Nov. 14 (Bloomberg) -- Philadelphia, Atlanta and Phoenix are asking the U.S. Treasury Department for part of the $700 billion financial rescue package to help them finance construction projects and pay bills.

They seek $50 billion on behalf of cities nationally to spend on infrastructure and loans lasting as long as a year to aid cash flow. Philadelphia Mayor Michael Nutter, who is leading the effort, gave a copy of a letter detailing the request to Treasury Secretary Henry Paulson today, said Atlanta Mayor Shirley Franklin. Atlanta has laid off workers and frozen hiring and may cut essential services.

``We are going to start hitting bone,'' Franklin said in an interview today.

Paulson said on Nov. 12 such requests are beyond the scope of the bailout.

Cities' revenue has plummeted amid the turmoil on Wall Street, plunging home values and the economic slowdown. The stock market crash has also saddled pension funds with losses that will force local governments to set aside more money for retirement payments.

The Bush administration has rebuffed requests to use the financial rescue plan, known as the Troubled Asset Relief Program, to help state and local governments. The Treasury rejected a plea last month by Alabama's largest county to guarantee its bonds and help it avert bankruptcy.

Growing List

The mayors join a growing list of those outside Wall Street seeking money from the U.S. Treasury. Officials originally intended to buy devalued mortgage assets that left banks reeling from loses and hesitant to lend. House Financial Services Committee Chairman Barney Frank has proposed using $25 billion of the bailout money to help struggling U.S. automakers.

Atlanta, which has to close a $60 million gap in its $570 million budget, laid off 350 workers in June, about 30 percent of its nonessential employees, Franklin said. A furlough program starting Dec. 1 will cut pay for the city's 4,600 employees by about 10 percent, Franklin said.

``Like most cities, we have kept up,'' Franklin said. ``But we are saying that if it continues to unravel, we will have to cut core services and put more people on the street without jobs.''

New Jersey Governor Jon Corzine, who said yesterday his state's budget deficit this year had more than tripled to $1.2 billion, favors including cities in a bailout program.

`Tough' on Municipalities

``As tough as it is for the states,'' Corzine said, ``I think our municipalities and local governments have it even more so.''

Mayors in other cities are planning to make their own requests. San Jose, California, Mayor Chuck Reed said today the city may seek as much as $14 billion, spokeswoman Michelle McGurk said.

That amount is more than four times the city's current budget of $3.3 billion and equal to 2 percent of the federal bailout package. The city needs money to meet its pension and retirement costs and fund water-treatment and transportation projects, McGurk said.

The city doesn't expect to receive the full amount but was making the request in light of similar efforts by other cities, she said.

Reed made his comments following a meeting with mayors of the state's 10 biggest cities. Those cities, which include Los Angeles and San Francisco, will devise a joint request for federal assistance, McGurk said. When that request will be completed and submitted is unclear.

New Stimulus Package

California Assembly Speaker Karen Bass said she is drafting a letter to President George W. Bush asking that he seek another economic stimulus package and include a special pool of money that states can tap to help pay their bills. California requires at least $5 billion, said Bass, a Democrat from Los Angeles.

``When you are talking about bailing out individual industries, California is an entire state, and states should be elevated as industries are,'' Bass said.

California, the most populous U.S. state and with a gross domestic product that's the world's eighth largest, faces an $11.2 billion shortfall in the current fiscal year and $28 billion deficit over the next 20 months. Even if lawmakers approve Governor Arnold Schwarzenegger's proposal for $4.5 billion in tax increases and $4.5 billion in spending cuts, the state still would need a federal bailout, Bass said.

Aside from tumbling tax revenue, Wall Street's credit crisis has also pushed up the cost of borrowing for state and local governments, which have sold some $2.7 trillion of bonds. As investors demanded higher returns to take on more local government debt, some governments shelved plans to borrow.

President-elect Barack Obama said during a Nov. 7 press conference that he wants to extend assistance to state and local governments. During his campaign, Obama also proposed a so-called infrastructure bank to invest $60 billion in roads, bridges and other projects.

To contact the reporter on this story: William Selway in San Francisco at wselway@bloomberg.net; Adam L. Cataldo in New York at acataldo@bloomberg.net.

Last Updated: November 14, 2008 18:35 EST