Fans of government silliness will take perverse pleasure in the cash swap recently engineered by Governor Pataki and Mayor Bloomberg, by way of calling a truce in their war over refinancing New York City’s debt. A few weeks ago, an agency under Mr. Pataki’s control, formally conceding defeat in both the Legislature and the courts, forwarded $170 million to City Hall. It was the first in a series of annual payments that the city will soon use to float $2.5 billion in bonds, the proceeds of which will relieve the city of its remaining debt left over from the fiscal crisis of the 1970s.

In their moment of triumph, however, city officials acknowledged that they don’t really need the cash right away, since the first payment on the new bonds won’t come due until 2006. At the governor’s urging, they agreed to refund the $170 million to Albany, at a date and in a manner yet to be announced. The maneuver – which would be, ahem, unusual – is meant to reassure investors thinking of purchasing the new bonds that the state will make good on the Legislature’s claim that the state will pay them off.

This whole rigmarole, however, serves only to highlight the absurdity of refinancing debt in a way that more than doubles the ultimate cost. The deal will save city government $2.5 billion over the next five years, but at a cost to the state of $5.1 billion over the next 30. It also tramples the spirit, if not the letter, of New York’s constitutional restrictions on borrowing. “It would be funny if it wasn’t also such a seriously ugly precedent that I’m afraid is going to be exploited any number of ways in the future,” a fiscal analyst at the Manhattan Institute, E.J. McMahon, told us recently. “This deal deserves to go down into the public finance hall of shame.”

Mr. Pataki’s valiant resistance to this scheme – by vetoing it and, when overridden, filing suit against it – has exposed him to brickbats from those who view the bailout, however ugly, as a much deserved boon to a city shaken by terrorist attacks. We remind such critics that city shoppers pay about 40% of the sales taxes that the state will be using to pay off these bonds, or about $2 billion of the state’s $5.1 billion layout. In other words, the rest of the state will be spending $3.1 billion to save city taxpayers $500 million. This deal makes no sense by any standard.

We may have to wait for the historians to sort out all the lenders and financial middlemen who benefit from this deal. Therein may be its only logic. Meantime the governor’s critics might mark the fact that he has offered the mayor alternative means of debt refinancing that provide similar savings for the city without driving up costs for the rest of the state. Although the mayor is only a few weeks away from floating what will go down in history as a blemish that will be known as the Bloomberg bonds, it is not too late for him to reconsider. Rather than worry about what investors will think, the mayor would be wiser to concern himself with reassuring taxpayers.