As City Manager John Szerlag stood in front of the City Council, he made it perfectly clear what the city is facing.

During Tuesday’s budget workshop at City Hall, postponed a day because of Tropical Storm Isaac, Szerlag told the council that if the city did nothing to raise more capital, the city could face a fiscal crisis in the not-so-distant future.

That meant the city would have to seek more “financial diversification” and find ways to reduce other expenditures such as pensions.

At the same time, Szerlag stressed the importance of rebuilding the city’s crumbling infrastructure and making needed capital improvements to replace aging computers and fire engines.

In a nutshell, City Council is going to have to make some tough choices.

Szerlag presented his 2013 budget proposal to council, with the theme being financial sustainability, urging the board to consider a three-year budget over the next 12 months as a way to paint a picture for the city in the near future.

Szerlag presented a pretty grim picture, but it was only contingent on if the city did nothing.

“The last thing you want is an alarmist city manager. These projections are only if we do nothing,” Szerlag said. “You have the most important decision to make in the history of Cape Coral. Your decision will have a generational impact on the city.”

Szerlag said if nothing is done, the condition goes from “financial urgency” to “financial emergency,” a term he used in a discussion with Councilmember Chris Chulakes-Leetz.

“If we keep kicking the can down the road a year at a time, we’ll be on the precipice,” Szerlag warned.

Szerlag said he would seek a consultant to find a way to make diversification – another word for more taxes and fees – a reality.

“You can’t rely on a single tax stream. When you have fluctuations in the market, you have fluctuation in revenue,’ Szerlag said.

Among the diversification ideas Szerlag proposed was a fire service tax and utilities tax or charging for some services.

Councilmember Marty McClain said diversification is an idea that’s been a long time coming, especially in a town where funding comes from pretty much one source.

“A former city manager gave us a warning. Things needed to be addressed and we did it on the backs of employees,” McClain said. “Had we had the foresight to look at diversification “

Councilman Kevin McGrail agreed, adding it is important to keep public safety at the forefront.

“Public safety is the core metric when we take our oath of office. We’ve reached a level where we can’t ignore capital expenditures,” McGrail said. “You can’t catch the bad guys on skateboards.”

“I won’t put something on the backs of employees anymore. The citizens need to step up to the plate,” Councilmember Lenny Nesta said. “Do we want paved streets or potholes?”

Mayor John Sullivan was dubious over the term “tax diversification.”

“Financial diversification means more taxes. That isn’t the answer. We need to be more efficient,” Sullivan said. “It can’t all fall on property taxes.”

Invariably, the discussion moved to pensions, and the amount the city is paying to people who don’t work anymore as opposed to those who do.

Chulakes-Leetz pointed out that while city personnel faced wage freezes and cuts, retirees got a cost of living increase. He asked if it was possible to rectify that.

Financial officer Victoria Bateman said only through bargaining.

“It comes down to trust. We aren’t funding capital needs,” Councilmember Rana Erbrick said.

“Respect is equally important. We have a divergence of reality. That’s why we have negotiations,” McGrail said. “Pensioners live in Cape Coral and they have a stake in our future.”

Bateman presented the numbers for the $459 million budget, an increase of $18 million over last year. The general fund budget is $141.9 million, an increase of $3.5 million over last year.

The big question is where money will be found to pave the roads and replace the fire engines and police cars, a number that is expected to be in the neighborhood of $14 million annually.

“People have to decide what kind of town they want to live in. We’ve been balancing budgets without thinking about capital and that really has to end,” Szerlag said. “To ignore that is to mortgage out future.”