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The mayor's preliminary budget for the 2009-2010 fiscal year comes as the city faces a $4 billion budget deficit – up from just over a billion dollars only a few months ago.

"Nobody prepared for the severity of the downturn we've been experiencing," said the mayor.

The deficit continues to rise as tax revenues plummet and the city loses out on state aid. According to the mayor, the state lost $3.3 billion in tax revenue in fiscal year 2009 and will lose another $1.7 billion in 2010, leaving the city will nearly $5 billion less to work with.

During his nearly two-hour statement, Bloomberg said the downturn on Wall Street has drastically affected the city, as less people are earning and spending.

"When Wall Street catches a cold, it's a very serious illness to us," said the mayor.

He said an estimated 300,000 jobs will be lost in the city next year, including 46,000 fewer jobs on Wall Street.

As a result of this deficit, the mayor says that 23,000 city jobs could be eliminated by attrition, including as many as 14,000 teachers and 1,000 policemen. He says layoffs would be limited to 1,000 jobs as long as the city can cut $500-$700 million in healthcare costs and pensions for unions.

The mayor said city unions need to contribute to their healthcare plans if they are not doing so already. This idea did not receive a warm welcome from labor officials.

"We cannot be placed in a position where wages are greatly diminished by new benefit costs we are asked to assume," said Harry Nespoli, chairman of the Municipal Labor Committee. "We recognize the seriousness of a problem we did not create. However, the final budget to be adopted in six months must not result in long term damage to the City of New York or its workforce."

Bloomberg charged that any layoffs to Department of Education workers would be the state's fault, as it recently proposed $750 million in cuts to education.

"We're not walking away from our school system, but do you want to cut the whole New York City Police Department to pay for it?" asked the mayor. "Here's a chance for Albany to pay for their share of education with somebody else's money. And if there is ever a time we should put pressure on them, it's now."

"Losing 14,000 teachers would deal a devastating blow to our schools and schoolchildren. We cannot - and will not - allow this to happen," said City Council Speaker Christine Quinn. "Our state and federal governments must step up to the plate and help us fully cover our education costs."

United Federation of Teachers President Randi Weingarten said on Friday's “Road to City Hall” that tough choices need to be made but that teacher layoffs would have devastating effects.

"Targeting education and school teachers, the likes of which we haven't seen since the 1970s, which would cripple the system, hurt kids for a generation and wreak havoc on the lives of people that we done everything in our power to recruit? I don't get it," she said.

Weingarten said federal money could help stave off the layoffs.

Bloomberg said without increased state and federal funding, the combined state and city sales tax may rise from 8.375 percent to 8.625 percent, the sales tax clothing exemption may be repealed, and the $400 property tax rebates would end.

He also proposed increasing rates at 47,000 parking meters from 50 cents an hour to 75 cents.

Such tax increases would be need to be approved by the state.

"Call Albany because that's what I'm going to be doing," said the mayor. "I'm not in favor of any taxes. I think taxes are much too high. But having said that, our police officers, firefighters and teachers must get paid."

Of the $4 billion in cuts proposed by the mayor to close the budget gap, only $900 million would come from tax increases. Another billion dollars would be cut from city spending, another billion would come from federal Medicaid reimbursement and a third billion would come from labor concessions.

Budget watchdogs say some of the mayor's proposals make sense.

"There's a calculation here that maybe relying on the sales tax rather than putting an emphasis on an already high income tax may be the best strategy," said Charles Brecher of the Citizens Budget Commission.

According to an exclusive NY1 poll released yesterday, 44 percent of New Yorkers surveyed said they would prefer tax increases, over 30 percent preferring service cuts.

However, some business owners and shoppers NY1 spoke with in Queens this afternoon said the financial climate is already tough enough without this tax increase.

"He's trying to kill small businesses," said one Queens business owner.

"The salaries are not going up as much as the taxes, you know," said a Queens resident.

Another controversial plan proposed by Bloomberg would reduce the number of firefighters at 16 firehouses from five firefighters to four, arguing that four firefighters plus a lieutenant is standard in many parts of the country.

Union approval would be required, and many experts say it would be hard sell – saying five people are needed to stretch the line at many buildings.

City Councilman Bill de Blasio scoffed at the mayor's proposals.

"Pulling cops off the street, removing firefighters from stations and taking thousands of teachers out of the classroom will take us backward, not forward," he said in a statement. "These cuts will have far reaching effects on our communities and could severely undermine the safety of our citizens and the future of our children."

Two mayoral candidates also raised criticisms about Bloomberg's budget proposal.

City Comptroller Bill Thompson is against the proposed sales tax increase, saying too much of the burden is being put on average New Yorkers.

"I think too much of his projected budget does it on the backs of working New Yorkers,” said Thompson. “The increase in sales tax does not work for families or business in New York City, especially small businesses. I would propose instead a temporary tax on those making more than $500,000 a year to be done for the short-term until things bounce back."

Meantime, Congressman Anthony Weiner issued a statement saying, “It's generally a bad idea to raise taxes on the middle class, especially when times are so hard for New Yorkers."

The spending plan is dependent on state and federal dollars, which could dramatically impact the city's numbers for better or worse.

The proposals will have to be approved by the City Council.