The New York State Financial Control Board said yesterday that New York City's financial condition has improved significantly during the current fiscal year, but called on officials to develop a plan to cure the city's long-term budget problems.

In its quarterly review of the city's 1992 fiscal year, the control board attributed the city's strengthened financial condition to the establishment of the Local Government Assistance Corp., created by the state in 1990 to speed aid payments to municipalities, and improvements in the city's so-called Program to Eliminate the Gap.

Allen J. Proctor, executive director of the control board, termed the report "very positive" in terms of its critique on the city's short-term financial status. But he added that the city must now turn its attention to more long-term budget needs, such as the existence of a structural budget deficit in the so-called "out" years of the mayor's financial plan -- fiscal years 1994 through 1998.

Mr. Proctor, in a telephone interview yesterday, said the city's debt service costs, for example, will increase $2 billion in the next six years as the city expands its capital spending program. At the same time, New York City faces projected deficits of at least $1 billion each year, which will force the city to cut programs unless it reduces its capital spending agenda or raises taxes, Mr. Proctor said.

Another major area of concern cited by the board involves financial cooperation between the city and the Board of Education. The report says the city and board do not cooperate on financial issues, and that the city has failed to ensure that the board adheres to its "gap-closing strategy."

However, the report stands in stark contrast to the control board's critique of fiscal 1991, in which the board cited problems with the city's cash management and revenue management procedures. Specifically, the control board said the city failed to meet several key areas of cash management, including work force reductions, a monthly monitoring system to oversee spending cuts, and a reduction in the city's issuance of short-term debt.

But that was before municipalities such as the city began reaping the full benefits of the Local Government Assistance Corp., yesterday's report says. State lawmakers designed the corporation to help reduce the issuance of tax anticipation notes sold by towns, villages, and cities before their state aid payments are made available.

The report says the combination of LGAC and the on-time adoption of the state's fiscal 1993 budget improved the city's cash-flow so much that finance officials can issue $1.4 billion in notes in fiscal 1993 compared with $2.25 billion issued during the current fiscal year.

In their recently adopted budget, city officials confirmed they would issue less notes for the next fiscal year than they did for the current fiscal year. The budget, for example, called for the issuance of up to $2 billion in short-term notes.

Last week, city officials indicated they may reduce this borrowing even more. Officials in the city's Office of Management and Budget said that later this month the city will sell competitively $725 million in Rans, maturing June 30, 1993, and anywhere from $700 million to $1 billion in Tans, maturing April 14, 1993. In subsequent interviews, officials from the city comptroller's office said the exact amount of the sale has not been determined.

In terms of the changes in the city's Program to Eliminate the Gap, the control board applauded the city's monthly monitoring of how this expense-reduction effort is carried out. The report says the city during fiscal 1992 began the monthly review of each agency's gap-closing efforts.

The report also says the new effort has "significantly improved the city's ability to identify and correct [Program to Eliminate the Gap] shortfalls and at the same time to verify the achievement of ongoing PEG savings."

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