City departments are preparing plans to slash their budgets by five per cent this year, but taxpayers may also have to shoulder some of the burden for a looming revenue shortfall.

Toronto faces a significant reduction in revenues and a ballooning of its welfare rolls in 2010 as the economic downturn takes its toll on the city.

By law, municipalities cannot run a budget deficit, so revenues will either have to increase, or expenditures will have to be cut in order to break even.

"So what we've asked [city] departments to do is really review their services. What is it we deliver, why are we delivering it, who asked us to deliver it, and are we delivering in the most efficient way possible?" said Coun. Shelley Carroll, the city's budget chief.

The city will review the budget cuts submitted by the departments, and will then select which ones will be implemented.

"It may be possible that a greater reduction is possible in one area than another. I think that's healthier for the community than just saying, 'All of you give me five per cent of your dollars right now,'" said Carroll.

Coun. Paul Ainslie, who also sits on the city's budget committee, told CBC News that departments should look at laying off staff in an effort to permanently trim expenditures.

Departments should look at "what their level of employees were there during the [summer's civic worker] strike," he said.

"Could they continue to operate at that level on a continual basis? Could they operate with less staff than they have now?"

Cuts will hurt

Coun. Pam McConnell said taxpayers would immediately feel cuts to service reductions.

"I don't think people really realize that if you take five per cent off, for example, you might have to close down libraries on the weekends," she said.

McConnell also sits on the Toronto Police Services board. There's little wiggle room in that budget because much of the department's expenditure is comprised of salaries mandated by collective agreements, she said.

The city and the Toronto Police Service negotiated a three-year collective agreement last December that granted officers a 10 per cent jump in salaries, a deal that made Toronto cops the best-paid officers in the province.

"If we take five per cent off the police budget — because of the salary increases to all of our police officers it would [mean] laying off either police officers or civilian staff."

New hires in last budget

The proposed belt tightening comes seven months after the city added 1,000 new employees in its $8.7 billion 2009 budget.

The March budget included $530 million in extra spending in service improvements and aid for those hit by the recession.

A number of councillors have floated increased user fees or property tax increases as a way to bridge the financial gap.

McConnell said a four per cent tax hike may be in the cards.

Both Mayor David Miller and Carroll say these predictions are premature.

The city's operating budget will be presented in February.