Deep cuts to city services and layoffs are likely as San Francisco’s financial outlook shows little improvement.

Despite some expected good news in sales and property tax revenue next week, deep service cuts, layoffs and other controversial proposals, such as contracting out city services, should be considered to close the budget shortfall, according to a Monday memo sent to Mayor Ed Lee by his budget director, Greg Wagner.

The sour budget news leaves city officials grappling with what to cut after having already closed massive deficits in previous years. The City’s workforce, at 26,108 employees, is down from a high 10 years ago of 28,060. Even with across-the-board 20 percent department budget cuts and about $75 million in other reductions, such as capital spending, the budget shortfall would be in excess of $100 million.

“This year we are going to have to be cutting bone,” Board of Supervisors President David Chiu said during Wednesday’s Budget and Finance Committee hearing.

City departments were told to come up with 10 percent in cuts and another 10 percent in contingency reductions. Contingency cuts will have to be imposed, which will mean “deeper reductions to social services and public safety programs,” according to the memo.

Wagner advised Lee to consider directing department heads to propose layoffs. The City could save $13 million for every 100 layoffs. Wagner also advised considering the controversial contracting-out proposals that could save The City $26 million. When previously proposed for such workers as janitors or jail health providers, they were rejected by a progressive bloc on the board, which has strong allies with the affected labor unions.

Lee must submit a proposed city budget to the Board of Supervisors by June 1 for review and adoption. A city budget report updating San Francisco’s budget deficit for next fiscal year, which begins July 1, is due out next week. The previous estimate was $384.6 million.

jsabatini@sfexaminer.com