In what is only the first step in averting a deficit this season, the Philadelphia Orchestra Association today shed 20 percent of its administrative staff and said other cost-cutting moves were on the way.

Twelve staffers were let go and six other positions will go unfilled, leaving the orchestra with 72 administrators - its lowest level since the mid-1990s.

"This is an exceedingly sad day for us," said Frank P. Slattery Jr., acting executive director and CEO.

In addition, remaining staffers earning more than $50,000 annually will take a 10-percent pay cut for the portion of salary above $50,000, and vice presidents will take additional compensation reductions.

While the cuts, made across a range of orchestra departments, are a clear consequence of the economy, they add to an arguably self-inflicted institutional crisis greater than any since the 64-day strike of 1996.

Among the pressing struggles:

A wounding slip - or at least for some a perceived one - from the top tier of orchestras. The Philadelphia Orchestra was alone among major American orchestras in being absent from a recent Gramophone magazine ranking of the world's great orchestras.

The continued deterioration of a national and international presence. The orchestra is at the end of its relationship with record label Ondine and has canceled a European tour this summer with chief conductor and artistic adviser Charles Dutoit that would have begun to move the orchestra's image beyond its bumpy past with music director Christoph Eschenbach.

The orchestra is juggling three searches at once, looking to engaged a new board chairman, president and music director.

An ongoing effort to improve the orchestra's home in the Kimmel Center, both in terms of acoustics and urban liveliness.

The orchestra recently celebrated surpassing the goal of its $125 million endowment drive (by $5 million, for a total raised of $130,078,771). The boost was to have ensured the fiscal health of the organization, but, in a cruel bit of timing, the goal was reached just as portfolio values were plunging.

Today's cuts were necessary because of a drop of almost a third in endowment, Slattery said. The market value of that nest-egg was down 30.73 percent as of Jan. 31, "and it's fair to infer that February was a down market," he said.

The cuts shave about $900,000 from the budget, but the orchestra is facing a potential $2.2 million deficit.

"This will help the deficit, but in and of itself will not avert that," said Slattery.

Additional cuts or an increase in revenue will be necessary to close the remainder of the gap. The orchestra recently retained Thomas W. Morris, an orchestra-industry consultant who was executive director of the Cleveland Orchestra from 1987 to 2004, to perform an evaluation of orchestra operations.

His recommendations will be brought before the orchestra board later this season, Slattery said.

The cuts at the orchestra echo similar budget contractions that appeared to accelerate this week at arts organizations across the country. The Pittsburgh Symphony, with its endowment down about 30 percent, announced the layoff of nine staff members yesterday. Dancers of the American Ballet Theater, facing threatened layoffs, agreed Monday to the elimination of pension contributions and vacation pay for this year, according to the New York Times.

The Philadelphia Museum of Art, the other powerhouse arts group in town, last month eliminated 30 slots, or seven percent of its administration.

The staff of the Philadelphia Orchestra was already operating at a lean level in comparison to other orchestras its size, and today's cuts leaves it bare-bones, Slattery acknowledged.

"We have only a very, very simple mission now, and that is to put this orchestra on stage to play the music they've been playing and still be an international touring organization that is attempting to become the best orchestra in the U.S. Anything else that gets in the way of this is extraneous now," he said.

While no one doubts the necessity to cut costs, the layoffs throw down the gauntlet to musicians whose raises in the past decade and half have well exceeded inflation, and who are scheduled for another pay increase next season.

Musicians will receive a minimum-salary boost to $131,040 next season from this season's $124,800 - a 5 percent increase - and some board members see potential savings in renegotiating the contract now.

After a long period of nettlesome labor relations, the orchestra board in 2006 hired a new president, James Undercofler, who is widely acknowledged to have brought civility to discussions. But Undercofler ended his leadership even before the end of his three-year contract, stepping down in January.

Then, in late January, board chairman Harold A. Sorgenti stepped down nine months before he had been scheduled to do so.

With the ongoing search for a permanent music director to succeed Eschenbach, the departures leave the orchestra searching for three leaders at once.

Some orchestra members would like to see Dutoit named music director for a short, finite period period while the search for a new conductor continues, though others are arguing against it.

Contact music critic Peter Dobrin at 215-854-5611 or pdobrin@phillynews.com. Read his blog at www.philly.com/philly/blogs/artswatch/.