As the power struggle continued between the Oak Harbor City Council and the mayor, council members upset about the costs of terminations and a threatened lawsuit are focusing on the budget.

At a long-drawn-out council meeting Monday night, the council members twice declared a fiscal emergency and proposed several measures aimed at curbing spending, even as the city enjoys one of the healthiest fund balances in the state. Councilman Jim Campbell was absent.

The most significant of the actions was Councilman Rick Almberg’s motion directing the finance director to draft an ordinance establishing a  “stabilization arrangement” set at $3 million or 25 percent of the general fund budget, whichever is greater.

Finance Director Doug Merriman discussed the idea with council members at a finance committee meeting. He explained that a “stabilization arrangement” is a technical term for what is essentially a reserve fund with very strict parameters governing its usage.

“You would typically plan to never go below that amount,” Merriman said in an interview. “If the budget dips below that, there are plans in place to recover the amount quickly.”

In addition, the council members asked for an ordinance to decrease the mayor’s unilateral spending authority to $10,000 per contract; they also shortened the length of the contract the mayor signed with the interim city attorney.

Although the city already has a very healthy fund balance of more than 25 percent of the general fund, several council members expressed alarm at the city’s fiscal situation. Councilwoman Beth Munns repeatedly spoke of a “$1 million we don’t have anymore.”

“I just want to make sure we know where the money is going and we have a handle on it,” she said.

Merriman explained that the nearly $1 million revenue shortfall comes from a $261,000 drop in sales tax revenue as compared to last year, the loss of $52,000 in liquor excise taxes, a decrease of $350,000 from 3 percent inflation and $260,000 that was taken from reserves to cover severance payments to ousted employees.

Merriman said the shortfall is a reason for some concern.

“We’re doing better than most cities, but our sales tax is still going down for some reason,” he said. “Other cities are seeing it level off or even increase.”

Yet Mayor Scott Dudley questioned whether there is really a fiscal emergency. In an interview, he said the national board that sets accounting standards advocates a fund balance at half of what the city already has.

“I think the citizens of Oak Harbor are scratching their heads at the actions the city council are taking,” he said.

Almberg pointed a metaphorical finger at Dudley for the budget consternation. He said he proposed a hiring and firing freeze before Dudley came into office in January. He said the council shot his idea down.

“Now we’re seeing the results,” he said.

Since taking office in January, Dudley fired the city administrator, two city attorneys, the fire chief and the police chief. Council members have been upset at the cost of paying severance packages to the fired officials.

“It’s going to be $550,000 to $700,000 before this all shakes out and that isn’t chump change in this town,” Almberg said.

According to Merriman, the terminations have cost $550,000 in severance payments. About half of the cost came out of reserves and the other half was from a special fund to cover the costs of severance payments and related items. The number is a little misleading, however, since only the fire chief position is currently filled; running the city with interim administrators saves a lot of money.

But in addition, Dudley fired Police Chief Rick Wallace last Thursday and Wallace’s attorney indicated that a wrongful termination lawsuit will likely follow. And the city may have to hire a head-hunting firm to find a new city administrator.

Still, Merriman said the city has more than $3 million in reserves in the approximately $12 million general fund budget even with the shortfall; it’s currently at 28 percent. A city ordinance sets the minimum reserve at 16.67 percent, which pegged at the cost of running the city for two months.

Merriman said it took 14 years to get to the point of such robust reserves. When he was hired, he discovered the city was unknowingly $1 million in the red.

The ordinances for a stabilization arrangement and the change to the mayor’s spending authority will be brought forward to the July 3 meeting.