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As Mayor Michael Bloomberg and Governor David Paterson marched up Fifth Avenue in the Veterans Day parade Wednesday, the budget crisis couldn't have been far from their minds.

Faced with a $5 billion budget gap, Mayor Bloomberg warns city agencies are going to have to slash their budgets. But the mayor isn't saying by how much -- at least not yet.

"I can guarantee you that they'll have to trim their budgets some, but I'm not sure by what percentage yet, partially because we're talking about a fiscal year that begins next July," Bloomberg said.

There are reports that the budget axe could slice spending at city agencies by 10 percent. The one thing that does look certain is that the police, fire and education departments are going to have to share in the pain.

"My intent would be not to hold anybody harmless. Everybody has got to do it, participate. And it's the big agencies where all the money is. All the money is in the four uniformed services and education," Bloomberg said.

The mayor says his plan is not to raise taxes or drastically cut services. But he admits that goal is contingent upon what happens in the state Legislature.

Budget watchdogs say the mayor is running out of options to deal with the city's strapped revenue stream.

"It's getting down to the bone of asking commissioners to come up with items in their discretionary spending. It's getting very tough and challenging for them without getting into the big items," Carol Kellermann of the Citizens Budget Commission.

Meanwhile, in Albany there is still no budget deal. The state's fiscal problems have led the governor to force drivers to buy new license plates, a move that will raise the state more than $100 million.

Paterson says he will drop the unpopular idea, only if state lawmakers can figure out another way to raise the money.

"I'm optimistic if I can find a way to replace the $129 million hole it will place in our budget and I'll reconsider it," Paterson said.

Lawmakers are expected back in Albany next week. The city is watching to see what they accomplish, because the state's decisions will ultimately impact how the mayor handles the city's fiscal problems.