As businesses close and unemployment rises because of the World Trade Center disaster, union leaders and city officials see a sharp impact on the city budget. But they differ on solutions.

On Oct. 9, Mayor Rudolph W. Giuliani ordered most city agencies to slash their budgets by 15 percent, and uniformed forces and the Board of Education to trim budgets by 2.5 percent. He also extended the hiring freeze begun on Sept. 11, with any new hiring requiring special permission from City Hall.

The mayor stated he did not anticipate a need for layoffs, but he said the city might consider severance programs in “targeted areas.” And he promised all this could be done without service cutbacks.

Through these changes, the mayor seeks to create a reserve fund totaling $1 billion by forcing agencies to reduce spending, a power he has under the City Charter, while letting previously planned tax reductions proceed.

“The mayor’s response to the budget deficit stemming from September 11 appears to rely too heavily on spending cuts, rather than looking at areas such as reenacting the commuter tax and postponing projected city and state tax cuts until the economy has recovered,” said DC 37 Administrator Lee Saunders. “Putting projected tax cuts on hold until the city recovers its balance would allow revenues to flow without compounding the economic recession.”

About $1 billion of the city’s looming budget gap results from lost revenues due to the attack on the WTC, an estimate that may be revised upward.

Besides agency cutbacks and the hiring freeze, the mayor’s plan to close the budget gap continues to include the sale of the Off-Track Betting Corp. ($250 million) along with restoration of the stock transfer tax payment by the state ($228 million). He also projects asking the federal government to raise its share of Medicaid services (generating $276 million), provide for $175 million in social services savings to the city, pay an extra $50 million for housing the United Nations, and extend federal subsidies for police hiring.

Whatever modifications in the financial plan are made in November will probably be reviewed and decided upon in two months under a new mayor. “At that time, we hope the new mayor will sit down with all affected parties in the city —including labor — to get past these financial hurdles,” Mr. Saunders stated.

The federal government is expected to fund the rescue and recovery effort at the WTC site, but to date Washington has been unwilling to make up losses of city and state tax revenues.

Meanwhile, Gov. George E. Pataki has asked state agencies to make $3 billion in spending cuts due to revenue lost because of Sept. 11. He has also announced a hiring freeze and will propose an early retirement incentive program. As PEP went to press, the governor and State Legislature were still meeting to finalize the current year’s budget, but they had not reached a resolution.