By Jim Christie

SAN FRANCISCO, Oct 19 (Reuters) - Pay cuts and other concessions by employees of Atwater, California may help the city balance its budget and avoid bankruptcy, i ts mayor said on Friday.

"We hope to be able to balance our budget," Mayor Joan Faul told Reuters by telephone. "We can't thank our unions enough."

Atwater, a city of about 28,000 residents in California's Central Valley, faces a budget gap of more than $3 million and is a candidate to become the fourth city in California this year to seek protection from creditors under Chapter 9 after it declared a fiscal emergency this month.

Three other cities in the most populous U.S. state this year have filed for Chapter 9 protection from their creditors, prompting some concern in the $3.7 trillion U.S. municipal bond market of more filings. They can be used to try to break contracts, including those with bondholders.

On Monday, Atwater's staff will brief Faul and other city council members on concessions agreed to by its work force.

They are expected to considerably bolster the city's finances, said Nancy Vinson, a business agent for the American Federation of State, County and Municipal Employees (AFSCME). The union represents Atwater's non-safety workers.

"I'm very hopeful," Vinson said. "They're doing what they can to fix it and if they follow through with the things they've identified to me, it looks good."

Vinson said the city will cut 8 positions from its 35-employee non-safety payroll and that its remaining members will accept a 5 percent wage cut and pay more toward their pension accounts and health care.

Also, furloughs imposed last year will remain in effect so that Atwater's AFSCME members will see their overall compensation cut by between $500 and $650 a month, which will cut their combined payroll expense by 24 percent from last year Vinson said.

The concessions should cut Atwater's non-safety payroll expenses by $610,000 this fiscal year, Vinson said, adding that the city's police officers, which she does not represent, have agreed to steep compensation cuts in line with those affecting her union's members.

Faul said police officers will see a 22 percent cut in overall compensation, adding that details on Atwater's labor agreements would be unveiled on Monday.

Other financial measures Atwater is pressing include negotiating a new contract for garbage services and moving forward with plans for raising 10-year-old rates for garbage services and 20-year-old rates for water services. The rate plans would need to be put to voters, Faul said.

Faul declined to comment on how the city council may follow up on its fiscal emergency declaration. By declaring such emergencies, California cities can fast-track plans for Chapter 9 filings.

The city council of San Bernardino in July authorized a bankruptcy filing after declaring a fiscal emergency. The city of 210,000 residents 65 miles (104 km) east of Los Angeles filed for bankruptcy on Aug. 1.

By contrast, Stockton, a city of 300,000 about 62 miles (100 km) northwest of Atwater, filed for Chapter 9 protection in June after 90 days of inconclusive mediation with its creditors.

Mammoth Lakes, a resort town of about 8,000 in California's Sierra Nevada Mountains, filed for Chapter 9 protection on the heels of Stockton's filing because it could not afford to pay a $43 million legal judgment against it. That dispute has since been settled and Mammoth Lakes is moving to have its bankruptcy case dismissed.

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