LYNNWOOD — The city this week notified 102 of its full and part-time employees they are on a list for possible staff reductions next January.

City department heads met with their staffs Wednesday. The notification is not an official layoff notice, officials said. There are 460 full and part-time city employees.

“As a courtesy, we want you to know as soon as possible that your position is at risk of reduction as of January of 2011,” the notice to employees said. “If the decision is made to reduce your position, you will receive a separate formal layoff notice 30 days in advance of the effective date of the layoff.”

Interim Finance Director Patrick Dugan said Thursday that layoffs are a virtual certainty for 2011.

“It’s unlikely we’re going to be able to avoid layoffs of staff and probably a very significant number,” he said.

The city estimates it would need $107.3 million to maintain existing levels of service in 2011 and 2012 but expects to bring in $87.3 million in revenues — a $20 million gap, Dugan said.

“It is likely that every department will face some significant budget cuts,” Mayor Don Gough said, in a prepared statement. “There simply is not enough revenue to satisfy all service demands.”

Before any cuts happen, the City Council will review the budget and discuss options for new revenues that could include new taxes or labor concessions. That process continues on Sept. 13, when Gough presents the council with a preliminary budget.

The city’s budget troubles are the result of a $4.3 million annual drop in sales tax revenue from 2007 to 2009, coupled with $5.5 million in annual increased labor costs, Dugan said.

Those troubles led to a $5.5 million budget gap in 2010 that the council managed to plug by adding new gas, electricity, sewer and water taxes and holding off on some spending.

Dugan said more than 80 specific positions to cut have been identified, though that number could either increase or decrease in the coming months.

“Unless there are new revenues or some sort of easing of costs we’re going to have to make significant adjustments,” he said.

Police and fire department officials notified their staffs of potential cuts in July. The police department may have to cut up to 34 positions, Police Chief Steve Jensen said Thursday. Fire Chief Gary Olson said in July his department faces up to $10 million in cuts and may have to close a fire station.

Police department managers have recommended that some of their officers look for jobs in other cities, deputy police chief Bryan Stanifer said.

“Everybody’s nerves are pretty raw,” he said. “This is devastating, not only to the people potentially getting laid off but to their co-workers who are their friends.”

Lynnwood Municipal Court Administrator Jill O’Cain said Thursday her department faces the prospect of losing two part-time and five full-time employees.

“We are hopeful the council is not actually going to implement the cuts,” she said.

Councilman Mark Smith said he was appalled when he learned about the employee notices.

“What’s the point of a courtesy notice like that?” he said. “If I were an employee receiving that all I would do is go out and look for a job.”

The notice is the latest in a string of bad news for this city of 34,000 people.

In March, the city’s finance director, John Moir, resigned after some tumultuous exchanges with council members.

That same month, the city agreed to pay Mayor Don Gough’s former executive assistant a $49,500 settlement after she accused him of discrimination and harassment. Her accusations led to a five-month investigation, made public in August, into Gough’s working relationship with Simpson.

The report was inconclusive on the question of whether Gough demonstrated a bias against women.

The report, from a Seattle consultant, said that Gough may have interfered with the investigation, allegedly using his job in ways that may have pressured and intimidated potential witnesses.

Oscar Halpert: 425-339-3429; ohalpert@heraldnet.com.