Petaluma city leaders started their annual budget discussion Monday night with another stark assessment of the city's ever-precarious financial situation.

"This budget is really just barely held together," City Manager John Brown told City Council members during a special budget workshop.

If a department wants to spend more, it "has to come out of someone else's pocket," cautioned Councilwoman Teresa Barrett.

Finance Director Bill Mushallo said the long-term spending outlook, which runs through 2018, anticipates no raises for any of the city's bargaining units.

Still, Councilman Chris Albertson said he would like to see a discussion about restoring some staffing cuts the police department has undergone in the past several years and fixing up the fire stations.

Barrett renewed her desire to increase the hotel tax on overnight visitors and Brown said the city is exploring ways to collect the fee from unofficial bed and breakfasts that are currently unregulated and untaxed.

The discussion continues tonight with a 6 p.m. town hall-style meeting at the Lucchesi Center, where Brown will describe the city's financial condition and gather community input on priorities. Brown is making the city's pitch for a potential sales-tax increase on the November ballot.

The council will formally consider the proposed budget next Monday night.

Mushallo's proposed $39.5 million budget for 2014-2015 shows general fund revenues increasing by almost $2.7 million, while spending nearly matches that.

Sales tax income is expected to increase by $1.2 million and property tax proceeds by $212,000.

The rise in expenditures comes almost exclusively from employee salary and benefit costs. Retirement and health care costs are expected to rise by $1 million, while three new positions will add another $300,000. Another $1 million in salaries was moved to the general fund this year as part of a different accounting method, but isn't actually new spending.

Of Petaluma's general fund, which pays for most city operations and where most of the council's discretionary spending exists, 79 percent is spent on salaries and benefits. The police and fire departments budgets account for 72 percent of the general fund.

The spending plan uses a carryover of about $800,000 from last year's budget but doesn't draw down the reserves, which are at $2.3 million – still only a third of the council's savings goal.

You can reach Staff Writer Lori A. Carter at 762-7297 or lori.carter@pressdemocrat.com.