SCRANTON, Pennsylvania (Reuters) - City council members in cash-strapped Scranton, Pennsylvania, are meeting on Thursday to discuss the city's desperate financial state, after the mayor cut public employees' pay to minimum wage.

The city has a budget deficit of about $16.5 million, and if it cannot find lenders to bridge the gap it could run out of cash to meet payroll and other operating costs.

Until now, city council members and Mayor Christopher Doherty have been unable to agree on a fiscal plan to put Scranton back on track. One of Doherty's proposals is a 78 percent tax increase over three years.

One day last week, the city had just $5,000 in the bank. Doherty, a Democrat, thrust the city into the spotlight on July 6 when he told firefighters, police and public works employees that they would suddenly be earning $7.25 an hour, the state's minimum wage.

He also cut his own pay and that of city council members to minimum wage.

"I am very hopeful that the mayor will sit down with the council and negotiate in good faith," city council member Pat Rogan said during Thursday's meeting. "This city council is not going to pass a 78 percent tax increase. There are many other ideas for generating revenue."

Scranton, nicknamed "The Electric City" for having one of the nation's first electric streetcar systems, is a former center of anthracite coal mining.

Its total operating budget for 2012 was $85.3 million. It was $75 million in 2011. The police department accounted for 28 percent of the city's department expenditures. Fire services accounted for 27 percent, and public works for another 20 percent.

The city, which is the setting for "The Office" television show, is one of several in Pennsylvania and across the United States that are scrambling to maintain services with shrinking revenue.

Scranton's drastic action to reduce wages prompted unions to launch three lawsuits: one aimed at blocking the cuts in state court, and two claiming the mayor violated federal wage laws and benefits programs for disabled police and firefighters.

The unions have also asked a state judge to hold Doherty in civil contempt, saying he violated a judge's order not to cut salaries.

(Reporting by Hilary Russ)