"Laguna Beach is in much better shape than other communities," City Manager John Pietig said.
However, the city's future financial position is dependent on some factors not under its control, including recovering from the recession, Pietig warned the council.
"This is not a typical recession," Pietig said. "And it will continue much longer than the average recession."
He described the usual recession as a V, a steep drop and a steep recovery. Pietig said the current recession is more like an L, with the same deep drop, but a different recovery pattern.
"The growth rate will continue to be below average," Pietig said. "Banks are unwilling to lend money and buyers are reluctant in these uncertain times.
"We have to be prepared for the long term. Unless there is a sustainable economic recovery leading to a long-term increase in revenues, the city will need to cut approximately $2.1 million from future budgets."
Laguna is facing increases in the cost of employee retirement and health care. Negotiations are underway with employee unions, which in some cases have forgone raises in the past three years.
The city has also eliminated 10 positions, without any layoffs, furloughs or significant reduction in service, Pietig said.
No salary increases were recommended or approved for the next fiscal year.
City Treasurer Laura Parisi's annual request to have her hours increased to full time was voted down 3 to 2. Mayor Pro Tem Jane Egly and Councilwoman Verna Rollinger reviewed the request but split on the recommendation.
Rollinger supported the request. Egly voted with council members Kelly Boyd and Elizabeth Pearson against the increased hours, which was estimated to cost an addition $53,000, including benefits.
"I can't vote for this," Boyd said. "If Laura is having a hard time with her duties, we can move some of them over to the Finance Department."
Of more immediate concern: The unresolved California budget could have an adverse effect on the city's budget, which includes a $100,000 state grant to fund Police Department jobs.