Palo Alto voters could still have a chance this year to tweak the binding-arbitration provision in the City Charter, though a downright repeal of the controversial law now looks less likely than ever.

The 33-year-old provision, which empowers an arbitration panel to settle disputes between the city and its public-safety unions, has become a hot topic of debate over the past two years. Last August, a proposal by council members Greg Scharff and Karen Holman to place binding arbitration on the 2010 ballot failed by a 4-5 vote, with several council members saying they needed more time to study the issue further.

A year later, the council remains just as split on a possible repeal of binding arbitration. But council members agreed Monday night that the existing provision is unacceptable and voted 8-0, with Nancy Shepherd absent, to send it back to a committee that would come up with potential modifications. Changes could potentially include tying the arbitration process to the budget cycle and requiring the arbitration panel to consider issues such as the city's long-term financial future and equity among employee groups.

The full council would then decide in late July whether to send the proposed modifications, or a repeal, on the ballot.

Scharff and Holman once again proposed putting a repeal of binding-arbitration on the ballot, but they withdrew the proposal when it became clear that the council majority favored modification. Holman maintained that the provision strips the council of its power to oversee the city budget and called the debate an "issue of accountability."

Scharff, who chairs the council's Finance Committee, was even more blunt. He noted that the city is facing a projected deficit of $6.7 million in fiscal year 2013 and said repealing binding arbitration is the "only solution" to the city's financial troubles.

"Modification isn't going to work," Scharff said. "What we need to do is repeal it."

Councilman Pat Burt agreed that now is the time to give the voters a say on the matter. Like Holman, he said the city has already had a year to decide the issue. Palo Alto, he said, is one of only about 5 percent of the cities in the state that have binding-arbitration provisions. This doesn't seem to create a major problem elsewhere, he said.

"One of the things I admire about my neighboring cities, Sunnyvale and Mountain View, is that they have excellent public-safety departments," Burt said. "And they're able to do that without binding arbitration."

But caution once again prevailed. Councilwoman Gail Price said she was concerned that the city is moving too fast and proposed that the item go back to a committee for a two-to-three month discussion and a recommendation on how to modify the provision. The city, she said, is well known for putting time and attention into difficult decisions and this one should be no different.

Larry Klein characterized the argument over binding arbitration as a clash between "two conflicting undemocratic principles."

"It's certainly undemocratic to have an arbitrator make a decision when that arbitrator is unknown and probably doesn't even live here," Klein said. "But it's also undemocratic that public-safety people can't strike. Everybody else can."

Klein proposed sending the issue back to the council's Policy and Services Committee, which would draft possible changes to the city's binding-arbitration provision by late July. He also said it's important for the whole council to weigh in on the issue, given the close split last year.

Under Klein's proposal, which the council approved 8-0, the council would then consider in late July whether to place the proposed modifications -- or a possible repeal -- on the ballot.

Tony Spitaleri, president of Palo Alto Professional Firefighters, Local 1319, urged the council not to repeal the binding-arbitration provision. He said the union is open to modifying the provision and called for the city to create a committee of stakeholders who could come up with potential changes.

"Elimination of arbitration in our opinion would not create a system of fairness and would create a strenuous atmosphere which would not be good for employer-employee relations and would not be in the best interests of the citizens of Palo Alto," Spitaleri told the council.

The council has until Aug. 1 to decide whether to place an item on the November ballot. This means the council's committee will have to move at a brisk pace over the next five weeks to come up with a compromise on the modifications. Mayor Sid Espinosa said the city is now moving at a "very quick clip." Like Scharff, he argued that changing the provision is necessary to keep the city's finances in order.

But Espinosa said he wouldn't support the repeal measure at this time and called Klein's suggestion to send the decision back to committee a "good compromise."

"Binding arbitration is not working for Palo Alto -- that's clear," Espinosa said. "It's crippling us.

"We have deep structural issues that cannot be addressed with binding arbitration as it is. It either has to be reformed or repealed."