A federal economic stimulus could pay for new pavement on Berkeley's battered University Avenue, seismic retrofits on city buildings and new bike paths, among other things, Mayor Tom Bates told business leaders Monday.

In a wide ranging talk to the Berkeley Chamber of Commerce, Bates also said falling real estate transfer taxes and property taxes will force the city to cut about $4.5 million from city services in the next two years.

That's the current projection. Things could get worse.

"The next year scares the bejesus out of me," Bates said. "Year two is when we really could be hit."

The good news is that the fire department won't have "one penny" cut from its budget because Berkeley voters last year approved new money for it.

"We also won't cut the police, unless things get really severe," Bates said.

City staff members have compiled a wish list of "shovel-ready" projects that could be funded by the economic stimulus bill. Shovel ready, however, is a fluid term.

Bates said he's hoping the bill will allow for projects that need a year or two to design and bid, not four months, which is the current timetable in the bill.

Berkeley could spend about $260 million for a variety of projects on the list, including a new Gilman Street interchange at Interstate 80 and putting railroad tracks underground on Gilman Street, seismic retrofits of Old City Hall where the City Council holds its meetings and the Veterans Building, which houses a homeless shelter.

Some other projects on the list are a revitalized downtown Berkeley BART plaza, phase two of the Gilman Sports Field, dredging of the Berkeley Marina, a drainage project at Aquatic Park, new docks at the marina and a variety of public housing rehabilitation projects.

To make things easier on business during this time, Bates said he would like to see the city speed up the time for approval of businesses to enter empty spaces downtown.

He said he would also like to see housing projects with ground-floor retail space be allowed to have that space be used for offices or living spaces.

"We keep building all these mixed-use projects, but all the ground floors are empty," Bates said.

Reach Doug Oakley at doakley@bayareanewsgroup.com.