SAN DIEGO - The city of San Diego might have to dip into reserves to deal with budget uncertainties looming over the next few fiscal years, the city's chief operating officer said Tuesday.

Jay Goldstone spoke on KPBS radio in response to a report by the city's Independent Budget Analyst, released Monday, that said surpluses projected by the mayor's office over the next five years could vanish and become deficits.

Among the uncertainties listed by the IBA were possible increases in employee retirement contributions in the wake of investment losses by the pension system, and costs associated with the end of redevelopment. Neither were included in the budget outlook released by the mayor's office, though city officials were aware of the potential pitfalls.

Goldstone said the report is based on hard numbers known at the time.

The city's budget outlook projects a $4.9 million surplus in the next fiscal year, and larger surpluses in successive years. The IBA countered that -- in a worst-case scenario -- the city could actually face a deficit of $84.2 million.

"Priorities will have to shift; the use of reserves may have to be considered," Goldstone said.

He said the city ended the last fiscal year on June 30 with $166 million in reserves. Additional money was set aside in the current fiscal year to deal with the contingencies, he said.

Mayor Jerry Sanders said San Diego's economic future is improving so much that he restored several cuts to services. Now the city is adding police officers and firefighters, as well as increasing library hours.

The restoration is good news for people like Vanessa Holland, who goes to the library to read and use the computers.

"I use it for the Internet and I'd like to see it open all seven days of the week," said Holland.

Sander's five-year outlook shows the budget surplus growing to $94.2 million by 2018.

"We wanted to make sure we left the city in good hands and with a healthy surplus before we move out," Sanders told 10News.

Goldstone said the actual costs facing the city on some of the uncertainties should become known in the next few months.

The San Diego City Employees Retirement System is scheduled to inform the city of its required pension contribution in January.

The city should also soon learn the costs of implementing Proposition B, which was passed in June to reform the pension system, but also brings close to $22 million in upfront costs. State decisions on redevelopment could also determine whether the city has to pay $14.3 million from its general fund for debt service on Petco Park and prior expansion of the Convention Center.

Councilman Todd Gloria, who was a guest on the same KPBS program, said the city's budget situation is "infinitely better" now than it was in the past, even with some uncertainties.

Gloria, chairman of the council's Budget Committee, said the dissolution of redevelopment agencies and passage of Proposition B were "extraordinary events."

"The challenge for us, of course, is to maintain the fiscal discipline on a go-forward basis so that we do not end up in deficit positions," Gloria said. "It's [going to] pose a challenge for the council and the new mayor, without question, but it's still a far better position than where we were, say, in 2004 or 2005."

Goldstone and Gloria both said the issues that could impact the city's budget situation over the next few years have been discussed publicly over the past month. Financial Management Director Mark Leonard outlined the potential pitfalls in a recent presentation to Gloria's budget panel.

Sanders said there is a 14 percent reserve right now to handle concerns over the pension system even though he knows there will be some potential hurdles.

"Pension costs are going to go to up next year because of poor returns this year, and also Prop. B, for the first two years, is going to cost more and that's the reason we have that extra money in there for a cushion," said Sanders.

The full City Council is scheduled to take up the five-year budget outlook next week.

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