Four Pacific Grove City Councilmembers eat sandwiches and drink beer at Monterey’s Crown & Anchor Pub in the late hours of Dec. 12, talking about anything but their city’s budget mess. State law prohibits a quorum of elected officials from talking turkey in private.

“We don’t discuss it,” says Councilman Daniel Davis.

Fellow Councilmembers Susan Nilmeier, Scott Miller and Mayor Dan Cort, along with City Manager Jim Colangelo, have made the late dinner a tradition following twice-monthly council meetings.

But tonight’s marathon was a special meeting held on the council’s off-week, intended to publicly present a menu of unsavory options for fixing the city’s floundering budget.

Cutting $2.6 million per year from the city’s expenses, or raising an equal amount in new revenue, would allow the city to bridge its $1.6 million operations gap, eliminate deficits, save for deferred maintenance and pad its reserves within three years, staff said.

But coming up with that cash is going to be painful.

On Dec. 12, locals packed the council chambers and spilled into the hallway, murmuring as Colangelo plodded through cost-cutting alternatives totaling $3.1 million. These include laying off more city staff, closing City Hall on alternate Fridays, trimming the Public Works Department, and continuing to defer maintenance work.

The options to eliminate library and museum funding drew so much public opposition the council unanimously voted to replace the word “eliminate” with “reduce.”

Speakers also raised concerns about options to shrink fire and police services. “Both our police and fire departments are insurance policies for our community,” Colangelo said.

The city is moving to merge its fire department with Monterey’s and Carmel’s, but it isn’t doing the same with its police department—yet. “I don’t see any major police consolidation issues going on until after this fire one is completed and has proven to work,” Colangelo says.

Revenue-generating options totaling $1.4 million include installing parking meters in four locations, eliminating golf discounts and raising development fees.

Nowhere on the list of options: Charge the Monterey Bay Aquarium market-rate rent on the city’s tidelands, which it currently leases for a symbolic $1 per year. Colangelo says the rent increase would be too legally risky to pursue, and wouldn’t be applicable to the city’s general fund.

The revenue options also skirted the subject of taxes. In November, voters soundly rejected a tax package that would have generated an extra $1.6 million per year. With the city barred from spending money to campaign, tax measures tend to flop at the polls, Colangelo says. But the Council has not dismissed the idea of placing new tax measures on the November 2008 ballot.

“The budget options were just things we have control over and can be done on a relatively short timeframe,” Colangelo says.

Without some quick cash, the city probably will have to draw about $500,000 from its reserves before the end of the fiscal year. The depressed housing market has flattened the city’s property tax revenue, and the council canceled plans to install parking meters that would have generated about $500,000. Accrued leave payment for retiring and laid-off city employees will cost a projected $550,000.

A recent discovery that the city likely has been overcharging a franchise tax on its garbage hauling services is a glitch, coupled with other franchise tax adjustments, that could cost PG almost $200,000 in lost revenue annually. Add another $100,000 in unexpected litigation, which drives the city attorney’s annual budget toward $400,000, and the financial forecast is downright dismal.

Also on the table: eliminating City Council salaries, about $5,000 per councilmember and $8,400 for the mayor.

During the public comment period, business owner William Auclair suggested installing parking meters at the golf course.

Carmelita Garcia pointed out that the budget-parsing process has been going on for a year.

In the spring and summer, Colangelo spearheaded a reorganization effort that, along with a hiring freeze and other factors, will save the city an estimated $1.1 million this year. But it still leaves PG with $700,000 more in expenses than revenue.

The council directed staff to schedule two community meetings for early January and then return with budget-trimming recommendations.