New Yorkers say their region stands alone in all sorts of ways. But few citizens of this sprawling city and state know it is the undisputed leader in an undesirable arena: government debt.

New York City and New York State are far and away the largest debtors in the nation, outside the federal government. The city has $42 billion in loans outstanding, and the state has $38 billion.

No one else is even close, the State of California running a distant third, at $25 billion.

Now, as New York navigates the narrow fiscal straits brought on by recession and the Sept. 11 attack, and surpluses have given way to yawning deficits, those debts loom larger, fiscal monitors say. The state and city each spend about $4 billion a year on debt payments, limiting the money available to weather a crisis without cutting essential services or resorting to fiscal gimmicks that push today's costs onto future generations.

In announcing his budget plan last week, Mayor Michael R. Bloomberg proposed that the city take on even more debt, $1.5 billion, to help cover a $4.7 billion budget gap. That would mean selling bonds to cover day-to-day expenses, something the city has not done since the fiscal crisis of the 1970's.

Mr. Bloomberg acknowledged that doing so was an extraordinary step, and all but pleaded with bond-rating agencies to accept the tactic, promising that borrowing to reduce coming years' deficits would not become an annual tool. The mayor also wants to refinance some debt, to reduce the interest payments over the next several years to get through this tough stretch.

Borrowing money can play an important, valued role in government - one accepted by even the most conservative critics - when it is used to pay for high-cost, long-lasting assets like bridges, railroads and power plants that would otherwise take decades to buy. The question, then, is not whether to borrow, but to what degree.

According to the text, New York City and New York State