by Manny Fernandez

Tucked into Gov. David A. Paterson’s budget proposal in December was a little-noticed measure authorizing the Battery Park City Authority to transfer up to $270 million in excess revenues to the state’s general fund. The move, intended to help close the state’s $15 billion deficit, would take effect March 1, according to state budget documents.

But there was one problem: The Bloomberg administration was set to use the money to finance low- and moderately-priced housing in some of the city’s poorest neighborhoods. The money was the main source of financing for the $400 million Affordable Housing Trust Fund, which was created in 2007 as part of the overhaul of a tax break for housing developers known as the 421a program.

Now, the surplus money from the authority, a state-controlled agency that oversees the 92-acre Battery Park City site in Lower Manhattan, has become the focus of a fight between the Bloomberg and Paterson administrations. Mayor Michael R. Bloomberg, Governor Paterson and the city comptroller, William C. Thompson Jr., have joint oversight over the use of the surplus.

“If you were to take all of the Battery Park City surplus and use it to help plug the hole in the state budget, you would end the Affordable Housing Trust Fund before it began,” the City Council speaker, Christine C. Quinn, who worked to establish the trust fund, said in an interview on Wednesday.

But a spokesman for Laura L. Anglin, the state budget director, said the governor’s proposal did not seek to take all the surplus away from the city. The spokesman, Jeffrey Gordon, said the proposal entailed raising a total of $540 million by letting the authority issue up to $500 million in bonds. The other $40 million would come from the Battery Park City Authority surplus. The state and the city would each receive $270 million to use as they see fit.

“The governor shares the city’s commitment to building affordable housing, and will continue to seek opportunities to maintain this longstanding commitment within the current fiscal climate,” Mr. Gordon said in a statement on Thursday.

Still, city officials and advocates for low-income housing are skeptical of the state’s plan. One city official said the governor’s proposal to issue bonds to increase the surplus in the joint fund seemed like an unwise financial move, and likened it to someone’s taking out a mortgage to pay for groceries.

Both Mr. Bloomberg and Mr. Thompson are opposed to the state’s plan to use the Battery Park City surplus, as are several advocates and nonprofit developers of low-cost housing. They said that the housing trust fund was a crucial “gap filler” at a time when the recession had all but crippled the financing of so-called affordable housing.

“While I recognize the need in these tough fiscal times to identify all available revenue sources, state and city budget challenges should be met without sacrificing this much-needed commitment to affordable housing,” Mr. Thompson said in a statement.

The negotiations over the surplus also appear to have been marred by poor communication between City Hall and Albany, with each side saying it has had few details about the other’s intentions and plans.

Mr. Gordon said that when state budget officials reached out to the mayor’s budget office in November to discuss the state budget, and the use of the surplus in particular, no one informed the state that the city had earmarked the money. “We were not aware that there were intentions to use this particular money for affordable housing,” he said.

A spokesman for the mayor, Marc LaVorgna, said he was not aware of the conversations, but said, “We have been using the money for affordable housing for the last three years, and we never intended to change that.”

The Battery Park City Authority collects rent and payments from landlords in Battery Park City made in lieu of taxes. After paying expenses, the authority has for years put its surplus into a Joint Purpose Fund, which is held by the authority and made up of annual surpluses from previous years. In October, it had a total of $215 million, according to authority documents. It must be used for “purposes unanimously decided upon” by the mayor, the city comptroller and the governor, who controls the authority, the documents state.

The city has already used part of the surplus for housing. In 2005, the mayor and Mr. Thompson called for financing 4,500 units of low-cost housing by using $130 million in Battery Park City surplus money, a plan that Gov. George E. Pataki and the authority’s board approved in 2006.

About $100 million of the $130 million has been used so far for low-cost housing, helping to finance more than 2,350 units around the city.

The idea for the Affordable Housing Trust Fund came about as part of negotiations with the Bloomberg administration, the City Council, housing advocates and real estate developers to revamp the 421a program, a popular tax break for housing developers, to encourage the construction of thousands of apartments for low-income residents. Gov. Eliot Spitzer signed the legislation overhauling the program in 2007.

The new program established the fund — the city said it intended the fund to have $400 million — to develop low- and moderately-priced housing, primarily in the city’s 15 poorest neighborhoods. But the negotiations and the legislation did not specify a source of financing. The city proposed using the Battery Park City surplus. Mr. Thompson had agreed in theory to it, and city officials said that the governor at the time, Mr. Spitzer, had also supported the idea.

But the city was slow to finalize the financing arrangements of the trust fund in a document, which has further complicated the fight over the surplus.

Adam Weinstein, president of Phipps Houses, a nonprofit group that owns and manages low-cost housing in the city, said that he had been relying on financing from the trust fund.

“It’s troubling news,” Mr. Weinstein said. “It’s troubling for projects that are more affordable and therefore rely more heavily on this funding.”