Mayor Bloomberg unveiled his opening gambit in the 2006 budget negotiations yesterday, offering a $48.3 billion election-year spending proposal that rolls back taxes, merely nibbles at the edges of the city’s spending, and is benign enough to allow him to make the case that New York has flourished during his mayoralty.

Mr. Bloomberg proposed only $506 million in cuts from current spending levels, opting instead to depend on an unexpected $1.4 billion surplus from last year to fill most of the $3 billion deficit the city had been facing in fiscal 2006, which begins July 1. He goes the rest of the way by asking Albany and Washington for about $750 million in assistance and says he’ll find about $325 million in health and pension savings. For that money, he’ll need the approval of the city’s labor unions.

“We’re not going to cut programs,” the former businessman told reporters in a morning briefing at the Blue Room of City Hall. “I still think we can find ways to do more with less. Take a look at the Police Department – that is Exhibit A. We have 3,000 less officers and crime has gone down. That’s what management is all about.”

Mr. Bloomberg went on to say that he hired commissioners who should know how to cut expenses and achieve further efficiencies in their departments. For example, the budget for the Fire Department calls for saving $17 million by eliminating the fifth firefighter in 49 fire companies throughout the city.

While the mayor did not put a particular percentage figure on how much he expected the agencies to cut, he did say every department except education should be prepared to “come up with a couple percent” in savings.

“This is the status-quo budget,” a Manhattan Institute budget expert, E.J. McMahon, said. “This budget is more dependent on rosy scenarios and more fraught with risk than any of the four previous Bloomberg budgets. There are several elephants in the room.”

Those problematic pachyderms include a disagreement with the state over how much more money it needs to allocate to ensure that New York City public schoolchildren receive a “sound basic education.” The Campaign for Fiscal Equity sued the state over the issue, and a panel of special referees appointed by the Court of Appeals recommended that the court order Albany to come up with more than $20 billion over the next five years to make up the shortfall. Officials at Albany have indicated that if the state needs to spend more on New York City’s public schools, then the city, too, will need to pay more.

None of that is reflected in the first term Republican’s preliminary budget, and it could end up costing the city hundreds of millions of dollars next year alone.

At the same time, Mr. Bloomberg managed to find enough money to finance some politically popular proposals. He wants to renew the $400 tax rebate for homeowners, and he suggested doing away with two “emergency” levies that are scheduled to expire: a surtax on personal income for the wealthy and a sales tax on purchases of clothing and shoes under $110.

“The mayor is taking advantage of fortuitous timing,” Mr. McMahon said. “He is counting on the outcome of CFE not being finalized by the time the election rolls around. He can’t finesse this forever, but in this election year he can probably have the best of both worlds. He can be the CFE money’s most ardent champion without having to pay for it.”

Mr. Bloomberg’s budgeteers also gloss over the issue of labor contracts. The budget numbers assume the city’s police, firefighters, and teachers will agree to the same kind of contract accepted last year by District Council 37, a union of municipal workers. Among other concessions, DC-37 agreed that its workers’ future raises would be financed with productivity enhancements. It is unlikely the police – who are now in mediation to settle their contract dispute – the firefighters, and the teachers will agree to that. That, too, could translate to hundreds of millions of dollars the city would have to find.

Finally, Mr. Bloomberg did little to address the problems of the Metropolitan Transportation Authority, which will need a huge infusion of funds simply to maintain current services and facilities. New York City may have to bail out the state-run agency.

The city comptroller, William Thompson Jr., said that while he was pleased that the mayor was able to balance the budget, the risks make him uneasy. Mr. Thompson, a Democrat, decided late last year to forgo a mayoral campaign this year and instead run for re-election.

“He relies too heavily on state and federal aid that might not materialize,” Mr. Thompson said. “It could also be drastically affected by a decision in the Campaign for Fiscal Equity lawsuit.”

The mayor decided, however, to accentuate the positive. He focused on the city’s red-hot real estate market and increasing commercial-occupancy rates. Domestic and international tourists are returning to the city in record levels, and hotel occupancy rates are higher than at any time since the September 11 attacks. It is that economic recovery, the mayor said, that will keep New York in the black.

“He is lighting candles at all the religious institutions and hoping that the economy keeps getting better,” a Baruch College professor of political science, Douglas Muzzio, said. “He actually did a smart thing: He frontloaded a lot of the pain by raising taxes a couple of years ago. That’s why he has resources now.”

Those resources won’t last long. Mr. Bloomberg’s proposal did nothing to correct the imbalance between discretionary and nondiscretionary spending in the city. In the latter category, employee pension payments and fringe benefits, along with Medicaid and debt service, are skyrocketing.

Those costs have risen from $13.5 billion in 2001 to $20.7 billion this year. City revenues – primarily from taxes – have risen only about $5.5 billion, from $27.5 billion to $33 billion, over the same period. That can’t continue, and by law the city is obliged to come within $100 million of balance every year.

“This city is no longer in control of its biggest expenses,” Mr. Bloomberg said, adding that the state and federal governments needed to reform Medicaid to help the city keep out of the red.

“It would be wrong to say he hasn’t done anything about spending,” Mr. McMahon said of the mayor. “He curbed the growth of spending, and maybe someone else would have let it grow faster. Has he done enough to cut spending? No. Has he done something? Yes. But the structural balance in the budget has gotten progressively worse, and sooner or later he is going to have to address that.”

Since he took office, the mayor has transformed a $6.4 billion deficit into a $1.4 billion surplus, and during his administration the number of city employees has fallen by 16,000, which has helped him avoid painful cuts while he is seeking re-election. For the second year running, there are no layoffs or new tax proposals in the plan.

He has raised the specter of some increased fees on city services, but even those are expected to be small, such as an increase in court fees. He is counting on $75 million from New Yorkers who have been trying to dodge the cigarette tax by buying cigarettes out of state or from the Internet. And he called for hiring another 34 sanitation workers to issue citations for improper disposal of trash and recyclables, which is projected to raise $1.7 million.

That said, this is just a starting point. The budget process is a long, drawn-out dance between the mayor and the City Council, and this is only the first step. Annually, the council finds a way to re-insert between $100 million and $200 million into the budget at the negotiating table. After all, for council members, too, elections loom this fall.