The Cambridge City Council last night approved two sizeable budget allocations--one to bail out the fiscally strapped School Department and the other to help insure Cambridge's future solvency.

City Manager Robert W. Healy asked the nine-member body for a $800,000 transfer from the School Department's debt stabilization fund to its operating budget. The money will prevent massive layoffs in January, when projections indicated the department would run out of funds.

"Rather than cause chaos in the midst of an academic year, I feel it's better to warn the School Committee that you cannot have a no-layoff policy and spend money unchecked and uncontrolled," Healy explained last night.

The trade-off is the absence of the same funds from the next fiscal year's budget, which automatically includes a $1.1 million increase in debt service. Healy said that no additional allocations will be made to defray that expense.

The other allocation disbursed $3.4 million in state aid.A$1.6 million chunk of the money also went to the School Department to pay for previously approved salary increases.

A large part of the remaining money will go to two funds that Healy said he hopes will guarantee the city's financial future, $1.05 million was used to create a reserve to help Cambridge meet its pension commitments.

Another $950.000 will go to a one-year-old debt stabilization fund, to aid in paying off bond issues.