POULSBO — Poulsbo’s budget could be way off track or 2005 could be a minor setback.

Either way, council’s going to have a tough decision when it comes to carryover this year.

At its March 2 meeting, the Poulsbo City Council’s Finance/Administration Committee got its first look at carryover numbers for the 2005 budget. And what they saw didn’t sit well.

Poulsbo estimated a beginning balance of about $450,000 in the 2005 budget it approved in late 2004. But excess revenue that makes up that carryover number came in at about $512,000, creating an excess of $62,115. Nearly $49,000 of the excess is already spoken for, leaving about $13,500 that council can use to fund Level of Service (LOS) increases and new program requests.

The only problem is that the available amount is far less than the recommended items on the list. A total of $40,250 in new program requests and $225,304 in LOS requests were made for the 2005 budget, of which the mayor and Finance/Administration Committee had tentatively recommended approval of about $83,300. This leaves a $72,700 shortfall.

“I was surprised,” said Councilman Ed Stern, an eight-year member of the Finance/Administration Committee. “I expected a some six-figure carryover and it was about half of what I saw in my mind’s eye,”

In comparison, last year’s beginning balance after carryover ended up being $213,095, of which council was able to fund more than $50,000 in LOS requests and put more than $50,000 into reserves.

But in Finance Director Nanci Lien’s estimation, the numbers do not necessarily spell doom and gloom for Poulsbo’s financial future. She said jurisdictions both large and small across Washington have been struggling recently, despite tax-cutting initiatives approved by the voters and general budget tightening coupled with rising costs. Further, Poulsbo departments have been held to a flat budget for 10 years now.

“I was feeling pretty good about how we ended the year in light of everything we went through,” Lien commented.

Even more problematic of this year’s carryover decision is that nearly $40,000 of the recommended LOS items are for increases for necessities like heating fuel, electricity, telephone service and supplies. Lien said it is council policy for such increases to be included in the LOS request system in order to provide a closer look at where the budget is increasing. She said council could choose to say no to any and all LOS and new program requests, however, most would be difficult to do without.

“All of the department heads are very conservative. By the time they do a (LOS) request, they need it,” she explained.

Though the numbers look dire, Lien explained that she felt they could be a blip on the radar rather than a trend. With annexations and large development on the very near horizon, Lien said she believes next year’s carryover numbers will be much higher. She said council has made some tough decisions (like the City Hall reorganization, which saved an estimated $120,000) that have put them in a good position to weather the storm.

“We have this little gap we need to get through,” Lien commented.

Lien has recommended that council look at using some one-time funding sources like reducing certain line-item expenditures, increasing certain line-item revenue estimates and using money from revenue stabilization or other appropriate funds. Though these would be available only once, Lien said she believes property tax and sales tax increases in the next year could more than cover what is lost.

“I think council’s big decision is going to be we have these programs and if we’re going to keep the LOS the same, we’ll have to do some unusual things or dip into the savings just this year,” Lien commented.

But Stern noted that he’s not sure if council will end up dipping into savings, rejecting the LOS and new program requests or some combination of the two. He said more analysis is needed by the full group to decide both the cause and the solution in this case.

“It’s like popping a thermometer in a kid’s mouth,” Stern said of the carryover numbers. “It’s not a diagnosis of what’s wrong but it’s an indicator that something is wrong.”

Council members were asked to read over the paperwork and forward any recommendations to the finance committee before its March 16 meeting, where the issue will be discussed further with the hopes of bringing a recommendation to council. The ultimate council decision will become the beginning balance budget amendment that will ensure the final budget is current. But which direction that will go remains to be seen.

“I think council needs to look back and say, ‘Wow, we’re where are because of some tough decisions we’ve made. Otherwise, it would be a lot more bleak,’” Lien commented.

“We need to re-examine the last 10 years of operating on a zero-based budget. Is it going to set us up for shocks and surprises regularly?” Stern noted.