It's the first step in a three-month-long process that could lead to layoffs and the elimination of some popular programs.
"We're looking for other options, but we're laying it all on the table, looking at everything," McCarty told CBS News Sacramento.
"I want to be able to align this budget with your priorities and incorporate your feedback and also include the public's feedback," Smith told the council.
Students were at city hall to show their support for keeping the program.
The city says revenue from taxes is actually increasing, but overall costs are even higher.
The biggest expense is salaries, which take up 80% of the budget. The mayor defends past decisions to give employees raises.
The city is also considering raising fees on things like parking meters, animal control, and ambulance service.
"I think the voters are already pretty tapped out, so I don't see us going to the voters and increasing taxes," McCarty said.
A final balanced budget needs to be adopted by June.
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