Massachusetts is facing fiscal crisis, a $2 billion crisis.

But even as the state looks to balance its budget by slashing aid to cities like Cambridge—which stands to lose millions—local officials insist they can ride out the storm.

At the helm will be Mayor Michael A. Sullivan, the city council’s financial expert.

Sullivan chaired the council’s finance committee for eight years, and city leaders credit him with a chief role in establishing the city’s firm financial position.

While deficits loom over the State House, Cambridge actually has $28 million in surplus cash on hand to deal with emergencies. And in recent years the city has increased the amount of property taxes it can levy, which will lend the city council more flexibility when discussions on next year’s budget begin in several weeks.

Both the emergency fund and the increase in the so-called “levy limit” came during Sullivan’s tenure as finance committee chair.

Councillor Brian P. Murphy ’86-’87, who succeeded Sullivan as finance committee chair, said his predecessor has offered “strong and inclusive” leadership on city finances.

Sullivan says he is “cautiously optimistic” about the city’s current fiscal situation, so long as finances are not stretched too far.

“We should be able to hold out for another year or two,” he says. But “this is not something we can withstand forever.”

With Massachusetts facing its $2 billion deficit, state funding for local communities is on the “chopping block,” according to Murphy.

“Because of the recession and because of the state’s budget cuts, we are going to have hard times in this city,” Murphy says.

Cambridge annually receives more than $40 million in state local aid, but in Fiscal Year 2003 (which ends in June) the city took a $1.5 million cut in state aid.

City Budget Director Louis Depasquale says he anticipates as much as a $2 million cut in the next fiscal year.

But he adds Cambridge is better prepared to weather the drought than most cities.

“We have certainly positioned ourselves to deal with some tough times,” he says. “We have positioned ourselves better than a lot of cities and towns.”