VALLEJO, Calif. -- Vallejo's City Council was to meet in closed session Tuesday evening with the city's employees' organizations to try to find a solution to the city's budget crisis that could force the city to declare bankruptcy.

The city's general fund deficit is projected to reach nearly $14 million for fiscal year 2008-2009.

In a report to the City Council last week, City Manager Joseph Tanner said the city faces a $10.1 million general fund operating deficit for the current fiscal year and a negative available fund balance of $5.9 million on June 30, 2008.

"Based upon the updated financial projections, the current estimate for insolvency is late April 2008," Tanner said.

"It may become necessary for staff to recommend that the City Council consider filing and pursuing Chapter 9 bankruptcy in the event the city is unable to meet its existing obligations with its existing revenues," Tanner said in the report.

The city is trying to modify its existing contracts and asking for salary rollbacks from with police, fire, electrical workers management and administrative and managerial employees.

The contracts expire in 2010 and the labor groups are not required to make any concessions.

City employees' salaries and benefits comprise 87 percent of the city's general fund budget, Tanner said.

City officials and union leaders said 21 veteran police and firefighters retired suddenly last week out of fear the city will declare bankruptcy and they will not be able to receive accrued vacation and sick pay buy-outs that would cost an additional $4 million.

The city currently has a $135 million liability for the present value of retiree benefits already earned by active and retired employees and an additional $6 million a year as employees continue to vest and earn this future benefit, Tanner said.

Council members Joanne Schivley and Stephanie Gomes, who have taken a hard stance against the unions, have scheduled a Town Hall community meeting for 7 p.m. Thursday at a photography studio at 733 Tennessee St. to discuss the city's financial dilemma and prospect of bankruptcy.

Gomes said she and Schivley wanted the meeting to be held tonight at City Hall but one of the council members pulled the item from the agenda.

"We felt it was important to do it anyway so the public could hear and have a discourse on the budget," Gomes said.

"Bankruptcy is an option of last resort but there definitely is a chance it could happen," she said this afternoon.

City officials met with union representatives Monday.

The City Council will consider a fiscal emergency plan on Feb. 26. The plan calls for cutting city salaries to 5 percent lower than June 30, 2007 starting on March 28.

Police and firefighter salaries under the existing labor agreements would be reduced 15 percent, by 8 percent for the electrical workers and 5 percent for confidential, management and un-represented employees.

Thirty general fund positions would be eliminated, 16 of which are currently filled and will require layoffs.

Other vacant positions could be filled by transferring employees but the reductions would reduce the general fund positions from 494 to 411, or by 17 percent.

A single fire engine company would be closed each day on a rotating basis and there would be a three-month temporary reduction in truck company staffing from four to three.

The Public Service Department's Maintenance Division would be reduced $500,000. The plan also calls for transferring about $2 million of one-time eligible funding to the general fund.

Community-based organization funding would be reduced $873,000 starting July 1.

Bankruptcy is listed as the fourth option in Tanner's report.

"No California municipality has filed Chapter 9 bankruptcy, and there is very little case law guiding the potential outcome of such a filing. The risks of this option are significant," Tanner said.

Some city officials, including Mayor Osby Davis, however, are hopeful a resolution can be reached and bankruptcy can be avoided.