By GREGORY N. HEIRES

As the union prepares for bargaining on a new economic agreement, Mayor Michael R. Bloomberg is seeking deep cuts in current spending, warning about looming budget shortfalls and raising the possibility of layoffs.

In July, Mr. Bloomberg instructed city agencies to slash spending by 7.5 percent this year to save $1 billion. Immediate savings are needed to help close a gap of $4 billion to $6 billion in 2003, he said.

Mr. Bloomberg's announcement came just a month after he and the City Council agreed upon a $42.3 billion city budget and less than three weeks after DC 37's economic agreement with the city expired.

"We regard Mayor Bloomberg's request that city agencies include staffing reductions as part of his call for 7.5 percent in budget reductions to be premature at this time," said DC 37 Executive Director Lillian Roberts.

"It is not yet clear how many city workers will decide to participate in the early retirement incentive program," said Ms. Roberts. "DC 37 will be sitting down with other Municipal Labor Committee unions to see how many retire and the savings that will result. The city has already agreed to no layoffs during the early retirement period." (see 'Deadline near for Early Retirement' for details.)

Budget Director Mark Page spelled out Mr. Bloomberg's request for $1 billion in reductions in a July 19 memo to agency heads. "You should not be constrainedby achieving headcount savings only through attrition," Mr. Page wrote.

"Nobody is in favor of layoffs," Mr. Bloomberg said when asked about his request for spending reductions. "Nobody wants to do that. We have no choice."

As the city and City Council negotiated on the current budget, the municipal unions agreed to about $275 million in pension savings sought by the city. Essentially an accounting maneuver that won't affect pensions, the city will achieve the cost savings by spreading pension COLA funding over the next 10 years instead of five years. The city still seeks an additional $225 million in savings from the unions.

The mayor raised the prospect of layoffs over the summer as four DC 37 subcommittees started to consider the union's contract demands. Their proposals will be presented to the DC 37 Executive Board, the Negotiating Committee, which is made up of all local presidents, and the larger Bargaining Caucus.

The subjects assigned to the subcommittees include the general economic issues, health and welfare, civil service and personnel matters, and retirement and pension issues.

The local presidents discussed possible demands at an Aug. 21 meeting. The Bargaining Caucus will meet in September. The Council Delegates, DC 37's highest governing body, will likely vote on the demands in the fall.

As agencies come up with reduction plans, Ms. Roberts indicated that DC 37 would pay particular attention to whether they are cutting costs by replacing expensive private contractors and consultants with city workers and by replacing higher-paid uniformed personnel with civilians.