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Mayor Jacob A. Palillo stuck to his guns Monday night saying there is no deficit in the 1995 budget.

"We're three months into the new budget. How could you declare a deficit?" he said to nearly 40 people, about 10 of them city employees, at a "Meet the Mayor" session in St. John de LaSalle Center.

Palillo defended his decision to take the City Council to court, saying he has to preserve the powers of the mayor under the City Charter. Lawyers for the mayor and the Council are scheduled to face off in State Supreme Court Friday over whether the Council may act under a section of the charter that Palillo says may be set in motion only if the mayor declares there is a deficit.

He filed the suit after the Council said it would act under that section of the charter to review the budget either to approve Palillo's plan to improve city finances or to come up with a plan of its own. He earlier said it was the Council's duty to come up with its own plan if it disagreed with his.

But Monday he said if the Council may act under that section of the charter to accept his plan or come up with a different one, based on the "past history" of relations between him and the Council, "that would take me out of the loop."

The Council claims the recent disclosure of the city's financial problems and the danger of the city's bond rating being downgraded to "junk bond" status were sufficient to invoke that section of the charter.

Council Chairman John G. Accardo has said the whole battle is over the word "deficit." Whether or not a deficit has been declared to exist in the 1995 budget, he said, there is a "structural deficit" because the city is spending more than it is taking in. The city has been relying on one-time revenues to take up the slack but the city's financial advisers have said the city must stop that practice and replace the one-shot revenues with recurring revenues.

Like the Council, Palillo claims he must preserve the powers of his branch of government.

"I've been struggling for three years to preserve the mayor's powers under the charter. This would be the last straw," he said.

Accardo said last week the Council must go to court when its powers are ignored or denied by the executive branch. The Council has twice taken Palillo to court over budget powers.

Also Monday, Palillo gave updates on several issues of interest in the LaSalle section. He said he expected the dredging of the Little Niagara River and the demolition of the former Cayuga Drive School to be completed this year.

Charles L. Guarino, deputy director of economic development, said the city administration this year is going to make a priority of going after a development for the long-vacant Pacific Avenue School site at 72nd Street and Buffalo Avenue. And, he said, Cayuga Drive from Tuscarora Road to the east city line is scheduled to be repaved this year.

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