The Cambridge City Council fought for more than two hours yesterday over the City's new budget -- the largest in its history -- and then gave the $30.5 million spending program final approval.

Debate over the budget paralleled the Council's customary political division. The nine-man body has been seriously split since last February when, by a five to four vote, it replaced the incumbent city manager of 14 years.

Yesterday, Joseph A. DeGuglielmo '29, the current city manager who is Cambridge's chief administrative officer, conducted an extended argument with his chief Council critic, Edward A. Crane '35, over how the City's financial affairs should be run.

Crane charged that miscalculation by DeGuglielmo raised the City's tax rate nearly $5 when a prudent policy could have stabilized the rate or kept down any increase. Last spring, the City raised its real estate tax from $72 to $76.90 per $1000 of property valuation. But yesterday the manager reported that the City has more than $1 million surplus, the largest in Cambridge's history.

"The City of Cambridge is not in the business of developing a surplus," Crane declared. He asked that the Council take action -- or the manager make a pledge -- to "play fair with the taxpayer" by earmarking $600,000 to $800,000 of the surplus towards reducing the new rate.

The tax will not be set by the manager for several months until the City receives its so-called "cherry sheet" from the state; this lists all outside revenue, primarily from the state, that Cambridge can expect to receive from outside sources and all the obligations it must meet.

DeGuglielmo said he could not possibly make any commitments about the tax rate until he has these figures in hand. But he pledged that he would not ignore the taxpayers' interests. "There is no one in this City or Council who wants a lower tax rate [more] than I do," he said. "They [the taxpayers] are going to get their dividends -- whether in a reduction of the tax rate or [more] capital improvements."

Crane isolated two major errors in the manager's budget estimates which, he said, accounted for a large part of the surplus.

First, the manager pegged income from the Cambridge City Hospital at nearly $250,000 less than actual receipts. And second, he thought that income from the state would be lower than the state's estimate of last spring; instead, revenue from the Commonwealth exceeded the estimate by more than $250,000. Crane said he had cautioned the manager against both errors last year when the tax rate was set.

'Admits Mistakes

DeGuglielmo conceded the mistakes, but defended his handling of the budget. He pointed out that the City had a surplus of $560,000 last year and said some surplus is always needed. "I'm not the least bit concerned that I've been called conservative; in fact, I'm proud of it," he said.

In his attack on the manager, Crane strongly implied that DeGuglielmo was in a position to gain politically if, after raising the rate his first year in office, he could lower it this year when all nine councillors are up for reelection.

But there was no indication from the manager which way the tax would go. The largest increases in this year's budget stem from salary increases to city employees and welfare increases that will be partially offset by new income from the state and federal governments.