New York City last week made official what most fiscal observers already knew - that the city's budget problems are worse than officials in the administration of Mayor David N. Dinkins were willing to admit.

The change of heart came as Dinkins prepared to turn over City Hall to Mayor-elect Rudolph Giuliani. Last week, finance officials working for Dinkins admitted that Giuliani will be facing a budget gap in fiscal 1995, which begins July 1, of $1.73 billion, about $450 million more than the mayor's people had projected months earlier.

Officials also said that while they expect the $31.5 billion fiscal 1994 budget to remain in balance, the city will face widening budget gaps in fiscal 1996 and 1997.

City budget officials said the new gap projections are partially the result of higher than anticipated spending on schools, and a decision by City Hall not to count savings from a proposed state takeover of the city's Medicaid costs.

The news, released as part of the city's November modification to its four-year financial plan, brought predictions from members of the Giuliani camp that the city is facing a fiscal crisis.

But fiscal watchdogs said the city was finally admitting in public what the monitors have said all along.

"This is not a new development," said Dean Mead, a senior research associate for the Citizens Budget Commission. "There's a tacit acknowledgment of the problem now, where there wasn't before."

Mead also said that the fiscal 1994 budget could be difficult to balance. "I don't feel this year is the free and clear budget everybody says it is," he said. "I don't think Giuliani has a free pass."

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