The City of Poulsbo will pull nearly $205,000 from savings to balance its 2011 budget despite cutting staff and whittling down expenditures earlier this year.

Mayor Becky Erickson said the city’s deficit is higher than leaders hoped.

“Frankly, it’s not where I wanted to be,” she said.

The Poulsbo City Council approved its $23 million budget Wednesday night, and will adopt it in a meeting next week.

When the budgeting process began, leaders faced an estimated $1.3 million shortfall. Department heads and council members lowered that amount by cutting nearly 10 percent of staff and making adjustments to fund transfers. Some revenues normally dedicated to streets, parks, capital equipment and savings were decreased to pad the general fund for 2011. Those decreases will be reevaluated before next year’s budget is written.

The city will maintain roughly $1 million in reserves, an amount within its financial policies, Erickson said.

She is hopeful this will be the last year the city depends on savings to balance its budget.

“Hopefully we are growing out of this, we’ve started to see some of the revenues come back,” said Finance Director Debbie Booher.

Booher said the city’s next step is to monitor its revenues and hold off on making further cuts to an already sparse operation.

The city allotted $400,000 from savings to balance its 2010 budget. So far none of that money has been used, though it’s likely some of it will be necessary by the end of this year, Booher said.

Councilman Jeff Bauman said the 2011 deficit could also turn out smaller than expected. The city cut costs as deeply as it could, and has projected its revenues and expenditures carefully, he said.

“We aren’t happy to dip that far into reserves but this number is a well thought out estimate,” said Bauman.

Several factors added to the deficit despite the city’s cost-saving measures, including a jump in city insurance and employee benefits expenses. Because the Kitsap Regional Library levy did not pass in the November election, the city will foot a $30,000 utility bill for the Poulsbo Library. It will also pay a final $31,000 bond payment for the Marine Science Center.

The budget doesn’t take into account a potential $42,000 from the City of Bainbridge Island to relocate its court to Poulsbo, or increased tax revenues from new College Marketplace businesses and a lease to the Poulsbo Historical Society to open a museum in city hall. Erickson said the city won’t count on those revenues until they are received.

“We’re taking a very conservative approach,” she said.