The Island County budget director recently presented commissioners with a worrisome five-year budget projection that shows reserve funds dwindling to levels that could create cash flow problems in just a year or two.

In response, the commissioners are considering creating a couple of different citizen committees to help them steer through the fiscal minefields, and at the same time, educate the public about county government and the budget conundrum.

The commissioners have also gingerly broached the subject of possible tax increases, but have found the options complex and problematic.

“Island County is at a critical juncture. We have prided ourselves on having the lowest tax rate in the state for years, now we’re suffering the consequences of having the lowest tax rate. Do we want to continue with that?” Commissioner Helen Price Johnson asked at a Monday morning roundtable meeting with elected officials and department heads.

Over the last year and a half, county commissioners have dealt with $5.2 million in budget shortfalls — about a quarter of the current expense fund — largely by cutting staff and dipping into reserve funds. More than 55 positions have been cut. The budget is balanced for now, but the pain may not be over.

Budget Director Elaine Marlow created two five-year budget projections. They both estimate a low-level increase in revenues from taxes, fees and other sources. One estimates a 2 percent overall increase in expenses from salary, bases and benefits, while the other estimates twice that. Both estimates assume that staff levels won’t increase and employees will not receive cost-of-living increases.

Marlow projects that costs will significantly outweigh revenues in either scenario. Next year, she predicts the budget will be out of whack by more than $800,000. The deficit each year will slowly shrink as the economy recovers. By 2015, the projection shows the deficit at $258,000.

Much of the reason for the budget problems is simply due to the poor economy, which means less sales tax and investment income. Also, taxpayer initiatives have limited the county’s ability to raise property taxes more than 1 percent a year without a vote of the people. County officials say costs have increased at greater than 1 percent a year. Commissioner Angie Homola pointed out that the county relied for years on income from new construction, but that has dried up.

The commissioners will have three basic choices: cut expenditures, use more unreserved funds or raise taxes.

Monday morning, the county leaders were in agreement that their departments are already cut to the bone. Homola said cutting all non-mandated service — as many have suggested — would not only be unwise economically, socially and environmentally, but it wouldn’t be nearly enough to solve the cash problem.

When it comes to reserve funds, Marlow explained that the county needs a large reserve as a “float” to make payroll and pay bills before the county receives twice-yearly infusions of property taxes. The county currently has about $3.3 million in unreserved funds, which is the amount left over at the end of the year. It’s down from $7.3 million in 2007.

If the fund is tapped to make up the entire deficit in 2011, Marlow said, then the county could have cash flow problems that would only become more severe each year after that. Also, the county would lose most of its rainy-day funding.

That leaves the possibility of tax increases, but they come with their own problems. Marlow presented the county officials with some options — “for educational purposes only” — for tax increases which would require voter approval on the primary or general election ballots.

Voters could approve up to three-tenths of 1 percent in a sales tax increase for criminal justice. A third of the money would have go to the criminal justice system. If passed, the entire three-tenth of 1 percent would raise $2.4 million a year, but 40 percent would go to the cities and towns. The wrinkle is that the law allowing the tax has a phased-in, non-supplanting provision. By 2015, the money from the tax could not be used to fund any expenses that existed at the time the tax was approved. In other words, it wouldn’t be a long-term fix if county revenues don’t adequately increase by then.

The county would also ask voters for a levy lid lift beyond the 1 percent limit. There’s a couple of different options for lid lifts and they could either run for a certain number of years or be permanent. Marlow said an increase of 5 cents per $1,000 of assessed value would bring in an extra $700,000 a year to the county. For the owner of a $400,000 house, it would amount to an extra $20 a year.

For voters, any tax increase might be a tough sell in the current economic climate.

“There are no easy solutions,” Marlow acknowledged.

A number of the county officials said that the key to addressing the problem, and possibly getting voters to agree to tax increases, was to educate the public about what the county does and what the budget shortfall could mean.

The commissioners are considering putting together a temporary, nine-member task force made up of accountants and others with budget expertise to look at the county’s budget, the budget projections, revenue options and come up with recommendations. Price Johnson said “the fresh set of eyes” would ensure that county officials don’t miss anything.

Also, WSU Extension interim director Judy Feldman presented a proposal for an “Island County Civic Engagement Project” that would engage residents in a conversation to generate a list of community values, thereby helping to guide the commissioners in making budget decisions.

“We’re here to work for the public and having this kind of back and forth dialogue is a critical part of doing our jobs the best we can,” Price Johnson said.