The city council met at the Hughes Center on Saturday to discuss an estimated $3.5 million budget shortfall over the next 2 years.

For 2008-09, city staff proposed a freeze on new hires, a reduction in equipment and travel expenses for city officials and a one-time payment of $1,011,000 from the General Fund Reserve to cover the lost revenue.

The council agreed to budget adjustments recommended by the city manager and voted in favor of the $1.011 million transfer. The move will shrink the current liquid value of the General Fund down to roughly $2.44 million. The transfer was needed to have a balanced budget through the end of June, city officials said.

The city is still in negotiations with 6 of its employee unions over labor contracts for the coming year. City staff is proposing 7 to 9 percent reductions in costs incurred from labor contracts, which would mainly affect benefits pay.

"Our 2 main goals in all of this is to keep all of our employees, particularly full time employees but also part time staff, and to keep city services at the level that they are," Councilmember Linda Elderkin said.

A report released Friday by the city manager outlines the details of the budget problems.

In 2008-09, the shortfall resulted from drops of $1,170,000 in sales tax revenue, $80,000 in transient occupancy tax generated from hotels, $150,000 in building permit fees and $100,000 in development and plan check fees.

With the declining revenues and an estimated $500,000 increase in operational costs the following year, staff estimates a $2 million deficit in the fiscal year 2009-10.

If the financial situation deteriorates within the city, the council discussed future cost savings options such as switching to a 10 hours/4 days work week for city staff and consolidating some city commissions.

The council agreed in principal to expenditure reduction measures proposed for the 2009-10 fiscal year. A more detailed report on measures to tackle for next year will be presented at a city council meeting on February 24.

—Tony Krickl