VALLEJO, Calif. -- The city of Vallejo and its public safety unions struck a last-minute deal Thursday that could allow the cash-strapped municipality to temporarily solve its budget crisis and avoid filing for bankruptcy.

The two sides reached the tentative agreement to cut labor costs just before the City Council was scheduled to vote on whether to seek bankruptcy protection while it grapples with a budget shortfall caused by spiraling employee expenses, a slowing economy and a rash of home foreclosures.

The city council postponed its vote on bankruptcy until Monday so that council members and the public have time to study the agreement with the unions representing Vallejo's police officers and firefighters.

City officials and labor leaders would not disclose details of the agreement, which was set to be publicly released Friday afternoon.

But Mayor Osby Davis said the deal would balance the budget for its current fiscal year and "provide a framework for solving the long-term issues."

"It's not the answer to our financial problems," said Davis, who took office in December after winning the mayoral election by two votes in a recount. "The problems we face are long-standing. They're not going to be solved overnight."

Kurt Henke, who heads the firefighters union, said the deal was "a good start to getting Vallejo on a solid economic path. I think everyone's committed to doing everything we possibly can to avoid bankruptcy."

The city faces a $9 million budget deficit for its fiscal year ending in June and is set to run out of money at the end of March, according to City Manager Joseph Tanner, who recommended the bankruptcy filing.

The Bay Area suburb would become the largest California city to declare bankruptcy if the council approves the move. In 2001, Desert Hot Springs filed for bankruptcy protection after it lost a lawsuit to a developer.

Vallejo, a mostly blue-collar city of 120,000 about 30 miles northeast of San Francisco, has been hit especially hard by the mortgage crisis and has one of the nation's highest foreclosure rates.

The city, home to a Six Flags amusement park and a shuttered naval shipyard, is collecting less tax revenue than projected as retail sales and property values decline amid an economic downturn.

At the same time, Vallejo faces escalating costs for its police and firefighters, whose pay and benefits make up nearly 80 percent of its general fund budget.

Filing for bankruptcy protection would protect city officials from lawsuits and give them time to renegotiate contracts with employees, vendors and bondholders. But the move will lead to costly legal expenses and damage its credit rating and ability to sell municipal bonds -- not to mention its reputation.

"There's a stigma to entering bankruptcy, but people and companies survive and can come out stronger," said Mark Levinson, a bankruptcy attorney hired by Vallejo.

Whether or not the city opts for bankruptcy, Vallejo residents are being warned about reductions in police patrols, library hours, road repairs and other services.

At Thursday's meeting, Vallejo residents urged the council to work toward solving the city's chronic budget troubles, which many blamed on overly generous contracts for police officers and firefighters.

"We need to stop this systemic problem," said Kim White, a paralegal who has lived in Vallejo for eight years. "I'm hoping we can end the way business has been done in this city."

Many California cities are paying attention to Vallejo's plight because they're also struggling with financial problems caused by shrinking revenue and ballooning employee costs.

"The solution that comes out for Vallejo may very well be a model for other cities facing fiscal challenges," said Marcia Fritz, vice president of the California Foundation for Fiscal Responsibility.