How do you maintain high IT staff retention in the face of budget cuts? Any tips for improving morale in difficult economic circumstances?

I try to be transparent and open, while still being a good corporate citizen, which means that I provide as much context as I can, and I constantly offer to talk to staff one on one or in groups to assuage their fears and uncertainty.

We are currently faced with a 10% budget cut. For staff retention, as a public sector organization, we have limited opportunities as we cannot offer stock options or bonuses. Currently, we are focusing on Professional Development and Stretch Projects supporting Career Progression and Succession Planning. It is a challenge, and we hope that we can also establish mentoring and other informal programs to ensure effective employee engagement.