A New York City bond program, the model for Gov. Gray Davis' plan to finance part of the state's budget deficit, has been overtaken by the city's recent financial problems and may require the sale of new bonds to pay off the old ones.

So, as New York taxpayers are still paying off the debt run up during the city's famous bout with insolvency nearly 30 years ago, they may be on the hook for another 10 years before they pay off the remaining obligation.

That experience has New York financial experts wondering about the wisdom of the 1975 bond program and Davis' plan to mimic it to solve a big part of California's $38.2 billion deficit.

"How many generations do you want to keep paying what is essentially a debt problem from one point in time?' asked Doug Turetsky, spokesman for the New York City Independent Budget Office, a city oversight agency. "It's generally not a good idea to start borrowing money to pay your debts.'

While experts point out differences between New York's problem in the mid-1970s and California's current crisis, there are many similarities between both fiscal crises and methods of fixing them.

Davis' revised budget, released Wednesday, calls for $8.3 billion in new taxes and more than $18 billion in cuts and savings. But the centerpiece of the proposal is the plan to sell bonds to pay off the state's existing deficit.

By June 30, the end of the current fiscal year, the state will have spent about $10.7 billion more than it has taken in. If unchecked, the shortfall will reach $38.2 billion by July 2004.

Like New York 30 years ago, California's fiscal crisis is the product of declining revenues and rising costs of services. In New York, the shortfall was hidden for years behind questionable bookkeeping practices and budget gimmicks. In California, the downturn was painfully swift on the heels of recession and the collapse of the stock market.

When New York faced bankruptcy in 1975, the city was unable to borrow more money to pay its bills. So city and state leaders created the Municipal Assistance Corp., a public-trust agency established outside city government. Back by the state treasury, the agency sold bonds that were paid off by city sales taxes.

Between 1975 and 1984, the corporation issued nearly $10 billion in bonds to bail out the city. Still outstanding is $2.5 billion of the total which costs city taxpayers about $500 million a year in interest payments.

The last bonds are set to expire in five years, but budget problems brought on by recession and the aftermath of the Sept. 11, 2001, attacks led New York Mayor Michael Bloomberg to ask the state to help refinance the remaining debt over 30 years.

New York Gov. George Pataki rejected Bloomberg's idea this week but offered to help pay off the notes in 10 years.

Now, Davis wants to follow New York's lead by creating a separate agency to sell $10.7 billion in bonds and pay them off with money from a half-cent sales increase.

Unlike New York in 1975, California can still borrow money, although the state has one of the nation's lowest credit ratings. But Davis said California must create a special agency to control the repayments to skirt constitutional requirements that some of that money be shared with schools.

The administration also contends that bankers have insisted they would need a guaranteed source of repayment before they would consider buying the bonds.

Also unlike New York, Davis plans to pay back the bonds in five to seven years. Most banking experts say seven years is a short enough period for the state to pay off its bonds without having to refinance them.

Nevertheless, borrowing money to pay for the costs of operating state government is a bad habit that lead fuel more deficits, said Fred Silva, a senior adviser at the Public Policy Institute of California.

Because Californians "expect a high level of service, but are reluctant to raise taxes,' Silva said, the state "has to come to grips with either raises taxes to provide the service or reduce services.'

State Controller Steve Westly said he is comfortable with the governor's plan because the terms of loan will be locked in.

"There are two requirements for borrowing that you have a dedicated money stream for paying it back and you commit to when you will pay it back,' Westly said. "It's a simple standard and that's what we need to do.'

Stephen Levy, director of the Center for Continuing Study of the California Economy, said that California has a track record for using temporary taxes to solve budget problems. "There always been the fear that when government gets an increase in revenue that they will not impose the discipline, but that's not been the experience.'