New York City Mayor Rudolph W. Giuliani yesterday pleasantly surprised municipal bond analysts by unveiling a fiscal 1995 gap-closing plan that eliminates a $1.1 billion budget shortfall without fiscal gimmicks or bond refundings.

Giuliani's plan, which still needs approval from the city council, would reduce city spending by $810 million in fiscal 1995 through workforce reductions and increased productivity.

The plan will squeeze another $200 million of savings by cutting expenditures on health care for city workers. following an agreement reached Monday night with the city's labor unions.

The ambitious gap-closing plan was immediately applauded by credit raters and market analysts. These observers said Giuliani appears willing to make budget cuts often avoided by his predecessors, who would rely on refundings and other devices to plug mid-year holes in the city's budget.

In his presentation to reporters and council members, Giuliani wasted little time in .drawing attention to the absence of gimmicks in the gap-closing proposal, and called on his potential critics in the city council to come up with a more fiscally prudent way to balance the city's fiscal 1995 budget.

"How are we going to close" the fiscal 1995 budget gap? Giuliani said. "The first thing I'm going to say is that we are going to close the gap without refundings or refinancings. One-shots are not being used."

Several market analysts told The Bond Buyer that they need more time to determine how realistic Giuliani's proposals are, and to weigh the veracity of Giuliani's words. In fact, city Comptroller Alan Hevesi says the fiscal 1995 gap is $300 million higher than Giuliani's estimates. "The devil is in the details," said Richard Raphael, a managing director at Fitch Investors Service, which rates city bonds at an A-minus.

In fact, several analysts said they are waiting to see the outcome of Giuliani's next budget modification and preliminary fiscal 1996 budget, set for release in January, before making a definitive statement on the direction of the city's finances.

Still, the broad outlines of the proposal forced even the most skeptical to reassess the city's fiscal outlook.

"I think he's done a good job," said Michael Brooks, a municipal credit analyst at Sanford C. Bernstein & Co. Brooks has consistently predicted a downgrade in the city's various bond ratings based on what he says was former Mayor David N. Dinkins' inability to balance the city's budget in a fiscally prudent manner.

"I think Giuliani was dealt a very poor hand and he has played it as well as anyone could have," Brooks said.

In fact, the proposal, if implemented, may save Giuliani from a politically embarrassing downgrade in the city's bond rating from Startdard & Poor's Corp.

At the moment, Standard & Poor's rates the city's debt A-minus with a negative outlook. And analysts there have threatened the Giuliani Administration with a downgrade if officials addressed the city's budget problems with one-shot revenue raisers or other fiscal gimmicks.

"I'm looking for the gimmicks and the soft items, but I can't find them," said Richard Larkin, a managing director at Standard & Poor's. "I think this document gives us confidence that the city is moving in the right direction to retain its A-minus rating."

According the plan, the city will increase this year's planned workforce reduction to almost 20,000 from 15,000. The cuts will come through attrition and by offering another round of severance packages to city employees.

The city will also reduce its subsidy to the Metropolitan Transportation Authority by $113 million. Giuliani said the authority can replace these revenues with its budget surplus.

Giuliani attributed the $1.1 billion gap to growth in overtime costs, a loss in pension earnings, failure to obtain federal aid and achieve tort reform legislation, and a decline in profits on Wall Street.

The mayor said his gap-closing plan will go beyond addressing these immediate concerns, and begin addressing the city's long-term or structural deficit. New York City faces billions of dollars of gaps through the life of its financial plan, including a gap of about $1 billion in fiscal 1996, which begins July 1, 1995.

"I'm impressed with the plan," Brooks said. "The big question is can he deliver. He's clearly saying the right things."

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