Optimism was in the air Wednesday morning as more than 500 city officials and business leaders gathered for the Santa Barbara Region Chamber of Commerce’s 12th annual State of the City Breakfast.

Architect Michael Holliday hosted the event that honored Santa Barbara businesspeople, discussed the city’s achievements and analyzed its financial circumstances.

“As our community moves forward to recover from the worst economic downturn of our lifetimes, we continue to see signs of optimism and progress,” Holliday said.

He presented quarterly Business Star Awards to Business First Bank President Joanne Funari, Joe Howell of Howell, Moore & Gough LLP, Transition House Executive Director Kathleen Baushke and Community Environmental Council CEO Dave Davis.

Funari’s take on Santa Barbara was simple: “The positive is that the negatives are getting smaller.”

Santa Barbara Mayor Helene Schneider discussed some of the City Council’s endeavors and accomplishments. The council partnered with local organizations to tackle the homeless situation, prevent youth violence and decrease last year’s $10 million deficit to $2.9 million. She said violent crimes also dropped 8 percent.

“The city has to do more with less,” Schneider said, adding that more than 70 employee positions have not been filled or were consolidated to save money.

The mayor also discussed the local gang injunction that would further reduce crime and youth violence.

“I describe it as a restraining order targeting 30 individuals and deterring them from violent activity,” she said.

Schneider noted the benefits of the seismic upgrades to various downtown structures, the Mission Creek flood control progress and the future development of the La Entrada project on Lower State Street. But she said there is still work to be done, including the police command headquarters that needs improvement.

City Manager Jim Armstrong said the two biggest challenges facing Santa Barbara next year are the potential loss of redevelopment funds and skyrocketing employee pension costs. But he said the city avoided dipping into its reserves last year.

“We need to concentrate on the systems we hope to change rather than demonize individual employees,” he said, adding that it’s important to continue city workers’ retirement concessions and find a different formula for pensions and benefits. “Meaningful negotiations will require difficult conversation with different unions.”

The transient occupancy tax and sales tax took huge dives, 15 percent and 20 percent respectively, but Armstrong predicted gradual increases in 2012.

Schneider concluded the morning on a positive note.

“It’s an honor to be mayor in this amazing city,” she said.

— Noozhawk staff writer Alex Kacik can be reached at akacik@noozhawk.com. Follow Noozhawk on Twitter: @noozhawk, @NoozhawkNews and @NoozhawkBiz. Become a fan of Noozhawk on Facebook.