PLEASANT HILL - Elane Rehr laughed when she heard the Contra Costa Community College District would be pink-slipping every faculty member and academic manager as a warning. The district can't lay off everybody, she knew.

Still, when she received her slip, the 31-year veteran psychology instructor at Diablo Valley College felt the sting.

"It's so demoralizing," said Rehr. "It feels like betrayal."

DVC instructors were already so upset over an administrative decision to replace faculty division chairmen and women with more expensive deans districtwide, they had sued to reverse the move. The case is scheduled to go before a Contra Costa Superior Court judge in June.

The pervasive unhappiness has many at the college concerned. DVC is a big-name college, akin to UC Berkeley in the world of California's community colleges, and a top supplier of transfer students to the University of California and California State University.

"This place is going downhill," said part-time history instructor Katherine Graham. "The morale is really low here, and that's bound to affect the classroom."

DVC President Mark Edelstein is worried for different reasons. He is concerned over the budget crisis that prompted the pink-slip layoff notices at the district's three colleges and is forcing pay cuts of up to 7 percent for administrators. And he is concerned the DVC faculty has not accepted a management change he feels is essential to running a college of more than 23,000 students.

"It's unfortunate to get these issues mixed together because the real issue is the budget," he said.

The pink slips went to 540 academic employees at DVC, Contra Costa College in San Pablo and Los Medanos College in Pittsburg. Many K-12 school districts have pink-slipped some employees, but it's not the norm to notify everybody they may be laid off. District officials argued it gave them flexibility in handling the budget crisis and didn't unfairly single out certain instructors and academic managers.

DVC biology instructor Gay Ostarello, a former faculty senate president, wonders if the district board voted to give pink slips to everyone partly out of anger over the DVC faculty's lawsuit, which she says has deeply upset district and college officials.

"It's a way of thumbing their nose at us," she said. "There's not a real direct connection -- it's a mind-set. They're ticked off with us because we have filed this lawsuit. It cost them energy. If they lose they'll look really bad. There's a strong chance they will lose. Our lawyer has done a masterful job of putting together a very good written argument."

The layoff notices had nothing to do with the lawsuit, said district spokesman George Medovoy.

"That's just absurd," he said. "The district needs to cut a little over $10 million and if it doesn't do the pink slips and it can't find any other way to make the cuts, there's a real risk of it being taken over by the state."

The district is on a California Community Colleges Chancellor's Office watch list, along with 12 others -- among 109 colleges in 72 districts around the state -- for having its reserve dip below 5 percent of its general fund expenditures. It is now just 1 percent. Much of Contra Costa's fiscal troubles stem from sharp salary increases and a 77 percent increase in health care costs, said district chancellor Charles Spence.

The faculty blames the fiscal woes in part on the district being management-heavy (they're miffed that Spence is the third-highest-paid chancellor in the state at $205,000 as of 2002). It says the addition of division deans cost the district $1.57 million annually.

The two sides can't even agree on that outlay: The district estimates the reorganization pushed costs just $129,000 higher.

The district created 16 division deans at the three colleges to replace instructors who had filled those positions on a part-time, rotating basis.

Officials wanted year-round division managers who could work on staffing schedules during the summer, when most faculty members are off. It's a common set-up. The faculty agreed the management structure wasn't perfect but wanted to work on a solution with the administration.

They argue in their lawsuit that under state regulations, district officials were required to reach mutual agreement with them before making a change like adding division deans.

The DVC faculty has other issues with the deans. It sees the move as a broader effort to diminish instructors' power and influence within the college. Some say they're being treated more like K-12 teachers than college instructors.

Part of it is just the personality of DVC faculty, a traditionally independent and outspoken lot. To pay for the lawsuit, the instructors created the DVC Faculty Senate Legal Defense Fund. The faculties at Contra Costa College and Los Medanos College haven't really protested the administrative change.

"The whole atmosphere has changed on the campus," said political science instructor Dorrie Mazzone. "Faculty (used to be) involved in every aspect of planning. We had meaningful participation."

It's difficult to tell how the acrimony has affected students.

Nataly DiCortasso said she can see a difference in attitude among her instructors.

"The faculty aren't going the extra step anymore because they're hurting."

Lu Qi, 19, said the fighting hasn't been all that apparent. Students are more focused on fee increases and all the news surrounding UC and CSU's decisions not to accept all eligible students in the fall.

One thing everyone agrees on: The state's budget crisis has made everyone tense.