City revenue in 2011 will not cover the same size government as exists this year, Mayor Dan Sullivan said Wednesday.

A 3 percent increase in property taxes for Anchorage residents next year -- enough to cover inflation -- would still leave a gap of $18 million between revenue and expenses for 2011, the mayor said.

That's how much more it would cost next year to maintain the same level of services as exist now, he said.

The gap is about what his administration expected, he said.

The mayor released preliminary budget information at a news briefing in City Hall. A proposed budget is due to the Assembly on Oct. 1, and no decisions have been made yet, Sullivan said.

But he said he is talking to city union leaders to see if they are willing to make any changes in contracts that would lead to lasting savings for the city.

As examples, he suggested union workers could agree to reduce their work weeks to 37.5 hours, instead of 40, for less pay. They could give up performance incentive pay, or even forgo pay raises that are included in their contracts, Sullivan said.

Sullivan said he may propose even greater cuts than would be needed with a 3 percent property tax rise, because he is focused on making the budget sustainable over the long term.

Rising labor contract costs and higher debt payments to pay off construction bonds are the two biggest items contributing to increased expenses next year, said city budget director Cheryl Frasca. They're each coming in more than $13 million higher next year over this year, she said.

The debt service is going up because the city lowered debt payments for this year by restructuring its debt -- including longer payback times. It doesn't want to do that again in 2011, said Frasca.

Sullivan, who became mayor in July 2009, was elected on a platform of controlling city spending and finding ways to keep property taxes down.

He cut spending for the 2010 budget by $20 million.

He said Wednesday that his goal is to make city government much more efficient, and talked about a reorganization plan aimed at saving money.

Departments that deal with such functions as road-building and maintenance and traffic will be combined into a Department of Public Works. Departments that handle planning, building permits and neighborhood concerns will be combined as the Community Development Department.

The reorganization is in its final stages, said Sullivan.

He also announced a proposal for a modest general obligation bond package to put before city voters next April.

The $35.9 million in bonds is similar to the amount on this year's ballot, and would be mostly targeted for roads.