Here are my observations from watching the fallout all over from cities dealing with budget issues:
Henry is right - cutting salaries will result in a decline of services. It is just human nature.
Kristy is right on target - the successful communities have been the ones that have assessed their goals and objectives and focused on services supporting their mission. Through the years so many extra and non-core services are added - many times due to elected officials not wanting to say no to one person. Finally we are at a point when people are starting to ask, "why are we doing that?"
Mike expresses a common thought among govt workers - Those working in public or private make that choice understanding the risks and benefits. We don't begrudge private when they are hauling in big bonuses so why should they yell & scream about us getting a 2% raise in lean times? (When times are good that raise might go up to a whole 3%.)
The easiest choice initially is actually to hold off on capital projects - it does risk hurting the maintenance and operations but is an obvious place to start cutting. The next best thing a city can do is take this time to assess all operations and staffing levels keeping in mind Kristy's idea of trying to only deliver services that meet the agency's objectives. But this usually increases challenges for staff who are left as they go through major transitions. Cutting their salaries on top of all that only further hurts the agencies.