On March 26, Rochester Mayor Robert Duffy will give his annual State of the City address. It's his second, but last year he had hardly settled into the job before the ritual speech. This year, he has a little over a year under his belt as mayor, and he'll likely talk about the initiatives of that year.

Those initiatives, outlined in a glossy booklet, range from the folksiness of neighborhood clean-up efforts to the no-nonsense business decision to sell the ferry. He increased the size of the police force. He brought in a retired banker to run his economic-development department, the head of the Center for Governmental Research as his deputy mayor, and a retired corporate executive to run his law office. He opened Durand-Eastman Beach to swimming and considered having the city buy Midtown Plaza.

And through his first year and a quarter, he has maintained an almost boyish charm and enthusiasm, serving as cheerleader as well as administrator. He is affable, and sensitive. As he did in his campaign, he stresses the connection between crime, poverty, and education.

To say that he is popular is an understatement. He won election by a large margin, and his popularity extends well into the suburbs. At least for the moment, Duffy has been able to keep the politics that fracture the region into parts at bay.

His first year as mayor wasn't even complete before he was getting questioned about running for county executive against Maggie Brooks. (Among some enthusiastic Democratic pols, there was talk about it even as he was campaigning for mayor.)

Duffy, a police chief who was drafted by Democratic insiders, waves off any interest in the county executive's job.

"I've been hit with this question all year," he says. "‘What position are you going to run for next? Are you running for county executive?' I can't tell you how many times I have said, No. The position that has the most impact on 230,000 people is that of the mayor, and that's what I've wanted to do."

His engaging optimism can't wipe out the challenges. Within days of being in office, he and his new administration made a difficult announcement: they were cutting the city's losses and putting the ferry up for sale. Duffy says the decision was an agonizing one for him, because it meant killing a project initiated by former Mayor Bill Johnson, who he describes as a mentor.

The problems for the city have hardly eased with that decision. Employment growth remained flat as Kodak continued its layoffs. The city's child poverty rate remains one of the highest in the country. Young professionals continue to flee the area for better opportunities. Downtown continues to stagnate. The murder rate spiked.

And the city faces a major budget gap for 2007-2008. Governor Eliot Spitzer's budget would increase state aid to the city by nearly $10 million, but that still leaves more than a $20 million shortfall.

Duffy, like Johnson, has aggressively made the case that Rochester has not gotten an equitable share of state aid compared to Buffalo and Syracuse. If Rochester were to receive the same per-capita aid as Buffalo, Duffy says, the increase should be in the area of $35 million. But the problem can't be solved by state aid alone. Rochester's tax base has been declining while demands for police, school funding, and support for impoverished neighborhoods are increasing.

All of this has caused him to make economic development one of his top priorities. But attracting new businesses and keeping existing ones won't be easy.

Duffy seems to have built a strong relationship with County Executive Maggie Brooks; there's been none of the public tension that existed between their predecessors. But that good humor may be tested soon.

Brooks wants to buy into a state "Medicaid Intercept," letting the state pay for the county's Medicaid costs in return for the state taking some of the county's sales-tax money. That could reduce the amount of sales tax that the city gets.

In addition, both are being challenged to find ways to share services. Obvious targets for consolidation are their water authorities. The city water system earns a profit, providing important revenue to the city. The city also provides water to some county customers, but the agreement with the county expires in 2008. The county water authority plans to build a new water plant in Webster, and its capacity could eliminate the county's dependency on city water. That would leave the city -- whose water pipes are aging -- with a lower revenue stream and a weak bargaining position for a new agreement with the county.

Duffy had had no political experience before he was persuaded to run for mayor, but he says there have been few surprises in the job. As police chief, he was closely enough involved in the administration of former Mayor Bill Johnson that he knew what he was getting into, he says. But he is, he says, sometimes frustrated by the slow pace of the government

"Nothing substantive happens overnight," he says.

In an interview last week, Duffy talked about his first year as mayor, the city's problems, and the road ahead. The following is an edited version of that interview.

City: A recent Messenger-Post column speculated that you and Maggie Brooks have already reached an agreement on the city's share of the sales tax: that you'll agree to less sales tax revenue and she'll help you get more state aid. True?

Duffy: We have had no discussion on the tax issue, and as you know I am opposed to the Medicaid Intercept. And I am opposed to a sales tax increase, because we have most of the poorest citizens in Monroe County right here in Rochester, and they are going to be the ones most impacted. That's my position. We have not negotiated any sales-tax or tax agreement. What I will say is there have been discussions about shared services and how can we look for ways to save money in the future. No agreements on that, but we're looking for opportunities.

What are the toughest things you've had to deal with in the first year?

First of all, I made some changes and brought in a new team. I meant no disrespect to people by not inviting them back, but I had some very strong feelings about trying to go out and attract a group of men and women who had a diversity of experience, that were from the private sector and public sector. And I was lucky to bring them in, because some took a real cut in salary to do this.

Another decision was the fast ferry. When I came in, I was able to look at things perhaps a little differently. I had some great advice from a number of people about the financial viability in the future. That part of the decision was pretty straightforward. The toughest part by far was the emotional part, because I had to stop a project started by someone that I have a great deal of respect for: Mayor Johnson.

You've been disappointed in the amount of state aid proposed for Rochester. What does Governor Spitzer say to you when you ask for Rochester's fair share?

The governor did give us an increase over the other Upstate cities. The governor gave us 13.5 percent vs. 9 percent for Buffalo and Syracuse. He recognized immediately the disparity. The question is, how soon can we bridge the gap that has been created over the last several decades? We have historically received far less per capita aid than Buffalo and Syracuse, and we are still way behind in the aid packages for those cities. What we're fighting for is a sense of equity. If we all start at the same level playing field each year, we can each advocate for our priorities. But what I don't want to do is have to go to Albany each year advocating just to fill this gap.

If you look at the economics today, we are struggling just as much and in some ways more than every other city. We were Number 2 in the country in jobs lost last year. Our graduation rate is about 50 percent. You look at the manufacturing base that we have lost. You look at all of these indicators: we are not the Rochester that we were 20 to 25 years ago. Speaker Silver, Senator Bruno, and Governor Spitzer have seen us plenty of times this year. They know about Rochester. We're very grateful for the support so far, but I still have a $20 million budget gap.

One proviso I have made is, I will be held accountable. You give us an increase in aid, and we will show a return on that investment. You show confidence in our city, and we'll turn around and show you what we did with that money.

Governor Spitzer has said that he wants to let mayors in four big-city school districts appoint two members to the School Board, and you apparently support that. What changes would you push for on the School Board? What are you unhappy with?

I think there is at least one School Board member who is telling people this is my idea. And it's not. I was asked by one of the governor's staff, if the governor had a proposal for the Big Four cities to add two members --- not take any away, just add two members to the School Board --- would I support it? And here's my position: I have watched from a different position the battles back and forth between City Hall and the district. It makes no difference who is mayor and who is school superintendent. It has been going on for years. It is about money; it is about finances and how money is spent.

I came into this campaign, and I said, "I don't need to run the school district." I was very clear about that. What I am saying is that the City of Rochester, by virtue of its funding capacity, provides about $119.1 million per year to the school district. And to be at the table to achieve the results we want for that investment is important.

Rochester gives $50 million more a year in actual dollars to the district than Buffalo gives to its district, and Buffalo's is a larger school district. And according to state-ed statistics, Buffalo's graduation rates are higher. All I care about is graduation rates.

I do believe that City Hall deserves a seat at the table. It in no way controverts an elected School Board. I've listened and received e-mails from two School Board members, and I have heard many renditions of my position, but it's the governor's proposal and I support it.

Talk a little about economic development. Commissioner Carl Carballada says the two of you go out every week and talk to business leaders locally. What are you hearing from them?

We go out on a weekly basis and see at least two or three companies. And we ask, What can we do to keep you here, keep people employed in our city and keep you successful? And what we hear is, generally people who are in business in the city like being here, and there seems to be a growing satisfaction with the support they have been receiving.

They do face challenges economically, because New York State is a very expensive state to operate a business in. So that always comes up. The cost of doing business here is sometimes higher. But the most pressing issues that come up are taxes and safety.

I usually close by asking for suggestions. And I even ask if they can help us recruit: "In your travels, can you reach out to other companies, other suppliers, other business leaders and perhaps look at ways we can attract them to Rochester? Help us promote this city and its workforce."

We're looking at hosting a breakfast next month with minority business owners to look at ways we can develop relationships. I want to make sure the doors are open, because minority-owned businesses in New York State make up 23 percent of the total number. So we want to make sure that we try to level the playing field for these largely minority or women-owned businesses so that they have a chance to succeed.

It's important to help small businesses. But companies that are employing 10 to 20 people can't replace the loss of thousands of jobs at our bigger companies. What are you doing to attract big employers to Rochester?

I am a big supporter of the Greater Rochester Enterprise. The city has given $250,000 over five years, but one thing we have not seen is some of the business successes coming to Rochester. It's great that we have attracted businesses to the area. That's wonderful, and we all benefit from that success. But we need to have more employers coming into the confines of the city of Rochester, where frankly, the need is the greatest.

Part of how we attract companies is by improving our graduation rates and reducing crime. The unfortunate thing is that if someone is thinking of moving their business to Rochester, what do they do? They Google Rochester and look at what comes up, what's been reported in the last month. Decisions are made based on some of these realities.

Give us a status on the curfew. What stage is it in right now? And what services should be added?

There are services that should be added. But we started this as a test. The curfew is a pilot. And it's very difficult to get agreements from agencies to commit to a long-term change when all you're doing is conducting a pilot.

What we hope to do is to show over one year that this pilot has had a positive impact on children. We want to connect services to kids. If a child is a curfew violator or a truant, the question is why? It's not that this kid is out planning to commit crimes. The deeper problem often is something is going on in the home, and we need to find out what it is. Then we can connect the child to those services that will help stop those kinds of behaviors.

We're doing this with Hillside, because it was the only agency that was certified to do this. I hope that in the future, if this becomes permanent, that we can work with other agencies that can partner with Hillside. The key for me is running it in the spring and summer months. By the end of this summer, we should have data in place and the bugs worked out, so we should be able to say, Yes, we should keep this. Or we can say we tried our best, but no, this just isn't working.

What about truancy?

Truancy and the curfew have to be connected. I think we have a long way to go. Last year, the issue was that the school district needed something like a half a million dollars to fund a truancy center. But our feeling was it might not be perfect, but put something in place to reinforce with kids that you can't just skip school and hang out on the streets.

What's the city able to do, given its own budget restrictions? Apparently the district is asking for additional dedicated police officers so you don't use the school's resource officers for the truancy program.

Chief Moore has had to make some very tough decisions. We had a spike in homicides, and he did take some of the school's resource officers, but he didn't deplete them. We're adding more police officers. We added more last year. We're adding more this year.

What we have to do is sit down with the district and figure out how we fund this in the future. And what deployment is necessary. Is it really police officers? Or is it adding a stronger security plan for the schools?

A recent development has been the ruling out of any mid-size performing arts theater. What is your thinking on the mid-size theater?

I would say there has been a backing off this year. I am a supporter of a mid-size theater. I am a big fan of having a place for someone like Garth Fagan to show his troupe's talents in the heart of downtown.

What we are faced with this year is having a number of competing issues. We have Renaissance Square. I am not sure where that will shake out in terms of the size of the theater. That's primarily a county project. We have the Auditorium Theatre. And there are plans in place for the Eastman Theatre's expansion project. There are a lot of renovations going on.

I have talked to [State Assemblymember] Joe Morelle and [UR President] Joel Seligman and many others, and in the end, given some of the financial uncertainties this year, to advocate using public money to build the theater now when it might not be to capacity for a while was something I wouldn't want to do. So I thought we'll have a better sense of the landscape after one year.

What's the status of negotiations with the county on the water authority?

The negotiations started when the proposal to build a new water facility was made public. But before we build something new, we want to look at how we can take what we currently have to make it more efficient and still keep water rates low for both city and county residents. So we started to have discussions about the water authority, and there have been no agreements. But if we were to come to an agreement, we would have to look at an operating structure that would not be politicized, something that would serve city and county residents well.

If the county builds a new plant in Webster, it may not need to get water from the city. If so, what will be the city's position of strength? What would the city have to offer besides an aging system?

I think we still have a bargaining position. But I think it could be debated. The county could go ahead and do that and it would reduce the county's need for city water in the future. But the cost of the plant would be extremely high.

And reversing that for a moment, let's say the city needed water and it had the ability to build a plant. But the county didn't have as strong a bargaining position. We should ask ourselves, "What would be in the best interest for everyone?" Especially when it comes to something as basic as water, I think we have to think regionally. Water should be provided at the lowest possible cost.

We have never said that we are planning on selling Hemlock or Canadice Lake for development. What I did say is that I could never say never, because I don't know what could happen 15 or 20 years from now.

That said, those are significant assets. They are pristine and beautiful, and I would love to keep them as pure as they are today.

We have a responsibility, city and county both, not to think politically, but to think about serving about 800,000 citizens in this county. If we can agree upon consolidations, shared services, or agreements that benefit everybody and keep costs down and services up: that would be a good thing. If we are always going to be two separate entities vying for survival, I think we are headed down the wrong path. I think Mayor Johnson spoke very powerfully and truthfully about consolidation issues many years ago. Consolidation is not going to be a political decision. Consolidation is going to be a decision driven by finances at some point.

What besides the water authority do you think would be worth talking to the county about, and are you talking about it?

There haven't been any specifics. But I would say, anything where we have shared interests. It could be transportation, maintenance, personnel systems, or services. We both have civil service systems. Anywhere we have duplication: is there an opportunity where we can work together in a way that benefits both entities? But I think you have to build trust. And to do that, you have to start out small and take some small steps to show that we can do this. And we can save money. And we can be more efficient.

Right now, it's a wide-open discussion. There are no agreements on anything. But the good thing is, the city and county are talking and looking at this.

There are some good examples of this kind of cooperation already. We've had some partnerships for many, many years with public safety, with training, and with the 911 systems.

The biggest impediments: I've mentioned trust, and the other comes down to partisan politics. Some people see any kind of shared services, any type of change, as losing something, losing resources. One thing I've learned over the years is that when people put you into office, people don't elect you into office to hold the political line. They want services and cost-effectiveness.