Rumors have been swirling for the past few weeks that the city of Duluth’s budget problems were worse than feared. Mayor Don Ness confirmed those rumors Monday night, dropping a bombshell: The city’s budget deficit has swelled from $4.4 million to $6.5 million.

As part of a strategy to balance that budget by the end of the year, he also announced plans to lay off up to 217 employees by Sept. 1.

“There is simply no way that we can balance the budget … before the end of the year without laying off city employees,” Ness said.

The majority of those who will be cut are in positions whose time with the city was ending soon. Up to 12 seasonal employees will be laid off by Sept. 1, while up to 158 temporary employees will be terminated by Aug. 15. Those employees worked 100 days or fewer in positions that would have ended about Sept. 1. Ness said he did not know if those positions will be brought back next year.

Under contract rules, temporary employees must be cut before the city can let go full-time, permanent employees.

As for the full-time employees, Deb Strohm, an employment councilor with the city and representative of the American Federation of State, County and Municipal Employees, said she was told Monday morning that 44 layoffs will come from her unit, while three will come from the supervisors’ union. Strohm estimated that there are about 450 AFSCME members who are part of the city’s basic unit.

She said Monday was the first she had heard of layoffs from the mayor.

The layoffs will come out of “services to our community and those that need it most,” she said. “They have to balance their budgets and they’re doing it on the backs of the citizens.”

Duluth Chief Administrative Officer Lisa Potswald said staff targeted for layoffs will be identified by the end of the week. The city employs 808 full-time workers, not including the seasonal and temporary employees.

Layoffs would save $828,000. Other steps must save millions more.

“It is a very sad day in the city of Duluth,” Ness said. “City employees are the lifeblood of our organization, and this action will be a terrible blow to the organization.”

Ness said his administration already has saved about $2.3 million from what he called “initial strategies” implemented by the administration, such as eliminating vacant positions, increased parking fees and closing down services like the Washington Pool and adult leagues.

But more must be saved or cut in the city. Another $1.8 million will come from new strategies, including better energy management, lower fuel consumption and reductions in maintenance operations, Ness said.

The city council also will be presented with about $1.2 million in budget strategies, including another proposal to shut down a downtown fire rig, transferring $100,000 from the tourism fund to the city’s general fund, selling Park Point land and historic Depot windows, and charging an assessment for street lighting.

Under the street lighting charge proposal, Ness said residents will be charged $2 per month and businesses will be charged $5 per month for the cost of lighting city streets. If passed, the measure would bring in $276,000 per year.

Ness essentially told the council that if those strategies aren’t passed, it likely would mean more layoffs.

“Every $100,000 of failed strategies requires laying off an additional seven employees by September 1,” he said.

While the budget deficit number given to the public had been $4.4 million, Ness told the council that several factors caused it to increase. Among those factors were a $1.2 million increase for equipment repair, supplies, and increased gas and electric use.

The economy also seems to have hurt the city in other ways. Ness said the city is projecting nearly $700,000 in sales tax and building permit shortfalls.

Ness said most of his proposed savings come in cuts or other efficiencies. Only $430,000, or 4.5 percent, comes in the form of new fees or taxes, he said.

Ness said the city also needs to find another $3 million to achieve the city’s goal of having a minimum of 5 percent in its reserve fund balance. In all, the city hopes to recover $9.5 million for 2008.

More cuts could be coming, as there apparently will be no reprieve in 2009. Ness told the council that the budget deficit for next year is currently projected at $8.5 million. He said a balanced 2009 budget will be presented to the city council by early September.

But given the cuts necessary, Ness said there will be no rejoicing in city hall when the budget is balanced.

“We have been working almost nonstop for seven months trying to find a way to avoid this very situation,” Ness said. “All of the controversial proposals that we have brought forward were our attempt to do everything we could to limit the number of employees that would lose their job. Unfortunately, the vast majority of city costs are personnel costs and it is apparent that we can not balance the budget without layoffs. That’s a reality that breaks my heart.”