UPDATE 2-NYC mayor won't promise no layoffs for city workers

(Recasts throughout after mayor's comments, adds byline)

By Joan Gralla

NEW YORK, Nov 3 (Reuters) - New York City Mayor Michael Bloomberg on Monday declined to rule out including layoffs in the detailed budget cuts he will announce on Wednesday, though he suggested any reductions might be minor -- for now.

"If the economy were to literally melt down, I don't think anybody would think anything would be off the table," the mayor, an independent, told reporters.

Later he added: "It's fair to say no large-scale (layoffs). If there are small ones in small agencies I would do everything I could to find jobs in other agencies in the city."

Bloomberg, who at midday signed into law an extension of term limits that lets him run for a third four-year term, was announcing a preliminary agreement to give 100,000 unionized workers 4 percent pay increases annually in a new two-year contract that the union still must ratify.

The mayor, predicting New York City's two-year deficit will rise by $1.5 billion, says the city needs his financial expertise to guide it through the downturn spawned by the financial industry's nosedive.

But Bloomberg's estimate has puzzled fiscal monitors because tax revenues rose $1.3 billion more than estimated in the first fiscal quarter, which runs from July through September.

New York City's budget totals about $59 billion and the mayor has repeatedly ordered rounds of reductions, most recently slashing 2.5 percent this year and 5 percent next year. Those are the cuts he will detail on Wednesday, one day after the U.S. elections.

The mayor said the new contract with District Council 37, one of the city's largest unions, mirrors the "financial parameters" of other contracts signed with other unions. It does not resolve all of the issues, such as a salary review and City Council demands that all city workers live within its five boroughs.

Fiscal monitors have said Bloomberg has given city workers overly generous pay packages and failed to persuade them to boost productivity in a meaningful way. These critics want wage growth held to the inflation rate, although the main inflation gauge could soon fall to as low as 1 percent.

Asked if the city, whose economy rises and falls with Wall Street's roller-coaster profit cycles, could still afford 4 percent raises, Bloomberg said, "We need the people that this union represented to take this city through some very tough times."

Bloomberg said he anticipated working "cooperatively" with District Council 37 and other unions to find ways to save money on health insurance and pension benefits.

"We remain open to suggestions that District Council 37 may recommend in any other areas, such as bringing contracted work back in-house," he added. (Reporting by Joan Gralla; Editing by Gary Hill)