While the Santa Monica’s fiscal outlook looks strong for the next two years, a dramatic rise in pension costs threatens the City’s ongoing stability, according to a nearly 400 page budget released by the City Manager’s Office Wednesday.

Even if national economic growth continues over the next two years, the City faces a $3.8 million General Fund deficit in 2019 that balloons to $19 million in 2021, according to current estimates. Pensions and workers’ compensation present the most significant pressures on the budget.

“We can and will avoid those sobering threats,” City Manager Rick Cole said in the report. “But only with a rigorous focus on the efficiency and effectiveness of our programs and expenditures — and accepting the reality that we will need to be exceptionally disciplined in setting priorities.”

Beginning next year, the California Public Employees’ Retirement System (CalPERS) lowers its anticipated investment growth from 7.5 percent to 7 percent. That half percent decrease over three years means an additional $2 million will come out of Santa Monica’s General Fund in 2018, and then $13 million in 2021. At the same time, workers’ compensation costs will likely increase between 5 to 10 percent and healthcare costs may increase by as much as 8 percent annually.

The overall proposed budget for the City is $773.7 million in 2017/18 and $802.1 million in 2018/19. Total compensation, which includes employee salaries, pension contributions, health care and workers’ compensation costs, makes up 64 percent of the City’s overall operating budget.

“To make the most of our resources, and to ensure that we continue to have resources in harder times, we must be purposeful, watchful, and strategic about how we spend,” Cole said.

The City currently has 2,325 employees (both permanent and temporary) and will add net 5 positions over the next year, but plans to cut six positions soon after to end up with 2,324 by the end of the fiscal year in 2019. The City Manager’s office alone will cut a total of 16 positions from a high of 76 full time employees in 2015 to 60 in 2019.

The City has faced a backlash from some neighborhood groups and fiscal conservatives over the last year in response to the size of city staff, their salaries and growing pension liability. The City’s various pension plans have a combined unfunded long-term liability of $387 million (the other 75 percent of its $1.5 billion liability is funded, according to the City’s Director of Finance Gigi Decavalles-Hughes). Complaints lead to the launch of an audit subcommittee to look at the City’s fiscal health.

Critics often compare Santa Monica’s staff size to nearby Newport Beach which has a similar population but 1,700 fewer employees, according to the conservative watchdog Transparent California. However, the tax base for the two cities is starkly different. For example, in 2015 Santa Monica brought in twice as much Transit Occupancy Tax ($46.6 million compared to $25 million) while visitors spent $840 million more in Santa Monica than in Newport, according to data from the City of Santa Monica and Newport Beach & Co., the company that handles marketing for that city.

However, despite Santa Monica’s diverse tax base, all major sources of revenue are projected to grow more slowly or decline over the coming years, according to the report. Charges for services make up 24 percent of the City’s revenue, sales tax accounts for 19 percent and hotel taxes and property taxes each make up 9 percent. Most of the City’s tax revenue depends on the health of the overall economy, International tourism, and the real-estate market, which could all be significantly impacted by economic an slow-down or down turn in the coming years. If the economy continues to grow, it would be the longest period of economic expansion in the last century.