City manager Neil DeLuca outlined his "doomsday scenario" as fines levied by a federal judge mounted: First he would lay off non-essential workers, then sanitation workers and then police and firefighters. Finally, he'd fire himself.

"It might be the best thing that ever happened to me," he said.A dispute between a defiant City Council and a judge who ordered it to desegregate housing has split this already divided city, which has been hit with fines that double daily and could bankrupt Yonkers this month unless the council complies with the order or gets an appeals court to intervene.

"The city moves from crisis to crisis, and this is the worst yet," said former Mayor Angelo Martinelli. "It's one thing to have the councilmen go down. It's another to see the city go down the tubes after all everyone has done in the past to save it."

Yonkers hovered on the brink of bankruptcy in 1984 because it underfunded its school system.

In 1985, U.S. District Leonard Sand, who last week found the city in contempt and imposed the fines, found the city liable for 40 years of intentionally segregating its schools through segregated housing.

The racial divisions evolved through the city's shape - split by the Saw Mill River Parkway, with the older, more industrial section on the west and the affluent area, which includes Sarah Lawrence College and houses with manicured lawns, to the east.

Some 6,800 units of low-income housing were built in the 1960s, mostly on the west side. Originally, they housed the Irish, Italians and Slavs, but those groups prospered and moved to the east side.

Blacks and Hispanics from New York City's borough of the Bronx, on Yonkers' southern border, took their place and now account for nearly 30 percent of the city's population.

The judge wants the city to build low- and middle-income housing all over the city, not just on the west side.

But last week the City Council voted 4-3 to reject a package of incentives to attract developers of 800 housing units.

Sand, as promised, assessed fines of $500 a day against each recalcitrant councilman and an escalating fine against the city that began at $100 a day Tuesday and doubles daily. It reaches $3,200 Sunday, and by day 22 the city's $337 million budget will be wiped out, along with the jobs of its 1,800 municipal employees.

The councilmen also are threatened with jail terms if they are still in contempt after Aug. 10.

"The real tragedy is Yonkers was doing so well economically before this," said Mayor Nicholas Wasiscko, 29, who supports the desegregation order. "We've had three years of surpluses, and there really has been an economic rebirth. Except for this."

Once, the city of 200,000 people was known as the City of Gracious Living. Some black leaders now call it the City of Racist Living.

"Whites will violate the law to keep blacks out of their neighborhoods, whites will pay huge fines to keep blacks out of their neighborhoods and whites may even go to jail to keep blacks out of their neighborhoods," said Marvin Andisson, 27, who lives in the Schlobohm Houses, one of the city's worst housing projects.

Others say race is not at issue. "I am absolutely convinced it is (a dispute) of class," said Gov. Mario Cuomo.

Residents focus on the effect of the judge's order on the value of their homes and complain bitterly that Yonkers is being persecuted.

Yonkers has 24 percent of the population of Westchester County, but about 40 percent of the county's low-income housing. Other towns have none.

Opponents of the judge's housing plan fear their town might follow the path that transformed the Bronx into New York's poorest borough.

"We worked and saved all our lives so we could move out of the Bronx to this beautiful neighborhood and for what?" asked John Loggio, 62, whose house faces a site for 22 low-income homes. "So we won't be able to sell our house? Its value has lost $100,000."

On the other side of town, a few blacks are opposed to the plan, too, like Stonewall Odom, who said Sands' order could ruin the black community and its political base. He called it "plantation politics."

"We need education, jobs, we don't need any more handouts. Judge Sand is condemning my son to poverty," Odom said.

Allen Cunningham, a black who moved to Yonkers two years ago, said that while blacks need housing, "It's going to hurt relations between blacks and whites. It's going to hurt us."

Some of the councilmen who voted against the housing plan last week received bullets and dead rats in the mail earlier this year when they approved a consent agreement providing for the housing.

Now that the councilmen have reversed themselves, some groups have promised to hold fund-raisers for their defense.

"We hope they won't betray us again," resident Bernadette McLaughlin said after the council's most recent vote. "We know we aren't guilty of anything. We've done nothing wrong."