO report include raising nearly $222 million per year by taxing sugary drinks at a rate of a half-penny an ounce, and instituting a 40-hour work-week (up from an average of 37 hours) for non-uniform, non-teaching employees, to generate $574 million in immediate savings.

One alternative to cutting services included in the IBO document is raising fees and taxes, and a growing chorus of voices is calling for just that. Tolling the East River and Harlem Rivers, for example, is projected to net a cool $925 million a year – hefty enough to offset all of Bloomberg’s gap-closing cuts, and much of Paterson’s as well.