The City of St. John's has a $1-million budget surplus three months into its 2010 fiscal year, although it still has red ink in its future.

Councillors say the surplus comes from careful spending and a booming economy fuelled by the oil industry. But the city is projecting a budget deficit for next year.

"We have to be careful that we maintain that level, maintain the level of spending, and maintain that $1 million, and even if we can come up with another million after the second quarter, to move that into next year so we can take care of the deficit so we don't have to raise taxes," said Coun. Tom Hann.

St. John's officials said they don't expect the city will have a million-dollar surplus at the end of this fiscal year.

In April, council was told that if spending and taxes remained the same, the city will run a $3-million deficit next year.

Council, which is expected to deal with the matter at its regular meeting on Monday evening, has also been warned that the deficit could reach $4 million the year after that.