California's hard economic times are also having an impact on the local economy with a projected $2.7 million deficit anticipated for the city of Pacifica's budget in fiscal year 2008-2009.

Loss of sales and, more importantly property tax revenue upon which the largely bedroom community of Pacifica is heavily dependent, a drop in permit and licensing activity and loss of investment income and occupancy (hotel) tax account for $700,000 of the shortfall in the city's roughly $30 million General Fund, according to staff.

Another $804,000 involves one-time expenses, including $714,000 for a General Plan update which many in the community have long supported, $70,000 for a solid waste Request For Proposals or RFP process to seek a new garbage company, and another $20,000 for the annual IRS-mandated audit of the city employees' health benefits plan.

While the one-time expenses means the overall deficit is more on the order of $1.8 million, that doesn't mean the City Council doesn't have to come up a way to plug the entire $2.7 million shortfall come the end of June. Included in next year's budget are $1.5 million contractual increases in salary and benefit costs, ongoing litigation expenses and general unavoidable increases in other city departments, including a first full year of a renewed police captain position.

Such was the fiscal message reported by City Manager Steve Rhodes and Administrative Services/Finance Director Ann Ritzma at the second informal City Council budget study session April 29.

Council held its first budget study session April 16 -- such April meetings are a full month ahead of when council typically begins preliminary budget deliberation, but Rhodes said he felt it was important to be especially conservative this go-round given the economic uncertainty of the state of California and how that trickles down to municipalities like Pacifica.

As such, he and Ritzma have already frozen recently vacated city positions, including three unfilled police officers; one firefighter; and three public works employee positions including an equipment operator, senior tree trimmer and park ranger.

What they're really hoping for are promising (at least fiscally) results of yet another voluntary separation and reduction of employee hours proposal, which is a fancy way of asking employee to consider taking early retirement or agreeing to work less hours -- freeing up costs in Pacifica's largely salary and benefits-driven city budget in the long run.

If enough employees elect to participate in either of those programs, there might be enough money in the budget to consider reinstating one or more of the frozen positions. But that won't be known until all the applications are received later this month, Ritza said. At that point, staff will "reprioritize" staffing levels and proposed position freezes for council consideration "when we have the whole picture," she said.

The combination of the employee position freezes, voluntary separation and reduction of hours are estimated to erase $600,000 of the deficit. The remaining $2.1 million must come from the city's $5.7 million reserves -- leaving the city with a savings account of $3.6 million, which is roughly 13 percent of the city's operating budget, known in municipal lingo as a General Fund.

At the same time, the ever-cautious and long experienced City Manager Rhodes told the council it was his intention to immediately engage in a five-year plan -- to assess the city's level of service needs weighed against its revenue over a longer period of time and make adjustments accordingly.

"It's my goal to have this plan ready by fall so the council can make changes or at least know where we're going by mid-year budget time in January," Rhodes said. "We have to take a strategic look at our budget, not just today, otherwise we'll keep coming back to this place. The voluntary separation plan is something immediate to do now. The five-year plan is for the future."

City Council members said they appreciated the staff's willingness to tackle yet another deficit head-on.

Mayor Pro Tem Julie Lancelle pointed out that a big chunk of the deficit involves increases in employee salary and benefit costs -- something governed by negotiated union contracts that tend to be unbreakable.

"I realize that health care and retirement costs are something we can't control, but the deficit also involves raises and increases. I'd like to look at the possibility of revisiting contracts in lieu of losing positions," she said. If our revenue is not staying the same it doesn't make sense to me that we don't have a conversation with employees so that all of us are part of the solution in balancing our budget."

In response, Rhodes said the five-year plan will help in reviewing what's ahead contract wise and allow the council to make plans.

Likewise, Councilmember Sue Digre questioned whether Pacifica would be operating "too lean as a city," in the interim, likening the city to "starving children" prior to the January mid-year adjustments. "What are we doing without? What could be done if we were a little more risky?" she asked.

Rhodes reiterated that yes, while Pacifica is definitely operating lean, a strategic plan is the only way to really plan ahead to prevent budget deficits recurring year after year.

"The governor is now predicting a $16 million deficit (as opposed to $20 million) Are there any other immediate places the state can steal money from us easily?" asked Councilmember Pete DeJarnatt. "Maybe steal' is the wrong word. How about borrow inconveniently?"

"The state took our highway users' tax. We're probably more secure than most cities because of what we've done in the past but there's never a guarantee," Rhodes said.

"We were very conservative about intergovernmental (state) revenue because of that potential," Ritza added.

The last budget study session the council heard from several other city department heads who presented overviews of their budget. On April 29, they heard from Police and Public Works.

Perhaps most relevant to the upcoming budget dilemma was testimony from Police Chief Jim Saunders, who while providing an overview of department achievements and goals, focused the bulk of his report on the impact of the loss of three police officers.

In response to Lancelle's earlier question, Rhodes reiterated the frozen jobs were not long-term "hoped-for" budget additions, but immediate losses to the city's daily operation.

As such, Saunders said the loss of the three rank-and-file cop jobs would be detrimental to police services. The vacancies are due to one retirement and two officers who left for jobs in other departments.

"At this point we are at the bare minimum. In fact we're less than the bare minimum. If an officer is ill or in training I have to fill with an officer on overtime. If the city eliminates those three vacant positions I'll have to eliminate an investigative unit. I should have six more officers, not three less."

Saunders said that police in Pacifica work much harder than their counterparts in other cities.

At the same time, the hiring of just one police officer takes months, including background check and oral interview. Even when a cop is hired, it's another nine months to a year before he or she is fully functional.

"I'm working my officers to death, but at the same time other agencies are hiring. It's a vicious cycle. I can't afford to be a year behind. If those three positions are frozen, that would not be a good scenario. I m not trying to say the sky is falling,' but in reality we re in desperate need of cops. because if we work them too hard they leave."

"And when it comes to hiring I won't lower our standards. Maybe one in 10 we end in hiring because that's what the citizens of Pacifica deserve. We regularly call victims of crime to see how our officers are doing -- we're maybe the only agency in the county, maybe state -- who does that. And we have a 93 percent excellent rating out of 300-400 calls for service because we care about service to the community," Saunders said. "Police Services are not fat in this budget."

"As the economy gets worse people get more desperate, more aggravated and tend to have a shorter fuse," said Saunders, quoting recent assault cases in Pacifica. "It will be difficult to keep up with that tend with three less officers," he said.

"Your police officers do an amazing job with limited resources," said Lancelle. "We all have to work together to address our reduced revenue. It's very difficult, but I certainly hear what you're saying."

"I think as we move forward we have to make sure the city's basic needs are met. I think the staff is being a bit conservative. We have a few months to go in this process," said Mayor Jim Vreeland.

"I agree about us maybe too lean with regard to police and fire," added Councilmember DeJarnatt. "That is something we need to look at. This might be premature and academic."

"There are a lot of areas to look at and there are some assumptions we need to discuss," said Vreeland. "We're a month ahead," he said.

"But our issue is that if the city doesn't have the revenues to cover these expenses, we need to take it out of our reserves," said Rhodes. "We need to be having these discussions now in order to put this budget together."

Vreeland suggested that the council schedule yet another budget study session after the voluntary separation agreement applications are received. That informal public session will be 7 p.m. Wednesday, May 21 in the City Council Chambers, 2212 Beach Blvd. (The city's Capital Improvement and Redevelopment budgets will be reviewed May 27.)