Still kicking and yelling about it, Massachusetts entered an unfamiliar era of austerity as cities and towns here inaugurated the new budget year today with sharp reductions in police, fire, school, hospital and other basic public services.

Union and municipal officials said the effects will be felt in the weeks and months to come as there is more and deeper cutting in local spending and federal aid.

Massachusetts voters, whose taxes last year were second in the nation only to those paid by the residents of New York, joined the nationwide revolt and approved a statewide referendum last November that ordered sharp curbs on property taxes. The measure was called Proposition 2 1/2 because it ordered cities and towns here to cut property taxes in phases until annual bills are no more than 2 1/2 percent of the market value of homes. The measure also mandated a two-thirds reduction in the excise tax on automobiles.

The effect was to knock out $600 million in revenues traditionally raised by cities and towns -- $85 million of that lost by Boston alone, which must continue cutting for the next two to three years to meet the referendum's mandate.

"We're not broke yet and I think we're going to manage our way to prevent ourselves from going broke," said David Rosenbloom, director of health and hospitals for Boston and the head of a committee Mayor Kevin White formed to recommend cuts.

White has laid off 2,300 of 12,000 city employes since January, plans to shut down the 18 "little city halls," and like other cities reap big dollar savings with reductions of 40 percent in the police and fire departments. One proposal for shutting down six police substations was reversed this spring after angry city residents blocked tunnels and clogged traffic in protests sporadically over a period of 50 days.

Doctors, dentists, orderlies, clerks, medical technicians and recreation aides have been sent home as budgets for parks and health have been reduced by nearly two-thirds of the amount appropriated last year.

The Massachusetts Teachers Association has estimated that statewide 12,000 of 85,000 public schoolteachers will be laid off when schools reopen in the fall.

All week long, in the gold-domed State House above Boston Common there has been bickering over how much relief the state will give cities and towns to ease the effects of Proposition 2 1/2. The sticking point has been how much the state itself will cut to provide the aid. The state Senate has proposed extensive layoffs and reductions in state spending to provide about $300 million in new aid to local governments but has been unable to get the assent of the House, which is much more protective of state jobs.

Tuesday night, an hour before midnight and the beginning of the new budget year, House conferees rose during one of those slugfests to announce that they were taking an hour's recess. The argument continued today without resolution.

This dispute has created its own set of financial crises with cities and towns in suspense over just how many layoffs they will have to make. State welfare checks due to go out were being held up because there is no state budget. Moody's Investors Service has suspended bond ratings of Boston and 36 other cities and towns in the state because of the uncertainties, effectively preventing them from borrowing.

The town of Lynn had its suspension lifted last week because of its plans to sell water and sewer bonds but town officials canceled the sale after Moody's informed then, that their rating had been knocked down two notches and interest costs would be much higher.

"It's very clear the House is unwilling to attack the havens of patronage," said state Sen. Chester Atkins as he and House conferees went through the state budget last night, futilely seeking agreement on cuts. "It's very clear the House is unwilling to let go of the old ways."

Atkins' comments raised a question not fully answered at this point; just how much the cuts will mean in reductions in government services to citizens and how much they will mean an end to the generous system of patronage that has been a ripe and colorful aspect of the politics of this state.

Rosenbloom said that his task force found examples of overstaffing when it examined city departments for cuts.

In the recreation department, for example, he said examiners found that summer jobs had been extended over the years to year-around. They also learned that Boston was spending more per capita for fire protection than any other large city in the nation and that it was the central alarm unit and fire prevention section that were particularly overmanned. It turned out, he said, that these units had become the refuge for older firemen less able to fight fires.

"I think many notions are being challenged . . . and I don't think this is over. I don't think it is even close to over," he said of the budget cutting. "You know Chrysler is now producing more cars with thousands and thousands fewer people and I think any large institution can probably do what it needs to do in a different fashion but will do so only when challenged."