One of the foundations upon which this fiscal year’s municipal budget was determined was an unwritten agreement between the city and its labor unions under which the unions agreed to partake in and accept various actions that would save the city about $500 million annually. Many had hoped this money would be recouped by city workers contributing co-payments to their health care plans — as do virtually all public and private sector employees with health insurance. This did not come to pass. Instead, about half of the agreed to $500 million has come from a recalculation of cost of living adjustments over ten years instead of five. Otherwise, the city essentially allowed the unions to determine for themselves how they would save the other $250 million, in exchange for which Mayor Bloomberg agreed to pass a budget with no tax hikes or job cuts. But now City Hall insiders are protesting that the unions have yet to live up to their half of the deal. The city is starting to respond.

As our Benjamin Smith reports in an exclusive dispatch on page 1, 65 crane operators, some of whom worked at the Fresh Kills Landfill sifting for remains of September 11 victims, have received word that they will be laid off by the city. This is apt to be but Mr. Bloomberg’s first step toward reducing the size of the city’s government to a size that will help us avoid such perennial crises as the one we now face. The word layoffs has been known to send Gotham-watchers of all ideologies into a tizzy. Liberals tend to treat the city as an employment agency, and argue that the city has only resorted to layoffs twice since the Great Depression, during the fiscal crisis of the 1970s and again during the Dinkins administration, as though their rarity were reason enough to object to them. Conservatives support layoffs, but also fear them as a substitute for supply-side measures, such as tax cuts and deregulation.

The main reason the city is in such bad shape now has less to do with the attack on the World Trade Center (which accounts for little more than 40% of the budget gap) than with Mayor Giuliani’s failure to take advantage of good times to reduce the size of city government, which increased under his watch, especially during his second term. New York City employs one-seventh as many people as the federal government, accounting for about half of the city’s $42 billion budget. This percentage will only rise as payments into the pension plan increase, in the mayor’s estimate, to about $1 billion a year from less than $100 million this year. The Department of Welfare has the same number of employees as it did a decade ago, servicing a reduced number of welfare recipients. Fire service has decreased dramatically over the last 25 years, and yet Mr. Bloomberg has yet to close or move a single fire house. It is long past time for the mayor to consider the needs of his various constituencies and make choices, before the Fiscal Control Board is triggered, and makes them for all of us.