YAKIMA, Wash. -- Layoffs are not imminent, but Yakima City Manager Dick Zais has warned city staff to prepare for the possibility for the first time in 25 years.

Zais has ordered a number of cost controls, including an immediate hiring freeze, to offset ongoing revenue deficits in this year's city budget that could balloon to $1.5 million by year's end.

Even with a wage freeze for all employees next year, the shortfall is projected to grow to $4 million next year, Zais said.

The problem, according to city officials, is a double whammy of falling sales taxes -- down 20 percent in June over the same month last year -- and a sharp increase in jail costs, now projected at $1 million over budget.

The decline in sales taxes has been a problem since October and reflects the national recession. In March, the city projected a |4 percent drop -- $1.1 million in sales taxes.

Sales taxes represent about a third of the city's $61 million tax-supported general fund budget. Counting utility services such as garbage, water and sewer, the city's overall budget is roughly $200 million.

Unlike the sales tax drop, the jump in jail costs wasn't anticipated. A flare-up in gang crime got much of the blame for increasing jail operations.

"It's a volume issue, not a cost issue," Mayor Dave Edler said. "We're arresting more people."

In addition to the hiring freeze, Zais has ordered restrictions on overtime pay, new vehicle purchases, fuel usage, training and travel, and outside legal assistance.

As for the looming 2010 deficit, Zais said that for the first time in 25 years, he was directing division heads and department managers to "prepare options" for layoffs. He also wants recommendations on furloughs.

Police officers, firefighters and corrections staff are not being considered for layoffs, Zais said in a memo released by the city Thursday.

Zais was on vacation Thursday and not available for comment. However, Assistant City Manager Dave Zabell said the possibility of other layoffs in the next year are real.

Depending on the severity of cuts, layoffs would almost certainly result in a noticeable reduction in municipal services. Examples cited by Zais in his memo include operational cuts in parks, the Harman Senior Center and hours at City Hall.

"Cutting services to citizens are the last resort," Zabell said, "but if they have to happen, then they have to happen."

In his memo, Zais also foreshadowed the need for a wage freeze. If so, it would be the third freeze in eight years.

Zabell said the city is already negotiating a wage freeze with the half-dozen or so unions that represent about 600 of the city's 750 employees. With the exception of the police, all of the city's union contracts expire this year.

Also figuring in the mix are the city's reserve accounts, which at $5 million are more than enough to wipe out the 2009 deficit but probably not enough to deal with even worse shortfalls in 2010.

In recent months, the council has sparred over the city's budgeting process, including Zais' penchant for holding back reserves that some critics call excessive.

Responding to TV news reports Thursday that seemed to suggest layoffs were imminent, Edler denied anything was in the works.

Nevertheless, he refused to rule out layoffs, and he said Zais and City Council members will be "looking at any and all options."

"If the trend continues, we could be at that place," he said. "But at this moment, we are not at this place."

* Chris Bristol can be reached at 577-7748 or cbristol@yakimaherald.com.