ALAMEDA -- The City Council has adopted a budget for the next two fiscal years that officials say will cause no significant decrease in public services while maintaining at least a 25 percent reserve in the city's General Fund.

But the $163 million budget approved unanimously by the council Tuesday also calls for job cuts and structural changes within city departments to help offset deficits projected at $3.5 million for the upcoming fiscal year and $5.2 million for the following year.

About $45 million has been earmarked for capital improvements and maintenance, including about $17 million for sewer work and about $10 million for maintaining and upgrading streets and sidewalks.

The proposed cuts include eliminating three positions in the City Manager's office and one in the City Attorney's Office, as well as two positions in human resources.

The deficit also will be offset by saving about $275,000 at the fire department as a result of not paying overtime that was previously budgeted, Assistant City Manager Liz Warmerdam said. An additional $456,000 will be saved at the police department through not filling seven vacant positions.

Other cost-saving steps include reclassifying some jobs, raising the city's business license processing fee to $25 and reducing purchases of fire department equipment and supplies.

While the moves will balance the books, city officials say they are still facing a $3.8 million deficit during fiscal year 2015-16, a shortfall that is expected to reach $6.6 million within the following two years.

"There's going to be some really, really hard decisions and everybody's going to have to get together and basically figure out a way to solve the problem," City Auditor Kevin Kearney said.

About 29 percent of the General Fund -- which total about $66 million and pays for parks, libraries, public safety and other services -- will be kept as a reserve for the upcoming fiscal year under the budget adopted Tuesday.

That reserve will drop to 25 percent the following fiscal year, however.

Maintaining a reserve is "a moment of celebration," City Councilman Tony Daysog said. "But no one is breaking out any champagne bottles because we know that this is really buying us time to begin to flesh out and implement those hard decisions."

The reasons for the ongoing deficit are a decline in General Fund revenue due to the sluggish economy over the past several years, coupled with rising costs for employee health care and retirement benefits.

This is the city's first budget adopted under a two-year cycle, and by including projections through fiscal year 2017-18 the council now has a jump-start on tackling the shortfalls, Mayor Marie Gilmore said.

"This is not a council that has not and does not intend to kick the can down the road," Gilmore said. "But this is also a council that realizes that we can only be successful in dealing with our problems if we all work cooperatively together, and provide the kind of information that's needed in order to make smart, intelligent decisions."

Reach Peter Hegarty at 510-748-1654 or follow him on Twitter.com/Peter_Hegarty.