In an effort to close the city's nearly $5 billion budget gap, Mayor Michael Bloomberg outlined a grim budget proposal Thursday afternoon that calls for a significant reduction in head-count of the city's workforce.

The mayor outlined his plan to close a $4.9 billion deficit for fiscal year 2011, with no tax increases, by asking teachers and principals to take smaller raises in their next contract or face the prospect of 2,500 job cuts.

"There are no easy answers. We are going to have fewer employees," Bloomberg said.

The teachers union immediately called the threat unacceptable.

Bloomberg says teachers need to agree to a two-percent raise instead of a four-percent raise or face downsizing. Most of the jobs lost would be through attrition.

"Because of the early steps we took to diversify our economy and keep our fiscal house in order, we’ve avoided the very worst-case scenario," said Bloomberg. "But we still face a very large deficit that will require very difficult decisions."

Teachers are not the only ones who will face job cuts. Bloomberg also proposed the layoffs of 834 city workers and another 3,452 through attrition.

While there will be no layoffs at uniformed agencies, including the police and fire departments, the NYPD will have to lose nearly 900 officers through attrition.

The Patrolmen's Benevolent Association blasted the move, saying staffing levels are already at the breaking point. When asked to comment on the proposed cuts, Police Commissioner Kelly said the department will make do.

"We've been going down in head-count for the last seven years and the men and women of this department have responded -- crime continues to go down," Kelly said.

Layoffs are not expected to hit the city's fire department, but the FDNY will still face tough cuts. The mayor proposed eliminating 20 fire companies and the fifth firefighter from 60 engine companies.

"I'm gonna say I'm not happy. I'm gonna say we're disappointed that we don't have the funding we do. But we'll look to do the best we can do," said Fire Commissioner Salvatore Cassano.

Other cost-saving measures include reducing subsidies to libraries, closing four pools and shortening the outdoor pool season, increasing commercial parking rates in Midtown Manhattan, and closing one 24-hour drop-in homeless shelter in Manhattan.

But the mayor assures New Yorkers these cuts will not affect their daily lives.

"Don't measure the quality of city services by the quantity of city spending. That's a mistake," said the mayor. "Our job is to provide good services. It is not to spend as much money as we can. And sometimes the two things don't have to go hand-in-hand."

This comes after the mayor warned of nearly 19,000 layoffs, including the elimination of 8,500 teachers, if the state enacts Governor David Paterson's budget proposals without changes.