In the latest development in the Costa Mesa outsourcing debate, city officials announced Wednesday they will cooperate with an outside audit commissioned by the Orange County Employees Assn.

City Chief Executive Tom Hatch said he will open the books so the association can confirm the city's finances.

Amid talks of mass employee layoffs, the association claims the City Council has manipulated numbers to exaggerate the city's financial problems. City officials say they face a $5-million deficit for the fiscal 2011-12 budget and that longer-term liabilities run into the tens of millions. Much of those obligations, they say, are from employee retirement costs.

"I'm confident that our representation of the city's financial condition is accurate," Hatch said in a statement. "Still, if individuals or groups want to check for themselves, they are always welcome."

Association General Manager Nick Berardino said his group wants to be sure that employees' contribution to retirement costs are calculated correctly, and that all available revenues have been identified that could be used to plug future deficits.

"We want to have somebody who has the expertise to really drill down, from an economic point of view, where the council has placed its priorities," Berardino said.

In a recent town-hall meeting, Berardino said he wanted to negotiate with the city regarding layoffs. This audit, he said, would be the fist step.

"We want to get a baseline set of numbers that we're comfortable with, so we can begin to hopefully work towards a solution."

The council will hold a special study session Tuesday to discuss budgetary issues, including the city's unfunded pension liability and its current pension costs.