Today will be a day for vision in New York and Washington. Mayor Bloomberg unveils his budget proposal for a city that, despite his successful stewardship, still faces fiscal challenges. Then this evening President Bush will lay out his agenda to a Congress reeling from scandal and a public skeptical of his leadership. Mayor Bloomberg, fresh off a record-setting re-election victory, is a hot political property and the city is in good shape right now, at least relatively speaking. President Bush has only recently started rebounding from a slump in the polls. His party in Congress is dispirited by its own failure to restrain spending and reform government.

The one thing that unites the two is that they both need to think big. Mayor Bloomberg recognized in his State of the City speech last week that pension and benefit costs are “spiraling out of control.” Today’s budget will be his opportunity to make good. The president needs to resist the temptation to retrench after failing to deliver on Social Security reform.

Here in New York, Mayor Bloomberg faces deficit projections of a shortfall of about $2.25 billion for the fiscal year that will start in July That may be down from an earlier estimate of $4 billion, but for six of the past eight years, including three of the last four, city spending increases have outpaced inflation. The city debt of $52 billion is projected to soar to $61 billion by 2009. Mr. Bloomberg has dramatically decreased the growth rate of debt, but debt service still eats an enormous portion of the city’s tax revenues.

Now he is seeking to control what have been called “uncontrollable” elements, like pensions, payrolls, and debt service. His proposal today will make some steps forward, as our Jill Gardiner reports today. For example, he will use $2 billion of the city’s windfall revenues to create a pot to help fully fund the city’s retiree health care obligations, a step that will be all the more important once new accounting rules that go into effect soon force the city to bring those projected expenses onto the books.

That’s a start, but he can do more. In a recent report, a Manhattan Institute scholar, Nicole Gelinas, suggested out sourcing functions like payroll administration or even some sanitation services, taking those jobs off city payrolls and not adding them to the pension burden. Even the mere threat, credibly administered, could buy the mayor major concessions when it does come time to renegotiate contracts. He can rethink the city’s commitment to operating its own system of public hospitals. And he can use his discretion over the capital budget to restrain the growth of debt, cutting outlays for subsidized housing – an ill in its own right – and “economic development” like the $100 million the city will spend at Atlantic Yards.

In respect of President Bush, catch the momentum of his recent gains in the polls. Expect him to remind Americans that the economy is running strong thanks in no small part to his tax cuts and that Iraq has been a success, having just completed its second free election. And expect him to renew his focus on the importance of spreading democracy. He is also expected to take advantage of the opportunity to defend the National Security Agency’s wiretapping program. And look for a firm stand in respect of Iran and the Palestinian Authority.

But all that will be only half the battle. Republicans are discouraged by their inability to control spending. The real work on this front will be entitlement reform, just like Mr. Bloomberg is facing, but their record under Mr. Bush has been disappointing. The Medicare prescription drug benefit has been plagued by bad publicity, and reformers haven’t made noticeable progress on Social Security.

Mr. Bush is expected to call for halving the size of the deficit, a sore spot with fiscal conservatives. Yet no one expects him to call for radical tax reform beyond making his tax cuts permanent. He is likely to call for an expansion of health savings accounts as a way of making health care more accessible, but this may not be what his party needs – the accounts are not a bold new program, and if they are his only health care idea he will have left untouched Medicare and Medicaid, which between them cause a lot of the distortions in the American health care market.