Layoffs of city employees and a slashing of social programs may be two casualties of a possible decline in state aid to Cambridge, according to budget experts.

City Manager Robert W. Healy projected at a Tuesday meeting of the city's finance committee that Cambridge will come close to its tax levy limit if state aid decreases, according to Budget Director Louis A. DePasquale.

If the city reaches its levy limit, established by the Proposition 2 1/2 tax cap, the city will not be able to make up budget shortfalls with new taxes.

Mayor Alice K. Wolf predicted yesterday that the city will "most likely" face a cut in state aid because of "tough times" throughout the Commonwealth.

"The best we could hope for is to stay level-funded," Wolf said. "But my bet is that [state aid] will decrease."

Previous Adjustments

Cambridge's 1992 budget plans have already undergone adjustment when the state cut handed down an unanticipated $4 million cut in aid last summer. To cope with the resulting $2.8 million gap, Healy anticipated cutting administrative positions and using $4.4 million from the unreserved fund balance, or free cash.

But these corrective actions to close the budget gap may have to be coupled with a stricter tightening on expenditures and further administrative cuts if the state makes any steeper cuts in aid, according to DePasquale.

"We've counted on projected state aid staying the same, but if it goes down...[it means] that any flexibility regarding additional programs will come to an end," he said.

Magnifying Problems

The aid cut to Cambridge also magnifies the city's current problem of declining revenues. In addition to cutting administrative costs and streamlining city programs, Cambridge faces shrinking hotel revenues, decreasing inflation-sensitive luxury taxes and a decline in building permits, according to Wolf.

But Wolf said it is "too soon to project" the fate of the budget and that next year, city departments will get a 2 percent increase in funding. She also added that there will still be room before the property tax limit is reached, even if state aid decreases.

And despite any potential budget cuts, Cambridge is still financially secure, said many government officials.

"[Cambridge] is in a strong financial position but we are getting closer and closer to hitting the levy limit...however [budget cuts] are not as drastic as in neighboring other towns," according to DePasquale.

The finance committee will determine specific budget expenditures early next year and Healy will present a final budget draft to the City Council in April.