Principals and their staff were squaring up for an election-time pay battle. The Association of Colleges warned pay and job cuts would be needed to cope with tight funding settlements.
But the lecturers' union NATFHE warned of a wave of industrial action if widespread redundancies were pushed through. If the pay constraints imposed last year are repeated then colleges in the worst financial state will be hardest hit by action.
Pay negotiations start next month when the unions are expected to put in their claim. It is unclear whether the unions will put in a single or separate bids.
Roger Ward, AOC chief executive, said: "Last year we saw signs of a trade off between job losses and the pay rise. This is certain to re-emerge this year since the finances of the sector are in such a parlous state."
Senior officials at the AOC believe the final pay award is unlikely to match the rate of inflation. But Mr Ward predicted there would be a sizeable minority of successful colleges who will make above-inflation settlements.
Since incorporation in 1993, pay settlements for lecturers have been on or below the rate of inflation. This year the teachers pay review body's recommendation - which is certain to influence the lecturers' settlement - is for a pay rise above the rate of inflation.
However, numerous colleges have already told AOC officials they will have difficulties making any pay increase at all this year. For the fourth year running, those still on local authority conditions are unlikely to get any pay rise.
Sue Berryman, NATFHE assistant secretary, said: "It's very depressing to think about it frankly because our pay levels have fallen so far behind school teachers; a couple of thousand pounds behind."
And she warned a pay for jobs trade-off would leave colleges facing strike action. "If that's the situation they will face quite considerable industrial action because people are beginning to feel pretty dispirited, and we will continue to press for funding to allow adequate pay to be paid.
"I think because the proportion of part-time lecturers is so high it's very often the case that if a college is in a really difficult situation they tend to squeeze the part-time staff."
Colleges are waiting to hear how they will be affected by the decision to end cash for expansion, but Ms Berryman insisted: "I don't think our members are going to stand around waiting."
She said the squeeze on college funding had persuaded more colleges to negotiate agreed contracts with staff. The union estimates 48 per cent of college lecturers are now on locally-agreed contracts. Ten per cent are still on the old Silver Book contracts, with the remainder on non-negotiated contracts.
Ms Berryman said: "The most important aspect of the locally-negotiated contracts is that they place limits on teaching hours, which has always been our position. They are far more favourable than anything the national employers were prepared to speak about."
Ms Berryman said lecturers had negotiated an average of 24 hours a week, rather than the unlimited hours proposed by the model Colleges' Employers' Forum contracts which were designed to oust the Silver Book agreement.
She said contract disputes were not yet a thing of the past, although dramatic action by colleges was rare. "There are still a lot of talks going on, but there is a fairly significant number of colleges which have not got into negotiations on contracts," she said. "Quite often they make a big noise but don't do anything."