The city's new homeless commissioner reported progress Tuesday in talks to drop the controversial requirement of making working homeless pay rent to stay in shelters.

Instead, the city would substitute a requirement for the homeless to deposit a portion of their earnings into a savings account, which they would get to keep.

"I'm pleased to report that the negotiations [with state officials] are looking positive, in the sense that I think we will be able to get there," Commissioner Seth Diamond of the Department of Homeless Services testified during a City Council budget hearing.

But he cautioned, "As you all know, from sometimes painful experience, nothing is done in Albany until it's done."

The Bloomberg administration began pushing the rent requirement last year, citing a 1997 state mandate. But after an uproar from homeless advocates and the media, the city didn't fully implement the policy. But officials had said as recently as last month that it was still in the works.

Questioned Tuesday by Councilwoman Gale Brewer (D-Manhattan), Diamond said the rent requirement was misunderstood as a revenue-raising measure.

"The money was never about revenue for the city," he said. "It was really about building good behavior and providing a way for families to learn that they would need to contribute something out of their income."

He added, "If we can do that in a better way with savings, while allowing families to save money that they can access once they leave the shelter, we're happy to do that."

Diamond said details remain to be worked out but did not elaborate, other than to say that state law would have to be changed to allow the savings account alternative.

"It's good news," said Patrick Markee, senior policy analyst for the Coalition for the Homeless, which had strongly opposed the rent requirement. "We always said we would support a savings program. That's what they [working homeless] do already, they save to get out of shelters."

Diamond was named homeless commissioner four weeks ago, after serving as a ranking official with the city's welfare agency, the Human Resources Administration. He is a staunch workfare advocate.

"Every adult in the shelter system who can work must work and we are prepared to work closely with the HRA on a range of services to assist them in gaining employment," he testified yesterday.