After cutting 10 percent of its workforce and trimming expenditures in every department, the City of Poulsbo has avoided pulling a planned $400,000 from reserves.

The city was expected to transfer nearly that amount from savings to cover costs during 2010, but staffing changes and operating cost reductions meant the city began 2011 with a nearly $224,000 carryover, city officials announced in a meeting Wednesday night.

The city will use part of that beginning balance to fund various programs and projects, including new office supplies and improvements to the historical museum.

“As it stands right now, that’s a remarkable achievement for the city,” said Mayor Becky Erickson.

She credited the city’s ability to avoid a transfer from savings to prudent reductions in expenses by staff, as well as a Voluntary Separation Program, through which seven employees voluntarily left their positions for increased severance pay. Those employees weren’t required to leave their jobs until January 2011, but some left months earlier, saving the city money.

The city may have to pull from its reserves later this year if it loses a dispute over wage contracts with the Poulsbo Police Officers Association. Currently in the hands of an arbitrator, if the decision falls against the city, it could owe between $47,500 and $177,500 in backpay to officers. A decision, which will be binding, is expected within the next two months.

The city was expected to begin 2011 with a smaller carryover, roughly $178,000, said Finance Director Debbie Booher. In previous years the city’s carryover has been higher due to increased revenues. In the past three years, careful spending by staff has helped to keep the city from dipping into savings, Booher said.

“They always think twice before they spend,” she said.

Like in 2010, the city balanced its 2011 budget by including a projected transfer from reserves. That transfer is expected to be about $216,000.

Leaders originally projected a much larger shortfall, of about $1.2 million, for 2011. That lead to the Voluntary Separation Program and a department-wide effort to cut costs.

Erickson said the city’s $1.5 million in reserves is the right amount for a jurisdiction with a $10.1 million general fund. The city is required to have at least two months of cash flow on hand. Next year, Erickson plans to establish a separate reserve account dedicated to building maintenance.

She said the city shouldn’t depend on reserves to solve ongoing financial difficulties.

“They should be for emergencies,” Erickson said.