The expected loss to the 2013 Kitsap County budget if Silverdale successfully incorporates by vote this summer is projected to be $3.5 million – the equivalent of 44 county jobs.

This is combined with an additional projections of diminishing cash flow from $1.2 million in lost sales taxes also expected to begin in 2013 from various municipal annexations of the county’s tax base. As a result, the county government is looking at two potential options for the 2013 budget, reductions or deeper cuts and leaves open the possibility of up  to 59 layoffs in 2013.

The budget warnings came during a six-year budget forecast given Monday by county staff to Kitsap County Commissioners. During the next five years, the county is facing an estimated loss of $33 million in sales tax revenue without Silverdale’s current contributions to the operations budget countywide.

At least two previous incorporation attempts have failed.

Kitsap County Commissioner and Silverdale resident Josh Brown said a successful incorporation would create a “drag” on county resources.

Amber D’Amato, county budget director, said that the county would not lose all of the sales tax that Silverdale generates. The county will still get 15 percent if incorporation continues, she said.

Most of Monday’s roundtable discussion following the news focused specifically on the 2013 budget preparations, which begin in the coming months, and what effects on staff would come and what continued declining tax and grant monies might have. With county services cut to the bone and operating four days a week, the county primarily has only staff expenses left to cut. Since the recession began, an estimated 200 employees have been cut from the payroll. Much concern portrayed by various department heads was for the lack of cost of living raises during recent years.

Regardless of the pending Silverdale incorporation of the county’s primary retail corridor, all revenue is not keeping up with the departmental expenditures across the board. D’Amato said the primary way to offset it, is reduced expenses.

Brown tried to focus on where past budgets have missed the mark. Year after year the county has had to cut when projections have not met budget expectations. Brown said 2013 would be the fourth straight year without a cost of living increase for staff. He described the county’s revenue decline as a “falling knife” in its effect on staff numbers and the overall “big picture” outlook at the county level.

Brown said he hopes to avoid the same “budget grind” as the previous four rounds.

County Commissioner Charlotte Garrido reserved much of her comment on the financial forecast saying that she’s just begun to look at the county’s financial picture down the road.

One budget area that D’Amato pointed out as a know and predictable entity is grant funds. She said that departments always over predict the grant money they receive. None were correct for 2011 planning, and it does skew the budget, she said. Only the tax revenue projections were accurate, she added.

“It’s tricky to predict grant money,” she acknowledged.

BOCC Chair Robert Gelder offered up what he called the “800-pound gorilla” when he asked if it was time to “reset” governmental operations expectations with big cuts to payroll and make county government more “realistic” in size in accordance with the county’s new reality of the combined less tax revenue and less federal and state dollars for services.

“How do we reset?” he asked before explaining one way to pursue it. Make deep enough employee cuts to ensure a modest cost of living increase. Cuts year after year hurts moral, he said.

The question was largely left alone by the dozens gathered.

Bright budget news came with word that benefits costs were down in 2011 for the first time in a while. However, the reduction was largely the result of years of layoffs and benefits are projected to increase again by 3 percent in 2013.

With the county’s largest expense being employees and their benefits, cuts to find a balanced budget over the next 10 months will likely come from payroll. Salaries alone consume $37 million of the budget.

That the primary discussion revolved around staff and their concerns, rather than the effect on services to the public, is a result of an institutional culture according to Gelder. To employees, the budget represents pay and benefits, to citizens the money equates police services, paved roads and inspections of the buildings they live and work in, Gelder said.

He described the meeting as a dialogue about the “what ifs” in county budgeting.

At the same time the county faces cuts, it is growing its reserve. With $11 million in the bank, $7.9 million carried over from 2011, the county has moved to within a few points of to the standard municipal reserve goal of 16 percent of the annual operations budget in reserve.

For the first time in years, the county did not borrow money to make payroll in 2011.