Governor-elect Spitzer, who has offered a dire assessment of the New York economy and fiscal health of the state’s government, will be taking over a state in better financial shape than the one handed to Governor Pataki 12 years ago.

A surge in Wall Street profits, an unusual slowdown in the growth of Medicaid, and a court decision scaling back the amount of money the state owes New York City’s public education system mean that Mr. Spitzer will have more breathing room to craft his budget and deliver on his campaign promises than earlier fiscal forecasts indicated. Although Mr. Spitzer and his budget director, Paul Francis, will need to find a way to trim an estimated $4 billion to $5 billion from the budget to balance the books and pay for extras like a property tax cut, that task is less daunting than what confronted Mr. Pataki when he took the reins from Governor Cuomo.

The temporary relief could be a double-edged sword for Mr. Spitzer, a politician who has often repeated the line: “A crisis is a terrible thing to waste.” The positive trends may make it more difficult for Mr. Spitzer to push cost-saving measures past a Legislature that is averse to belt-tightening. Mr. Spitzer campaigned on the promise of streamlining government and cutting the fat out of expensive programs like Medicaid,

In past budget battles, Mr. Pataki would often paint a bleaker picture of the economy to discourage lawmakers from adding on more spending to his executive budget.

Mr. Spitzer will “have a little wind behind his back as he heads into the legislative session,” the outgoing director of the state division of budget, John Cape, said. “Having more money around isn’t necessarily a good thing for reform.”

In past statements, Mr. Spitzer has described the state’s finances as a bare cupboard. “There isn’t much there that hasn’t been sold, given away, or spent,” he said at a press conference in November.

The fiscal situation is far from perfect. The upstate industrial economy is stagnant, and New York lags behind the national economy in job and income growth — it’s ranked 39th overall. The economy has expanded this year at a slower pace than last year, according to a state budget division report released in October. The state government and its authorities carry more debt per capita than nearly any other state, and taxpayers bear the highest state and local tax burden in the country.

The surplus for the 2006-2007 fiscal year is expected to be $2 billion, almost double the current official estimate, in large part due the strong performance of Wall Street. The extra surplus could reduce the estimated deficit for 2007-2008 to around $1.5 billion. When Mr. Pataki took office in 1995, Wall Street was coming off a sluggish year, New York had lost 13,000 jobs in the past six months, and the state faced a budget gap of $5 billion. Mr. Pataki cut income and business taxes and reduced general fund spending for the first time in decades. In the later years, as the New York economy picked up and deficits grew smaller, Mr. Pataki approved spending increases that far exceeded inflation.

Nearly half of the estimated growth in spending is attributed to increases in Medicaid spending, Mr. Cape said. The entitlement program is actually growing at the slowest rate in more than a decade, a trend that is largely the result of the federal government picking up a greater share of pharmacy costs of the elderly through the Medicare Part D program that took effect in January. The implementation of the recommendations made by the Commission on Health Care Facilities in the 21st Century, which called for closing nine hospitals, will eventually save the state hundreds of millions of dollars annually.

The challenge for Mr. Spitzer is to plug the deficit while paying for two big-ticket items he promised on the campaign trail: a settlement on the Campaign for Fiscal Equity lawsuit and a $1.5 billion property tax cut aimed at middle-class homeowners.

Resolving the school funding lawsuit became a lot less expensive after the Court of Appeals in the fall ruled that the state had to deliver a minimum of $1.93 billion a year in extra operating aid to city schools to meet its constitutional obligations, an amount that is less than half of what Mr. Spitzer was preparing to pay. By next year, the state will have put $1 billion in a reserve “sound basic education” fund using money from video lottery terminal receipts, Mr. Cape said.

“The good news is Eliot isn’t looking down the barrel of a $5-plus billion CFE judgment,” Mr. Cape said. “In a sense, Spitzer is half way there even if he wanted the state to pay the whole $1.9 billion.”

Mr. Spitzer’s first budget plan is due February 1. The new governor will be formally inaugurated in Albany on New Year’s Day, after starting the new year with a 5:30 a.m. run through Washington Park.