BLOOMINGTON - Raising property and utility taxes and an array of program cuts are on the table as the City Council looks for ways to come up with $8.4 million to cover various budget needs.

The council needs to find a way to pay for increasing labor costs, street improvements, rebuilding the general fund reserves and other expenses at a time when increases in sales tax income can't be counted upon, City Manager David Hales said. While the recession is coming to a close, the rebound in sales tax revenues will be slow, he said.

The bleak financial report was part of a work session Monday for the City Council. It is beginning to build its budget for the 2010-2011 fiscal year that starts May 1.

"This has to be a sobering discussion," Hales said. "We can keep cutting or look at revenue enhancements or both."

Hales added that if the council wants to continue to cut into its budget, deep cuts to programs and services will have to be made.

The council is facing a decision to increase property taxes to cover pension costs and may consider additional increases. State-mandated contributions to the police and fire pensions likely will force the city to increase property taxes by $30.86 for the owner of a $150,000 house. To generate another $500,000 for the general fund, taxes would have to go to $44.83 for a $150,000 house.

The council has to set an estimated tax levy next month and it will need to hold a truth-in-taxation hearing Dec. 14 because of the pension costs.

Ward 2 Alderman David Sage ask Hales to define "draconian" cuts during the nearly hour of discussion on the city's finances.

"People would rather see us cut spending rather than raising costs, but we are to the point where we are talking about cutting police officers … and we are talking about significant changes in city services," Sage said.

Hales agreed with Sage's assessment.

Mayor Steve Stockton said the council has to consider making the property tax pick up more of the city costs as sales tax revenues continue to dwindle.

"It's not to say that we are not going to continue to look at cuts and changes in our programs," Stockton said. "We have to look at both, but we have to think about the property taxes first because we have a decision about it coming up."

Hales also recommended the council increase the utility tax from 2.5 percent to 5 percent and dedicate the additional revenue to street resurfacing.