By JAMES C. McKINLEY Jr.

Mayor Rudolph W. Giuliani proposed a $31.6 billion budget for New York City yesterday that would reduce spending slightly for the first time in 16 years and sharply cut the municipal work force in almost every major agency except the Police and Fire Departments.

Submitting his first executive budget to the City Council, Mr. Giuliani said the city "has been spending itself beyond its economy" for more than a decade, creating perennial gaps between what it spends and what its tax base can support. The Mayor said the city's overspending had drained the local economy, driving private industry from the city.

"The purpose of this budget is to redirect the economy of New York," Mr. Giuliani said. Saying the city was "hemorrhaging jobs" while the rest of the nation was recovering, Mr. Giuliani added, "We can't employ people through government alone."

In drafting his plan, Mr. Giuliani needed to close a $2.3 billion gap between projected spending and revenues for the fiscal year that begins on July 1. To do that, he has suggested about $1.2 billion in spending cuts from city agencies, mostly through cutting 15,000 workers, or 7 percent of the city-financed work force. Mr. Giuliani said those cuts could be made without serious damage to services if managers learned to run agencies more efficiently. Over all, spending would fall by $102 million.

He also proposed some modest tax cuts totaling about $35 million.

The extent of the service cuts is likely to figure in the debate over Mr. Giuliani's budget as it moves to the City Council, particularly since the budget makes no cuts in the Police or Fire Departments. Already some lawmakers are asking whether protecting those agencies is worth the pain for schools, youth programs and hospitals. [News analysis, page B5.]

Besides cutting jobs, the Mayor relied in his efforts to close the budget gap on some actions that will still require the cooperation of the State Legislature, the Federal Government or the municipal unions.

Those measures include about $400 million in increased aid from Albany and Washington, $200 million from persuading unions to pay for part of retirees' health benefits, $200 million from refinancing city bonds, $110 million from selling a city-owned radio station and the United Nations Plaza Hotel, and $51 million from changing payments on an outstanding debt to the city's pension funds.

Despite some signs of an economic recovery, the Mayor's plan assumed that tax revenues will remain flat next year, bringing in only $18 billion. The main reason is that property taxes are expected to continue to sink because the prolonged recession has driven real-estate prices down, Abraham M. Lackman, the city's Budget Director, said.

If a budget is a blueprint of a Mayor's priorities, then Mr. Giuliani's made clear that his highest priority is law enforcement, where he began his career as a prosecutor. The heaviest cuts fell on social programs and other services. The Mayor has proposed eliminating 1,400 jobs in the Transportation Department, 2,000 in the Sanitation Department, 4,600 from social services and nearly 2,500 administrators in the school system.

But the Police Department, whose uniformed officers are protected from reductions under a 1991 state anti-crime law, will not only grow slightly next year but also will absorb the missions of other agencies. Uniformed officers will take over some responsibilities for directing traffic, patrolling parks and enforcing taxi rules.

'Most Important Priority'

"I believe the single most important priority in this city is to make this city safe, and this budget reflects that," Mr. Giuliani said. "That's why I believe I was elected."

Mr. Giuliani will now have to sell his proposal to the 51-member City Council, where some members yesterday objected strenuously to his plan to shield the police from spending cuts while cutting social services.

The Council Speaker, Peter F. Vallone, a Democrat, responded positively to most of Mr. Giuliani's budget proposals, praising the Republican Mayor for cutting taxes and for accepting a Council proposal to sell the city's waste-water treatment plants two years from now.

But Mr. Vallone said the Council would seek to restore nearly $28 million in cuts in youth programs and some of the $317 million cut for the Board of Education. He said he was also especially troubled by a $1 billion reduction in the construction budget for schools.

"Our priorities may not be the same when it comes to youth and education, but that could and should be negotiated out," Mr. Vallone said.

Several black and Hispanic Council members said the budget hurt minority neighborhoods disproportionately, especially the deep reductions for the Social Services, Youth and Parks Departments. Some pointed out that many of the jobs that were being cut were held by minorities, while the predominantly white Police and Fire Departments avoided the ax.

"We're getting a double whammy in that we lose jobs and plus we lose services," said Councilman Enoch Williams of Brooklyn.

Mr. Giuliani said his job reductions would come from the ranks of supervisors and support staff rather than front-line social workers or others who deal directly with the public. And he said the cuts would not necessarily reduce services, noting that he was challenging his managers to do more with less.

Nevertheless, under the Mayor's proposed budget, parks would be cleaned less often, sanitation workers would travel longer routes, lines would be longer at welfare offices and there would be fewer after-school programs for young people. Recyclable trash would be collected half as often and welfare recipients would be fingerprinted to reduce fraud.

In a departure from past practice, Mr. Giuliani's budget did not spell out in detail where jobs would be eliminated or what programs would be reduced, though budget aides had detailed documents listing the expected service cuts.

Mr. Giuliani said, however, that the majority of the jobs are to be eliminated through a severance program that has so far attracted 7,400 applicants. Since municipal unions agreed earlier this spring to allow the city to transfer employees from agency to agency, the city will be able to shore up vital services, the Mayor said.

"Because of the redeployment program, we can't tell you exactly where the service reductions are going to take place," he said. "I'm asking the people who manage this city where they have service cuts to try to do more with fewer people."

A Campaign Pledge

The plan also reflected the Mayor's campaign pledge to create a leaner government that lives within its means and provides essential services while cutting taxes for the city's seven and a half million residents.

On taxes, Mr. Giuliani proposed a $28 million reduction in the commercial rent tax and a $7 million cut in the tax on hotel rooms next year. Over the next four years, he has proposed nearly $1 billion more in sundry tax cuts, including a $70 million reduction in property taxes for co-op and condominium owners in 1996 that was first suggested by Council leaders.

Mr. Giuliani's plan would also consolidate some agencies and introduce other efforts to "reinvent government" that he promised in his campaign. The plan calls for merging the city's Police Department with the Housing and Transit Police Departments, a proposal that has met stiff resistance from the Metropolitan Transportation Authority. It also calls for moving the Parking Violations Bureau into the City Finance Department and dismantling the Taxi and Limousine Commission, handing its enforcement powers to the police.

In another controversial proposal, Mr. Giuliani has stuck by his earlier plan to save $7 million next year and $88 million each year after that by using an electronic device that fingerprints recipients of welfare payments.

Wall Street Reaction

On Wall Street, the reaction was generally favorable. Richard P. Larkin of Standard and Poor's Corporation, a bond rating agency, said the plan was "one of the more positive budgets we've seen in the last five years in terms of trying to get spending in line with recurring revenue." But he added that "this budget still contains items for which the city has been criticized in the past."

Mr. Larkin said bond traders were troubled by the Mayor's plan to save $225 million by stretching out the city's debt and to raise $110 million by selling off some city assets, including WNYC-FM's license. He also criticized a plan to borrow $215 million against future tax revenues. None of those actions would help to reduce the city's long-range budget problems, he said.

Copyright 1994 The New York Times Company