The General Fund deficit - which would eat up 40percent of the fund's balance - is due to the state Department of Finance stopping the city from paying for various projects through the successor to its redevelopment agency that an earlier budget had counted on, according to a report by city staff.
The city is contesting the Department of Finance's decision, but the damage can likely be undone only by asking voters to approve new taxes, said Mayor Walt Stanckiewitz.
"Every time we turn around, redevelopment has something denied and that gets shifted to the General Fund," Stanckiewitz said. "And the General Fund doesn't have that kind of money. We've been on a shoe-string budget for years."
The bedroom community of 12,000 people historically depended on the redevelopment agency to fund many of its activities because it has few businesses or other revenue sources. A majority of the City Council has described that as a problem they had identified and were fixing before the statewide elimination of redevelopment agencies left them with few options.
In 2009, 2010 and 2011 the city de-funded a total of 17 positions, leaving the city with fewer than 50, City Manager Betsy Adams said in 2011.
And more cuts still could be made if the tax isn't approved, she said Monday.
"It means looking at some serious service level reductions, but we've got the ability to balance the budget," Adams said.
At a workshop Saturday, though, the council discussed creating a committee of residents to work on the budget, with the committee expected to consider some increase in revenue - taxes.
"We talked a little bit about a local revenue option, because we don't have one here," Adams said. "That certainly is an option that we would look at."
State law requires a city to declare a fiscal emergency before it can put a tax increase on the ballot in a year without City Council elections.
Stanckiewitz said Grand Terrace's position was more similar to Rialto, which declared a fiscal emergency to allow a March vote to extend its utility users tax and avoid massive cuts, than cities that have declared fiscal emergencies before filing for bankruptcy.
"We're not San Bernardino yet," he said.
Tuesday's City Council meeting is at 6 p.m. at Grand Terrace City Hall, 22795 Barton Road.
Reach Ryan via email, find him on Twitter @SBcityNow, or call him at 909-386-3916.