ALBANY -- The challenges facing Gov. George Pataki and the Legislature as they return to Albany this week come down to two things: money and reform.

Dogging the governor and lawmakers is the latest in a string of budget deficits that began to show in 2002 amid a national recession and the financial aftershock of Sept. 11.

Amplifying the state's chronic budget stress are other pressing money issues. Counties are crying for relief from overwhelming Medicaid costs. A court is weighing an order to spend billions more on New York City schools. A massive health care funding bill awaits renewal. And an advisory group says the state isn't spending enough to keep up with decaying roads and bridges.

Against that backdrop are growing calls for reform -- of the Legislature, of the budget process and of the lobbying industry.

Toss in a few other weighty matters -- reforming the elections process, an unconstitutional death penalty law and a raise for lawmakers -- and it's a pretty full agenda.

Here's a quick look at the issues, players and prospects for legislative action:

Budget deficit

If the governor's budget estimates are right, the state faces a shortfall of about $6 billion.

The Legislature, Pataki, special interests and politics all contributed to the imbalance. The 2004-05 budget of roughly $101.3 billion followed Albany tradition -- spend more than you expect in regular revenue and fill the gap with ``one-shots,'' such as this past year's $283 million in borrowing instead of ``pay-as- you-go'' capital projects.

Most conservatives blame Pataki for failing to hold down costs, but the Legislature did override his 2003 vetoes of $1.3 billion in spending and ``temporary'' income tax increases. When he vetoed $1.6 billion in spending and borrowing in 1998, Assembly Speaker Sheldon Silver, D-Manhattan, sued him. This year, Silver lost and Pataki's power of the budget was solidified.

Add to this some big-ticket items now coming due -- mandatory increases in spending for New York City schools, Department of Transportation and Metropolitan Transportation Authority construction costs and renewal of the Health Care Reform Act.

The debate: Bottom line: Spend more on worthy, or less- than-worthy, special interests, or cut and anger a lot of voters and campaign contributors.

Key lobbyists: Every special interest in the state, particularly SEIU 1199, an influential health care union, and highway contractors.

Outlook: Unclear. Pataki always puts out a presumably balanced budget. Loathe to raise income tax, he will likely boost or create some fees, propose more work force cuts, and offer a few more one-shots.

More information: http://www.budget.state.ny.us.

School aid

The state is under court order to provide billions more for New York City schools as a result of a law suit brought by the Campaign for Fiscal Equity. The amount has yet to be set, but a court panel recently recommended $1.4 billion this year, rising to $5.6 billion over five years. The five-year cost reaches $23.3 billion with construction figured in.

The state now spends $15.4 billion on annual school aid statewide.

The debate: The education lobby, including CFE, teachers unions, school boards and others, say education aid should rise for schools statewide to avoid an upstate-downstate clash. No one has disagreed with that, but the larger, unanswered question is by how much, and where the billions of dollars will come from.

Key lobbyists: CFE; the Alliance for Quality Education, a statewide group also pushing for more school funding; the state School Boards Association and teachers unions. The Foundation for Education Reform and Accountability and the Business Council have argued for more accountability on the part of schools.

Outlook: A final court order is expected any day now, though Pataki could appeal to buy more time. Even so, the Legislature's substantial downstate contingent may push for more funding now.

To pay for it, lawmakers will look at raising income or property taxes, allowing more gambling or removing tax exemptions on services ranging from bowling alleys to coin-operated laundries.

More information: CFE: http://www.cfequity.org. Alliance for Quality Education: http://www.allianceforquality education.org. Citizens Budget Commission: http://www.cbcny.org. School Boards Association: http://www.nyssba.org. New York State United Teachers: http://www.nysut.org. Foundation for Education Reform: http://www.nyfera.org. Business Council of New York State: http://www.bcnys.org.

Lobbying reform

An estimated $120 million- plus is spent on lobbying in Albany, but that's only the cost for lobbying the Legislature. Lobbying the executive branch on contracts and other official business isn't reported.

A Senate bill with new rules on procurement lobbying was killed by Pataki and Silver in 1999. The Temporary State Commission on Lobbying and government reform groups continue to push for broader laws to include all attempts to influence state or local legislative, administrative or official actions.

The debate: No elected official has publicly opposed the concept other than to say details need to be worked out. But negotiations occur in private, so it's unclear why talks bog down.

Key lobbyists: The New York Public Interest Research Group.

Outlook: The Lobbying Commission held a hearing on a draft bill in 2004. Bruno said the issue is a priority, but left Albany last year without bringing it up. Pataki isn't keen on the legislation, so it could continue to stall unless a compromise is found or the Legislature is prepared to override a veto.

More information: Draft reform bill: http://www.nylobby.state.ny.us/lobactcomments.html

Health care

Legislators have to renew the Health Care Reform Act, a $4.7 billion fund supported by tobacco and hospital taxes and the state's share of a nationwide tobacco settlement. HCRA, which expires June 30, pays hospitals for free care and doctor education, and programs for the needy, such as Family Health Plus and the Elderly Pharmaceutical Insurance Coverage (EPIC).

State leaders have pledged to reduce the growing burden of Medicaid spending borne by local government, but there's little agreement on how to save money. Some call for encouraging recipients to take less-costly prescription drugs, while others push for limiting who gets help to pay for nursing home care.

The Legislature also must grapple with changes coming out of Washington, D.C., like the new Medicare drug benefit, which debuts in 2006.

The debate: This could be a chance for the state to boost quality of care while reining in spending. A working group commissioned by Pataki has called for streamlining the hospital system to have more basic care done in less costly clinics and doctors' offices; boosting information technology; reducing mistakes and saving money. Hospitals say they're already in the red. Consumer advocates want to expand programs.

Advocates want to protect current Medicaid benefits, arguing that only fundamental reforms will save money, not cuts like eliminating root canals for the poor. Assembly Democrats will likely split over limiting Medicaid costs by using a preferred drug list that some consider dangerous meddling in the doctor-patient relationship.

The new federal Medicare program will help the state save money on EPIC, and advocates are pushing to use that to cover more needy families and seniors.

Key lobbyists: Hospitals are represented by the Greater New York Hospital Association and the Healthcare Association of New York State. On the workers' side, in addition to SEIU/1199 heavyweight Dennis Rivera and GNYHA head Ken Raske, Featherstonhaugh Wiley Clyne & Cordo has worked for GNYHA and 1199/SEIU; Hinman Straub and Meyer Suozzi English & Klein also have represented 1199/SEIU.

Don't forget deep-pocket pharmaceutical companies with their hefty campaign contributions and legions of in-house and contract lobbyists. Lastly, advocacy groups like AARP and NYPIRG are at the heart of health care debates.

Outlook: Conventional wisdom says little will change, but past HCRA deals saw the addition of Family Health Plus and a multibillion-dollar deal between Pataki and Local 1199 for health care worker training, pay raises and benefits.

A new Medicaid drug program gains cachet because scandals over Vioxx and Celebrex cut into the clout of pharmaceutical companies. Any Medicare funding windfall will probably land in the general budget, not a new program.

More information: http://www.hanys.org; http://www.citizenactionny.org/healthcare/healthcare_index.html, http://www.housingworks.org/aidsissues/nystate.html

Transportation

An advisory panel appointed by Transportation Commissioner Joseph Boardman predicts serious trouble unless tens of billions of dollars are invested in the next five years.

The state's Dedicated Highway Fund is short, with estimated revenue this fiscal year at just over $2 billion and expenditures of $2.8 billion. The fund is already tapping $970 million a year to repay past debt.

Panel members say the current funding and transportation bureaucracy cannot address New York's deteriorating roads and bridges, congested highways and transit facilities, shortage of freight rail capacity and other problems. Rising debt costs, uncertain federal funding and a shortage of reliable revenue sources are an added headache.

The debate: No one disputes improvements are needed to deal with growing trade demands, security concerns and congestion, but there's much disagreement on what projects deserve the highest priority.

Key lobbyists: Looking for more funding will be the Associated General Contractors, Amalgamated Transit Union, Transit Alliance and freight railroads, including CSX Corp. Environmentalists may push proposals that could improve air quality.

Outlook: Raising taxes and fees to do the work is bound to be a hard sell, though the Thruway Authority is already raising tolls.

If the feds approve a new multi-year transportation spending plan early in 2005 it could greatly help state leaders in designing New York's master plan.

More information: Capital District Transportation Committee: http://www.cdtcmpo.org/. MetropolitanTransportation Authority: http://www.mta.nyc.ny.us/. State Department of Transportation: http://www.dot.state.ny.us/

HAVA

The governor and lawmakers must agree on how to meet the requirements of the Help America Vote Act of 2002 or risk losing millions of dollars in federal funding and possible sanctions by the U.S. Justice Department. The act was passed to help states modernize election systems and prevent the kind of problems seen in the 2000 presidential elections.

In 2004, the Legislature passed a stop-gap bill to address the most pressing HAVA deadlines, which listed acceptable forms of identification for first-time voters who registered by mail after January 2004. But the bill expires in July.

The state also got a waiver to delay replacing lever voting machines with new electronic ones until fall 2006, at an estimated cost of $140 million. A statewide database of voters must also be in place by next January.

New York has already received $66 million to implement HAVA but can't use it until lawmakers reach agreement on the various HAVA requirements. The state has lost as much as $100 million it could have received, according to state Board of Elections spokesman Lee Daghlian.

If 2006 deadlines are missed the state could lose the $66 million but still have to comply with HAVA.

The debate: Lawmakers are debating a host of issues: whether to require the same voting machines statewide, or give local boards of elections choices; how handicapped accessible the new machines must be; whether the state or local boards would be responsible for the machines and their upkeep; whether identification requirements should be broad or limited; whether full-face ballot, with all candidates and races listed on one page, should still be required; and whether machines should have to provide a paper trail.

Key lobbyists: For voting machine companies: Davidoff, Malito & Hutcher for Election Systems Software; Greenberg Traurig for Diebold Election Systems; Powers & Company for Accupoll; Capitol Group LLC and Featherstonhaugh, Wiley, Clyne & Cordo for Liberty Election Systems.

The New York Public Interest Research Group, Common Cause/New York, the New York Civil Liberties Union, the League of Women Voters and the Brennan Center for Justice are also involved.

Outlook: The issue has been off the table, but the specter of losing federal funding means a deal must be cut this year.

More information: http://www.fec.gov/hava/hava.htm

Legislative reform

Following a scathing July report from the Brennan Center for Justice at the New York University School of Law, which called the state Legislature the nation's worst and most dysfunctional, every elected state official seemed to morph into a reformer.

Even those who dismissed the report -- Senate Majority Leader Joseph Bruno, R-Brunswick, called it ``pure nonsense'' -- said some of its proposed changes in how business is conducted in the two chambers should be considered.

But post-election it's been business as usual. Most talk among legislators about reform has been behind closed doors, as was their vote to keep their current leaders in power for two more years. In a special session in December, last- minute deals were hashed out by the ``three men in a room'' -- Bruno, Silver and Pataki. Lawmakers had little or no time to review the bills before voting.

Lawmakers complain about the negative press they're getting, with some claiming the real problem is the other house. Those publicly pushing for change, like Assemblyman Scott Stringer, D-Manhattan, have also been targets of their colleagues' ill will.

Most of the focus in the waning weeks of the 2004 session was on budget reform, which lawmakers believe constituents care more about than rules changes.

The debate: Lawmakers say some of the Brennan proposals, like requiring members to be in their seats to vote, will make their jobs harder.

And neither house seems keen on increasing power for minority members or taking power from the majority leaders.

Supporters of rules changes say they will make government more democratic, open and equitable by giving back-bench lawmakers more of a role.

Some, like Assemblyman Richard Brodsky, D-Westchester, say changing the rules won't significantly improve Albany and that a constitutional convention is needed to adjust the balance of power between the legislative and executive branches.

Key lobbyists: Jeremy Creelan, a Brennan report author. Good government groups. Grass-roots groups and local advocates who have embraced the pro-reform message, like Plainville Turkey Farms owner Mark Bitz in Onondaga County and the Rochester-area Citizens for New York State Legislative Reform.

Outlook: Rules changes are among the first orders of business. The Assembly appears to have the edge; it held a two-day retreat from which a reform plan is supposed to be drafted.

More information: http://www.brennancenter.org.

Budget reform

Changing the process that produced 20 straight years of late budgets is a key priority. Good government groups, editorial boards, and voters have all called for a fix. Appealing to legislators' survival instinct, Nassau County Executive Thomas Suozzi has been working to remove recalcitrant lawmakers.

Various budget reforms pushed by Pataki and the Legislature haven't matched. A compromise bill passed both chambers in 2004, and called for moving the start of the fiscal year from April 1 to May 1, when more data about the economy and revenues are available; a contingency budget that would take effect if the budget is late; and an independent budget office.

Pataki, worried about surrendering too much control, vetoed the bill. The Senate in December passed a compromise that Pataki has indicated he favors, but the Assembly is still working on a three-way resolution.

The debate: The Citizens Budget Commission, among others, criticized the reform plan vetoed by Pataki, saying it could foster continued delays. NYPIRG and others say the governor should approve some reform legislation, and then work to strengthen it.

Lawmakers argue a contingency budget would end the uncertainty many state-funded entities face when the budget is late. Pataki wants to be assured a role in shaping the contingency plan.

Key lobbyists: League of Women Voters and New York Public Interest Research Group lobby for reform while the Manhattan Institute and the Citizens Budget Commission lobby for caution.

Outlook: Substantial momentum from last session and growing public pressure will likely lead to a compromise this year.

More information: http://www.cbcny.org/BudgetReformStatement_5-25.pdf. http://www.nypirg.org/goodgov/reformny/10steps.html.

Death penalty

When the state's top court ruled in June that New York's 1995 death penalty law was unconstitutional because of the way juries are instructed, top lawmakers vowed to fix it. Six months later, they haven't. The Senate passed a new bill, but the Assembly is holding hearings before it acts.

Of the seven men sentenced to death under the law, none has been executed.

The debate: Pataki and other supporters say the death penalty deters crime. Critics charge the law is ineffective because of the lengthy appeals process, and has cost state and local governments up to $170 million in less than a decade. The state pays for both the prosecution and defense in most cases.

Key lobbyists: New Yorkers Against the Death Penalty.

Outlook: With support of the three top leaders, the death penalty would normally pass, but support seems to be waning in the Assembly. Given New York's budget crunch, opponents could stress its hefty price tag.

More information: http://www.nyadp.org, http://www.deathpenaltyinfo.org, http://www.dpinfo.com

Pay hikes

Though lawmakers universally swear they've never formally talked about a pay increase, the issue popped up after the November election, when Bruno and Senate Minority Leader David Paterson both mentioned it on the same day.

Too late now. Lawmakers technically can't vote themselves a raise, so they're stuck with their part- time salaries of $79,500 a year, plus ``lulus,'' stipends for committee or leadership posts worth thousands more. They could order a bump for the next Legislature.

The debate: Some senior legislators argue pay is too low and that the lulu system allows leaders to control and intimidate members. Paterson and others prefer a flat salary of perhaps $90,000.

Outlook: Given the Legislature's high re-election rate, any future raise is pretty much money in the bank for incumbents. The issue is likely to resurface.