New Orleans Mayor Ray Nagin said the city was laying off as many as 3,000 employees - or about half its workforce - because of the financial damage inflicted on the city by Hurricane Katrina.
Mr Nagin announced with "great sadness" that he had been unable to find the money to keep the workers on the payroll. He said only non-essential workers would be laid off and that no firefighters or police will be among those to go.
"I wish I didn't have to do this. I wish we had the money, the resources to keep these people," Mr Nagin said today. "The problem we have is we have no revenue streams."
He described the layoffs as "pretty permanent" and that the city would work with the Federal Emergency Management Agency to notify municipal employees who fled the city in the aftermath of Katrina, which struck about a month ago.
The lay-offs will take place over the next two weeks.
"We talked to local banks and other financial institutions and we are just not able to put together the financing necessary to continue to maintain City Hall's staffing at its current levels," the mayor said.
Meanwhile, former president Bill Clinton met with dozens of New Orleans-area evacuees staying at a shelter in Baton Rouge's convention centre. And officials ended their door-to-door sweep for bodies in Louisiana with the death toll yesterday at 972 - far fewer than the 10,000 the mayor had feared at one point.
Mississippi's Katrina death toll was 221.
A company hired by the state to remove bodies will remain on call if any others are found.
AP