For half a century, the dream of having a subway running along Second Avenue has been in the back of transit planners’ minds.

In the city’s financial crisis of the 1970s, the dream moved so far back that even a transit planner could forget that the tunnels for part of a subway under Second Avenue already existed.

“The system was spiraling downward for so many years,” the coordinator of the Straphangers Campaign, Neysa Pranger, said, that the primary concern at the Metropolitan Transportation Authority was to keep the system in a state of good repair.

“In 2000, things were looking up,” Ms. Pranger said, and in 2001, the MTA filed a notice of intent to evaluate a full-length Second Avenue Subway. Now, however, the MTA’s budgetary woes – along with the focus on a more modest subway expansion, the westward extension of the no. 7 line – have again dimmed the prospects of imminent progress on the Second Avenue Subway.

The proposed subway is a two-track line running 8.5 miles under the avenue, between 125th Street and Hanover Square. It would cost $16.8 billion. When completed, it would serve 700,000 East Side residents, who currently have to walk as long as 15 minutes to reach the Lexington Avenue line. It would run through two of the country’s largest business districts, generating economic growth and relieving peak-hour overcrowding on the 100-year-old Lexington line – whose express lines currently operate with passenger loads that exceed New York City Transit guidelines. It also would entail real-estate purchases for subway stations and infrastructure that would cause the uprooting of hundreds of apartment dwellers and many small businesses. To make the subway a less daunting candidate for federal subsidies, the MTA has divided its construction into four phases.

The first phase, to be eligible for federal funds, must produce what the Federal Transit Authority terms a minimum operable segment, meaning it must be self-sufficient and offer real transportation benefits without further construction. The MTA has decided to start with the segment between 105th and 62nd streets. That would include a tunnel connection at 63rd Street to the Brooklyn-bound F train, which travels south under Sixth Avenue. The 2.3-mile, three-station segment, scheduled for completion by 2011, is expected to carry 202,000 average weekday riders, including 5,000 new daily riders. It is estimated to cost $4.3 billion, of which 30% may come from federal funds.

The second phase would extend the line northward to 125th Street. The third would build south from 62nd Street to Houston Street, and the final phase would lay tracks from Houston Street to Hanover Square. The full-length Second Avenue Subway would carry 560,000 riders on an average weekday, planners forecast.

The Second Avenue Subway and a companion project, East Side Access, are the only two projects in the country that the Bush administration rated “highly recommended” for a federal Full Funding Grant Agreement. One of the subway line’s staunchest supporters, Rep. Carolyn Maloney, said, “There’s money sitting in the federal budget for both projects.” Also, in consecutive years Congress has granted funds for the research and planning stages of the Second Avenue Subway, an indication of federal commitment, according to a Maloney aide, Philip Craft. To date, the Second Avenue Subway project has received $8.92 million from Congress.

The East Side Access project could receive as much as $2.6 billion in federal funds if it moves forward. The Long Island Railroad link, a 3.5-mile rail extension from LIRR lines in Long Island and Queens to Grand Central Terminal that is scheduled for completion in 2012, adds urgency to the Second Avenue Subway project. The LIRR-Grand Central connection will allow East Side-bound commuters from Long Island to get off at Grand Central, instead of traveling to Pennsylvania Station and then doubling back to the East Side. An estimated 150,000 of those commuters will use the already overcrowded Lexington line, presenting a safety hazard and causing additional delays in service. A subway line running along Second Avenue would alleviate overcrowding by splitting the increased passenger load with the Lex.

In a report last September, the Federal Transportation Agency said: “The bottom-line is that public transit is a growth industry beginning to starve for investment capital. Federal funding has been the foundation of modern transit investment, but it is not keeping pace with ongoing capital replacement and capacity expansion needs. The result is the devolution of funding responsibility to states and localities.”

And that’s the problem.

To receive matching funds, the MTA must find $3 billion to cover its 70% of the subway’s first phase. Between 1999 and 2004, the authority refinanced old debt to yield $3 billion, but the result is that in 2007 an estimated 31% of the MTA’s operating revenues will have to go toward debt-service expenses, compared to 16% in 2003.

Governor Pataki’s proposed budget falls $8.4 billion short of the total requested by the MTA for the next five years, leading some transit advocates to fear projects such as the Second Avenue Subway could be left behind.

Moreover, of the $19.2 billion he earmarked in the MTA capital plan in 2005-09, Mr. Pataki designated more than 75% for basic maintenance, repair, and routine replacement; $2 billion for the extension of the no. 7 subway line to the Jacob K. Javits Convention Center, and $495 million to cover security costs. That left $2 billion for East Side Access and the Second Avenue Subway. In December, the MTA had requested $3.7 billion for the two projects.

Although disappointed with Mr. Pataki’s budget, proponents of the two East Side projects have been looking for ways to plow through financial roadblocks.

In her state-of-the-borough address two months ago, the Manhattan borough president, C. Virginia Fields, criticized the governor for pulling needed financing from the Second Avenue Subway, calling his decision “shortsighted” and vowing to create a public finance commission to look at ways to finance the East Side subway line.