WASHINGTON, 6 October 2005 — In New Orleans yesterday, Mayor Ray Nagin announced that 3,000 city employees will lose their jobs in the aftermath of Hurricane Katrina.

Nagin said he had been forced to start cutting jobs because of the damage the hurricane has done to city finances, and because he was unable to obtain state or federal aid to rescue the municipal budget.

Without their help, he said, the city could not meet its monthly payroll without hefty sales tax revenue. The move will save about $5 million to $8 million of the city’s monthly payroll of $20 million, said Nagin.

Nagin announced the layoffs “with great sadness” — and insisted only non-essential posts would go, adding the layoffs would involve “non-essential” workers, and the police, fire and emergency medical services would remain.

“The reality is this city isn’t going to be the same for a while,” Nagin told reporters.

Describing the layoffs as “pretty permanent”, he said New Orleans would work with the Federal Emergency Management Agency, FEMA, to notify municipal employees who had fled the devastated city.

The job cuts will begin this week, and final paychecks will be sent out later in the month. “I wish I didn’t have to do this,” he said on Tuesday, standing against a blue backdrop with an upbeat slogan — Bring Back New Orleans. “I wish we had the money, the resources to keep these people. The problem we have is we have no revenue stream.”

He said city officials had spoken to banks and other financial institutions, but could not find a way of keeping staffing levels where they had been before the storm hit.

Also on Tuesday, reports emerged that billions of dollars of reconstruction contracts awarded in the aftermath of Hurricane Katrina are being investigated amid concerns of cronyism and abuse.

More than 80 percent of the $1.5bn in contracts signed by FEMA were awarded without bidding or with only limited competition, including enormous deals with Kellogg Brown and Root, a subsidiary of Halliburton — the former employer of Vice President Dick Cheney — and the Shaw Group. The lobbyist Joe Allbaugh, George Bush’s former campaign manager and a former head of FEMA, had represented both companies.

Richard Skinner, the inspector general for the Department of Homeland Security, told the New York Times that 60 members of his staff were examining Hurricane Katrina contracts. “We are very apprehensive about what we are seeing,” he said. “When you do something like this you do increase the vulnerability for fraud, plain waste, abuse and mismanagement.”

Additionally, the American Red Cross and FEMA announced Tuesday that more than 400,000 people left homeless by Katrina would remain in hotels beyond the Oct. 15 deadline set for their relocation.

The agencies said the $8.3 million-a-day program, would be extended indefinitely.

Bush, who earlier promised an expansive reconstruction effort to provide the financial muscle behind “a powerful American determination to clear the ruins and build better than before”, told a White House press conference that the federal government must act in a “fiscally responsible way”.

All this news came as Hurricane Stan knocked down trees, ripped roofs off homes and washed out bridges in south-eastern Mexico.