CRANSTON — Mayor Allan W. Fung knew when he took office on Jan. 5 that the city’s budget was in trouble.

More than $4 million in state aid for the current year was on the chopping block, and the winter season was already looking to be a costly one for snow removal.

What the new Republican mayor didn’t know is that some of the budget trouble was built in.

Tucked away in the budget he inherited is a line item that is identified as a “taxpayer escrow account.” For accounting purposes, it is listed as a negative expense, one that totals $1.5 million.

In reality, that line calls on the city to obtain $1.5 million in concessions from city employees to balance the current-year budget.

But when Fung took office in January, none of those concessions had been negotiated. And he says he learned of the line only after his financial director discovered it.

“From what we were able to find out, there was no corresponding offset on the revenue side,” he said. “It’s just bad budgeting.”

Former Mayor Michael T. Napolitano, who did not seek reelection, said he tried to get concessions but could not negotiate anything “really substantial.” Firefighters, for instance, made some offers but also wanted a two-year contract extension that the city wasn’t prepared to give, he said.

Asked about the practice of balancing the budget with a line item that had counted on future concessions, Napolitano, a Democrat, pointed to the City Council.

“The City Council put it in,” he said. “I didn’t think it was a good idea.”

The council’s current president, John E. Lanni Jr., said the board added the $1.5-million line to the budget with the goal of pushing the issue of concessions, which everyone believed were needed.

“The burden of running the City of Cranston can’t just be on the taxpayers, it’s got to be spread across the board,” he said.

Lanni was not entirely sympathetic to the challenge now faced by Fung.

“Every mayor I’ve ever dealt with, especially when it’s a new mayor coming in from a different party, you always look back and say ‘Here’s why we’re in a mess,’ ” he said.

All told, Fung said the city faces a deficit of up to $6.2 million during the current budget year if state aid is reduced as Republican Governor Carcieri has proposed. That doesn’t include the School Department deficit, which Supt. M. Richard Scherza recently estimated at about $1.6 million.

In response, Fung said he has imposed freezes on purchasing, hiring and overtime.

He is also talking with unions about concessions — for the current year and future years — and in a presentation last week to the School Committee, he urged the School Department to do the same.

In particular, he urged the committee to push for higher employee health insurance premiums, noting that a preliminary performance audit of the School Department suggests a $1.2-million annual savings if all employees raised their share by 5 percent.

Committee members seemed to be listening.

After Fung left the meeting — to return to a union negotiation session, he said — the committee shaved $1.4 million off Scherza’s proposed budget for 2009-2010, lowering the request to $126.5 million.

Most of that cut — $1.2 million — counts on concessions becoming a reality. But unlike the City Council, the committee appears to be intent on getting concessions before the budget cycle in which they are needed actually begins.

“If we don’t achieve the concessions by June, we’ll have to cut programs,” said committeeman Steven A. Stycos, who proposed the reduction.

In his presentation to the committee, Fung painted a bleak picture of the city’s fiscal health.

On top of the potential loss of more than $4 million in state aid on the city side alone, as well as snow removal costs that are over budget and the $1.5 million line item for concessions, he said the city is taking in less than expected in other areas, including interest income, which is off by $750,000.

Depending on how his concession talks go, Fung said he is considering furlough days and layoffs just to get through the current fiscal year.

The 39-year-old mayor also said he might have to cut money for recreation programs and close the Budlong Pool.

“Do I want to be known as the mayor who closed that pool? No,” he said. “But in our daily lives, what’s the first thing to go? … It’s all those fun things.”

redgar@projo.com