POULSBO — The 2012 preliminary budget gap was cut from $474,117 to $87,603 Wednesday, after the City Council approved recommendations from Mayor Becky Erickson and the council’s finance committee.

“We’re within sight now. We can do this,” Councilman Jeff Bauman  said after the nearly four-hour session.

After getting nowhere during the council’s budget retreat last week, the council once again reviewed potential changes to the preliminary budget at its regularly scheduled meeting Wednesday. As Erickson put it, Poulsbo was facing the “trifecta” of financial woes: declining revenue, increasing costs and the addition of the new City Hall’s mortgage.

The finance department is expecting $20.4 million in total revenue next year, but has calculated $22.8 million in expenses. The $2.4 million deficit is spread over the general fund and capital project, debt service, special revenue and utility funds, but is offset by the beginning balance each fund will carry over to next year.

The council is attempting to balance the general fund, the largest piece of the city’s budget at $10.4 million.

The mayor’s recommendations caused some tension at the Nov. 4 budget workshop, where her suggested cuts and salary increases for non-union employees vexed the council.

One point of contention was whether to keep $143,955 in the general fund to help balance the budget, instead of transferring the amount to a street reserves fund, as council policy dictates.

The money comes from a percentage of property tax, formerly set aside for the fire department. When the fire department separated from the city a few years ago, the council decided to continue to take that percentage of tax, but only use the money for street safety and neighborhood street maintenance. For the past two years, the council has dipped into that fund to balance the general budget, to the chagrin of council members Connie Lord and Ed Stern. However, after more discussion Wednesday, the council voted to accept the mayor’s recommendation.

“Today’s economy is tomorrow’s economy,” said Councilwoman Linda Berry-Maraist, concurring with the council that the days of belt-tightening will not be over anytime soon.

Stern dissented, stating he had a problem with the policy.

The council also discussed salary increases for non-union employees; the council had trouble supporting the mayor’s recommendation. However, when it was pointed out those managerial positions hadn’t had a salary adjustment since 2005, the council agreed to accept $12,000 in the budget for salary increases. This accounts for half the money needed for all the salary adjustments, and the council plans on including an additional $12,000 in the 2013 budget for the rest. Again, Stern dissented.

Berry-Maraist pointed out that due to cost-saving measures throughout 2011, the council did not dip into all the reserves planned for this year, and said that could happen again in 2012.

“We don’t have to get to a zero number this year,” she said.

However, Erickson said the council does have to get to zero during the next budget cycle. She said this is just one phase of spacing out all the cuts that are necessary to make the city’s coffers healthy again.

“Sometimes, people do things too severely, they have a tendency to break things,” she said, urging caution this year.

Wednesday was also the first of two public hearings. Of the eight or so residents in attendance, no one spoke. Residents will have one more opportunity to speak at the next council meeting, Wednesday at 7:15 p.m.

The preliminary budget is available at www.cityofpoulsbo.com/finance/documents/2012_Preliminary_Budget.pdf.