An economic slide that started nearly two years ago in the private sector has rippled through government and is now shaking up public employee unions.

Faced with mounting costs and shrinking revenues, cities and counties from Sacramento to Los Angeles are curbing employee benefits, scaling back pay and cutting jobs.

California's finances are so dismal that the Democratic-controlled Legislature recently went along with Republican Gov. Arnold Schwarzenegger to enact fundamental changes to state worker overtime and holiday pay rules.

Things are so dire that unions representing public employees often consider pay cuts, furloughs and reduced benefits a win.

"We've never been here before," said Yvonne Walker, president of Service Employees International Union Local 1000, which recently negotiated a contract that included several concessions in pay and benefits for about 95,000 state employees. "This goes beyond tough times."

The economic recession's relentless squeeze on investments and consumer spending has choked off tax revenues to government at all levels. The problem is particularly acute for California's cities and counties, because 50 percent or more of their budgets can go to pay and benefits to employees, leaving little else to cut when times are tough.

That grim reality has handed government employers a powerful tool to wring concessions from the unions: layoffs.

In Sacramento, the police union has agreed to salary concessions to keep about 70 officers employed, and the city's building trades workers have tentatively agreed to freezing wages and one day off without pay each month for two years. Firefighters went the other way – rejecting pay concessions that would have saved 50 jobs. The city is trying to close a $50 million deficit.

The Los Angeles City Council, facing a $7 billion budget hole, last month started the layoff process for up to 400 workers and voted to chop another 1,200 vacant positions. The city's employee union hoped the council would hold off until talks over an early retirement plan had wrapped up.

Falling tax revenues have forced Antioch to lay off more than two dozen employees since January, and it may have to lay off more, despite union concessions that include a shorter work week when the city's fiscal year rolls over on July 1. The city needs to close a $4 million budget shortfall.

And although employee pay accounts for less than 10 percent of the state's shrinking $92 billion general fund, Schwarzenegger is furloughing about a quarter-million state workers two days each month.

Last month he ordered departments to ax 5,000 budgeted positions, including 4,600 currently filled with workers. On top of that, the governor also wants a 5 percent across-the-board reduction in state worker pay to save an estimated $470 million next year.

Schwarzenegger has said public employment costs are hobbling the state – and local government too. "Cities and counties negotiate deals they can't deliver," Schwarzenegger told The Bee's editorial board on Friday. "We can only give what we have … I think the bottom line is, we all have to chip in. It's a crisis."

The trend toward public employee union concessions is so strong that even unions with contracts are feeling pressure to reopen their deals and make sacrifices.

The 6,000-member California Association of Highway Patrolmen is approaching the final year of a five-year contract that promises a raise next month based on what police in several other agencies are paid.

Still, union executive director Jon Hamm said, "Our members are very sensitive to what their colleagues are going through in terms of cuts and furloughs. There's a sense in our association that somehow we need to do our part. It's trying to figure out what – that's the difficult decision."

California's fiscal crisis also has rippled through the state's public school system, because K-12 education accounts for nearly 40 percent of the state's budget.

School districts and teachers unions around the state are weighing whether to pay teachers less for working a shorter school year, ax jobs outside the classroom, increase class sizes and eliminate teachers or some blend of cuts.

Call The Bee's Jon Ortiz, (916) 321-1043.