One of the legacies of the Pataki administration was a secret, questionable accounting trick that left Governor Spitzer with an $800 million problem.

For years, Governor Pataki helped balance the books by taking advantage of loose federal regulations that allowed the state to tap into hundreds of millions of dollars of federal matching funds intended to support public hospitals, including New York City’s Health and Hospitals Corp.

It was a complex scheme that benefited the state, New York City, and several other counties, and reflected a wider national trend of states employing revenue-sharing tactics to maximize federal Medicaid funds. The only loser was the federal government. In New York alone, the special arrangement cost federal taxpayers billions of dollars over the years.

At the time the Bush administration cracked down on the practice in 2005, the Pataki administration had come to rely on the annual $400 million-plus revenue stream from its arrangement with New York City.

Mr. Pataki faced the same problem that confronted more than a dozen other governors who no longer were able to exploit the loophole through a budget mechanism called intergovernmental transfers. Governor Barbour of Mississippi last year dealt with the problem by taxing private hospitals.

For the Pataki administration, the federal matching funds were too lucrative to give up, but the new level of scrutiny and more stringent regulations forced them to come up with an alternative plan.

The solution Mr. Pataki’s budget director John Cape settled on — in consultation with the city’s budget director Mark Page and other top Bloomberg officials — was to stop a scheduled reimbursement to the city of $450 million for funding of CUNY’s senior colleges.

New York City’s public hospital system was not the only one that funneled federal money into state coffers. The governor’s office embedded into its 2005-06 budget other tricks that preserved the revenue flow from other counties with public hospitals that participated in the matching fund program, including Nassau, Erie, and Westchester.

The Spitzer administration said it was counting on that money when it released its executive budget at the end of January, but did not realize the underhanded nature of its source. The budget office’s five-year financial plan described the money as a risk and said it was the “subject of ongoing negotiations” between the city and state.

After a sequence of behind-the-scenes negotiations late in the budget process, Spitzer officials put an end to the sleight of hand by agreeing to double the payment to CUNY this year. Stopping the practice came at a heavy price, adding more than $800 million to the projected budget gap of the 2008-09 fiscal year. Thanks to a surge of tax receipts, the state is expected to absorb the loss. In a more fragile economy, the extra burden could have had a disastrous fiscal impact.

Spitzer officials and former Pataki officials say the delayed CUNY payment was not a violation of federal regulations. After the federal clampdown, New York City stopped the practice that resulted in New York State receiving extra Medicaid aid. The city technically never transferred any of the matching funds to New York State, which made up the difference by halting the CUNY payment.

The shift had no impact on CUNY, which had already received the money from the city. Because the city’s fiscal year begins three months later than the state’s, city budget officials were able to obscure the fact that the state was late on its payment.

An official at the Centers for Medicare and Medicaid Services, the federal agency that administers the programs, said New York had stopped improperly drawing down the federal funds in March 2005 and did not respond to a question about the CUNY payment.

The budget resolution appears to have marked the end of a convenient and little-known arrangement between the city and the state that began in the mid-1990s. As Medicaid programs across the nation made a transition to managed care from fee-for-service, the federal government set up a supplemental matching fund program to assist public hospitals that relied on the fee-for-service cash.

With the Legislature’s approval, New York City would direct $600 million a year to the state’s Medicaid agency, triggering the matching funds. The state would then transfer the $1.2 billion pot of money to HHC, which gave the $600 million back to the city. The state also benefited, to the tune of $450 million, from the city agreeing to absorb a higher than normal local share of Medicaid payments.

Of the $1.2 billion, HHC would typically keep about $150 million, according to sources. The state used the money to pay its own Medicaid bills, essentially shifting the cost of the Medicaid program to the federal taxpayer.

New York City often lobbied for money, but was turned down; the state pulled the strings because its legislation is what made the funding possible.

State lawmakers knew about the transfers but didn’t talk about them. “It was in everybody’s interest for the topic not to be on the front pages,” a Democratic assemblyman of Manhattan, Richard Gottfried, the chairman of the Assembly’s health committee, said.

Despite the more than $800 million budget hole, Spitzer officials insist the story of the state’s Medicaid arrangement with the city has a happy ending. The Spitzer administration said it wanted to deliver more state aid to HHC anyway, and the city — currently flush with funds — can afford to leave HHC with the combined local and federal funding.

In the 2006-07 fiscal year, the city did not take back its local share, which produced a fiscal turnaround for the hospital corporation, converting an expected $510 million deficit into a $14 million surplus.

“The Spitzer administration stopped this practice because it was inconsistent with the administration’s strong support for HHC,” Mr. Spitzer’s budget director, Paul Francis, said.

The resolution also played a role in the Spitzer administration’s agreement to restore revenue sharing beginning in 2008-09 worth $330 million a year. Mr. Francis said the money was in recognition of the city’s increased Medicaid expenses related to providing the local share to HHC.

Asked for comment, a spokesman for Mr. Bloomberg, John Gallagher, said via e-mail: “The budget adopted by the State Legislature and signed by the Governor for this State fiscal year provided authorization for HHC’s Medicaid claim and did not delay payments to the City for CUNY.”