NORTH ADAMS -- Days before the mayor unveils the next budget plan, an outside auditor has outlined North Adams’ grim financial condition for city councilors.

Auditor Thomas Scanlon, of Scanlon Associates, said the city’s lack of reserves and its inability to generate free cash is the concern.

"I wish I could deliver better news, but the finances just aren’t there," Scanlon told councilors on Tuesday. The city hasn’t ended a fiscal year with significant free cash in the past several budget cycles, according to him.

Without reserves, North Adams faces a deficit of about $800,000 in fiscal 2015, which starts July 1.

Mayor Richard Alcombright said he will introduce the fiscal 2015 budget proposal by the May 27 council meeting. The budget will be balanced through a mix of cuts and increased revenue, Alcombright said.

Scanlon’s audit shows that, looking toward fiscal 2015, the city must decrease operating expenses or approve a Proposition 2 1/2 override to balance its books.

"Either you cut the budget or you go for an override," Scanlon said.

Cities and towns in similar financial positions have won Proposition 2 1/2 overrides, Scanlon said. To go forward with an override -- which would require voter approval -- Scanlon said "it would have to be well-documented and thought out."

"Again, if you’re going to go down that road, [there needs to be] a plan a place," Scanlon said.

Alcombright pointed out that his administration campaigned unsuccessfully for an override in 2011. But, he said, if the city balanced the budget this year through cuts and not an override, it will likely face another large deficit next year.

Alcombright has not said he will attempt a Proposition 2 1/2 override this year, but maintains it is the only "long-term solution" to the city’s annual budget woes.

"The benefit of the override is that it raises your levy limit, and it’s revenue each and every year," Alcombright said. "If we cut $800,000 this year without any future adjustments or thoughts about revenue, then we’ll be right back here next year just because of normal [expense increases]."

Alcombright said the administration is finding it difficult to find places to make cuts.

Councilor Joshua Moran said he worried that additional cuts could hurt the city and deter businesses and families from moving to North Adams. He said a Proposition 2 1/2 override is a consideration.

"We’ve come to that point where we’re bare bones," Moran said.

Councilor Nancy Bullett pointed out that state aid, since the recession, has "continually dropped."

A city the size of North Adams -- whose budget nears $40 million -- should have reserves of approximately $1.4 million, according to Scanlon. After balancing the current fiscal year’s budget, the city’s reserves will be near zero.