According to news reports, after paying the salaries they had $5k in the bank.
Upping 5 firefighter's pay to their usual pay would have left $0.
After accounting for incoming revenues that day--revenues not on hand when the checks were cut--they had a bit less than $85k. With 400+ public employees affected, that amounts to an additional $210 per employee, leaving the town with $0 for starting next week.
Now, that sounds great, but there are things that the city has to do. Pay Medicare taxes for its employee. Health insurance. Pay for electricity. $0 is a sucky basis for paying these.
In other words, this is the court ordering somebody with $20 in the bank to make good on debts of $1000 or face contempt charges, knowing that the "somebody" can't take out a loan. Now, perhaps the city could have curtailed expenses in the previous month or two to make sure that there'd be no crunch--in other words, the crunch was at least temporarily avoidable but not avoided--but if so I can't criticize: This is exactly what Obama did in summer 2011 that brought the federal treasury close to $0 and launched calls to invoke the "public debt" clause of the Constitution.
At least the court order is just a preliminary injunction. It says the judge thinks there's a good likelihood of the plaintiffs' winning, or of irremediable harm accrueing to the plantiffs if the city's action is taken. I don't know if the judge has to consider reality in making this call: Sometimes courts are limited by law and precedent in the facts they can consider.
Don't know if city councilors and the mayor took a pay cut. Mayor wants to raise taxes, city council doesn't. No clue what the city council's plan is.