NORTH KITSAP — If the two fire departments in North Kitsap don’t act upon their shrinking budgets soon, the outcome could be catastrophic.

During an efficiency study review Monday night, consultants from Emergency Services Consulting Inc. recommended North Kitsap Fire & Rescue and the Poulsbo Fire Department merge soon. Consultant Don Bivins said it is fortunate both departments have reserve funds, but those funds are not enough.

“The reserve funds are just delaying disaster,” Bivins said.

If Poulsbo Fire continues to rely on reserves, those reserves will shrink to approximately 36 percent by 2016. North Kitsap’s reserves will be completely gone at that time and be about $500,000 over budget, Bivins said.

To mitigate shrinking budgets, Bivins said the departments should look at seven job cuts as well, including one of two fire chiefs, three battalion chiefs, one public relations officer, a receptionist and a fleet manager. This would save $725,500. A full merger would add about $500,000 in savings within the next five years.

Both departments are looking for ways to maintain service levels and reduce expenses as the economy drives assessed property valuations, and property tax revenues, down.

Poulsbo Fire’s 2011 budget is $7 million in expenses  — down from $7.8 million in 2008 — and $7.4 million in revenue, Poulsbo Fire Chief Dan Olson said in an earlier interview. Some $750,000 of its revenue will come from insurance and patient reimbursements for ambulance transport; $25,000 will come from investment income, down from $100,000 in 2007 or 2008.

North Kitsap’s 2011 budget is $5.8 million, down from $6.04 million in 2009. According to its website, the department responded to 2,480 calls in 2010, with about 64 percent of all calls dispatched for emergency medical services. The department has 37 paid personnel, eight volunteer-interns and six volunteers who respond from home.

Other ideas tossed around during the meeting Monday included: implementing a fire service benefit charge, creating an intern resident program at Poulsbo Fire, building a shared fire station in between the coverage areas, decreasing reserve fleets and increasing the role of the Suquamish Fire Department.

A benefit charge would be a fee for residents of North Kitsap, not a tax. Both private residents and businesses would be affected. The amount a home or business would pay is based on the size of the structure itself, how the building is used — home, apartment, commercial — and the risk level. A benefit charge would generate about $1 million to a combined fire department.

Officials hope to identify more ways they can operate more efficiently and avoid duplication of service. North Kitsap, Poulsbo and Bainbridge share a facilities maintenance employee, at a cost of $25,000 each. The departments also train together.

The recession and slow recovery have wreaked havoc on property values, tax revenues that fund public services, and investment income of public agencies.

North Kitsap administrative assistant Cindy Moran said her department expects to receive $250,000 less in property tax revenue in 2012. Olson said Poulsbo expects a $330,000 decrease in property tax revenue.

Declining revenues are further complicated by increases in costs of benefits. At Poulsbo Fire, the cost of health insurance has increased 12-14 percent, Olson said.

To maintain service levels and reduce expenses, Poulsbo Fire eliminated two deputy chief positions, one fire marshal position, one mechanic position, and cut overtime, Olson said. Station 72 on Falkner Road is now flex-staffed and open 40 percent of the time.

According to its website, Poulsbo Fire responds to more than 3,000 calls a year; 80 percent of those calls are related to EMS, or emergency medical services, Olson said.

Poulsbo Fire covers 55 square miles, from Port Gamble south to Keyport. It has four fire stations, 36 uniformed personnel, five non-uniformed personnel, two administrative employees, and 25 volunteers, Olson said.

North Kitsap covers about 47 square miles, including Hansville, Indianola, Kingston, Miller Bay and Suquamish — a population of about 22,000. The department has five stations, four of which are fully staffed.

With initial recommendations given, the two departments will next discuss the pros and cons. Another meeting has not been set.

Consolidating departments would require approval of voters in both fire districts. But consolidation is not a new concept on the peninsula. North Kitsap Fire and Rescue is the product of the consolidation of Kitsap County fire districts 4, 5, 10 and 14. The consolidations took place in 1987, 1994 and 2001. Poulsbo Fire District and Kitsap County Fire District 18 merged in 1999.