Petaluma City Council members appeared pleased – or at least relieved – with the city's short-term financial outlook Monday during a workshop on the budget.

No layoffs are anticipated, and in fact three positions are being added. No pay cuts or unpaid furloughs will be asked of employees to save money. And city services won't be trimmed any further than they had been during the roughest financial pinch over the past few years.

But City Manager John Brown cautioned the council that the forecast isn't anything to breathe easier about yet. "I wouldn't go that far," he said.

"We're at a point where we are paying the piper," he said, for years of draining down several internal funds and nearly exhausting the city's rainy day fund to pay for essential services.

"Things aren't looking great," he said. "Were not in a place where we can start spending money."

The 2013-14 draft general fund budget, the fund that pays for most city salaries, benefits and services, weighs in at $35 million, 5.4 percent higher than the previous year's.

All of that $1.8 million increase is related to salaries and benefits.

Revenues are anticipated to increase about $745,000, to about $34.1 million. The approximately $890,000 difference is made up through a carryover of $1.4 million from last year's operating budget.

Brown's spending plan also designates $1.1 million to a reserve fund, an emergency account the council has made a priority of rebuilding.

The final budget will return to the council for a vote on May 20. The new fiscal year begins July 1.

A large chunk of the additional $1.8 million in expenses comes from an increase of $590,000 in the cost of health insurance and retirement benefits. The city also added a financial analyst position at $150,000 and filled two fire department vacancies, at $220,000.

Salaries make up 53 percent of the general fund budget, while benefits account another 28 percent.

Together, the police and fire department budgets account for 76 percent of general fund spending.

Finance Director Bill Mushallo said the city will start seeing the financial benefits of the soon-to-open East Washington Place shopping center, which will have a Target, Dick's sporting goods and a Sprouts grocery store.

Of nearly $890,000 in additional sales-tax revenue projected, $259,000 is anticipated to come from the center.

Though the cutbacks over the past five years were painful, Mayor David Glass said, the city appears to have weathered the worst.

"Petaluma's in a lot better shape than a lot of communities in California," he said.

You can reach Staff Writer Lori A. Carter at 762-7297 or