Mayor Charlie Hales' office announced this morning that the city's budget shortfall—commonly estimated at $25 million—could be closer to $21.5 million.

That's happy news for Hales, City Council and Portland employees, who have been dreading deep cuts to city services. Hales has asked city bureaus to volunteer 10 percent budget cuts, and other commissioners have begun examining outside expenses like arts grants.

City Economist Josh Harwood told Hales late last week that a variety of economic indicators—including the consumer price index, health care premium costs and real market value of property, all of which affect city revenues—are looking better than expected.

Hales continued to sound his foreboding note of cuts ahead.

"While the budget preview is good news, the city still faces a shortfall and we still cannot use deficit funding," Hales says. "The new projection, if accurate, softens the impacts of the decisions we face."