The city of Anchorage faces a $17 million budget shortfall this year and must find ways to save money, particularly labor costs, Acting Mayor Matt Claman said Tuesday.

The city had planned to spend $433 million this year, based on a budget approved by the Assembly in November, but says it has less cash than expected.

City officials mostly blamed the deficit on the faltering national economy.

"2008 was a challenging year for the municipality, as I'm sure it was for all of you," chief fiscal officer Sharon Weddleton said at a press conference at City Hall. "We performed similar to the market, which means our investment portfolio struggled."

The portion of city investments used to pay for things like salaries, park maintenance and road work fell an estimated $9 million short of expectations last year, Weddleton said.

The amount of money the city makes from permitting fees also dropped, with less new construction, and the city expects a slump in local tourism that will bring in less cash from hotel bed taxes.

Meantime, some Assembly members asked Tuesday why the city is only now widely announcing the shortfall rather than during debates over labor contracts last month. As city officials described the budget crunch to reporters, they didn't say exactly how they're going to fix it.

That comes later, said Claman, an Assemblyman who replaced newly elected U.S. Sen. Mark Begich as mayor Jan. 3.

"The most important part is what we do from here. The way forward means that we must look at every aspect of our operating budget," Claman said.

Claman has appointed a group of local business leaders to a new economic advisory panel and plans to meet with the group Thursday. He said he's asking the Assembly, city department heads and union leaders to help trim spending.

More than half of the city budget goes to pay for employees.

"We're not going to be able to address the shortfall without addressing labor issues," Claman said.

Last month, a divided Assembly passed a series of new union contracts that extend wages out five years.

At the time, Begich, who pressed for approval of the contracts, said he was confident labor groups would return to the table if the city found itself in a budget crunch.

In the firefighters case, at least, he may have been right.

"If the mayor comes and says, 'you need to cut $1 million or $2 million,' we're going to sit down with the chief and figure out how to do it," said Tom Wescott, President of International Association of Firefighters Local 1264.

Derek Hsieh, president of the Anchorage Police Department Employees Association, said the union is willing to work on solutions to the shortfall with the city, but said it's too early to say what those changes might look like.

Both the firefighter and police contracts approved by the Assembly in mid-December call for 3 percent wage increases for this year, with increases of between 2.9 percent and 4.5 percent the next four years.

The Assembly passed another two labor contracts earlier that month by a slim majority.

Unions -- which are among the biggest contributors to city political campaigns -- represent more than half of city employees.

Eagle River Assemblyman Bill Starr, who voted against the contracts, said city leaders should have been warning of a budget shortfall back when the Assembly was debating union contracts.

"We shouldn't be surprised, because I think the information they're talking about today has been well known for months."

Weddleton said the city saw its investments were doing poorly late last year, but had hoped a rebound in 2009 would make up for the losses. The city only arrived at the $17 million shortfall figure -- which is subject to change -- this week, officials said.

On page 72 of a 94-page "transition report" distributed by Begich's team earlier this month, the report's authors warned the city might have to reduce spending early in the year.

Three Assembly members, Sheila Selkregg, Debbie Ossiander and Harriet Drummond, proposed a temporary hiring freeze for certain city employees in December.

Claman does not support the plan, which would defer new hires unless monthly reports showed the city had the money to pay for them, but said Tuesday no ideas are off the table.

The only option Claman mentioned specifically was the idea of a shorter work week for city employees.

"There's just a number of different alternatives that we have to look at," he said.

Find Kyle Hopkins online at adn.com/contact/khopkins or call him at 257-4334.