It may take another $2 million in cuts next month to keep the city on track to cover all its expenses and reserves by year’s end.

But by then the city may look significantly different than it did in 2008.

City administration and the City Council are mulling curtailing or removing its funding for community service organizations and implementing a new round of layoffs at the city.

“We’re struggling with personal decisions,” Mayor Darlene Kordonowy said. “Do we lay off six or seven employees at the city or cut off all money to nonprofits? Either way, those actions have broader impacts. Some way or another people are going to lose their jobs.”

The word that the city may have to make another $2 million in cuts came out at Tuesday’s Finance Committee meeting.

As council members tried to figure out what the city’s spending baseline should be, Finance Director Elray Konkel said the city should be operating with expenditures between the $16-to-$18 million range. The rough number is derived from the minimum amount of tax dollars the city can expect to receive annually.

Right now the city is running in excess of $18.5 million in expenditures on its tax-supported side.

At the heart of the discussion during the finance meeting was what the city must provide at its most basic level, and whether community service organizations should turn to the private sector for funding.

“That is part of the discussion that we have to have,” City Administrator Mark Dombroski said prior to the meeting. “Looking at our revenues and what it is we can count on, and shaping government to meet that level. Then looking at other things we provide as a city that aren’t legal requirements and scaling back.”

According to the Municipal Research and Services Center of Washington, cities within the state are required to perform certain minimal functions such as road maintenance, planning and permitting.

Other services such as police, fire, utilities, waste collection, animal control, attorney representation and health services should be provided, but can be contracted out to county or, in some cases, private organizations.

Not required is funding for the arts and human services. That includes organizations such as Health, Housing and Human Services, Bainbridge Island Arts and Humanities Council, Bainbridge Island Downtown Association, and money for affordable housing and community television.

In total, contributions to the community service organizations account for about $1.4 million in city spending, according to Konkel.

Many service organizations’ budgets had their city-supported revenues reduced this year. Last month, the mayor asked for all service organizations to submit amended 2009 budgets that absorbed an additional 15 percent cut in city funding.

“There were some cuts offered, and we might have to ask them to accept more cuts,” Kordonowy said. “We’re trying to keep all the nonprofits going, but we want to see if there is a way to provide those services without the levels of dollars from the city.”

While many service organizations do get outside funding, the cut of city-supported funds could drastically change their functionality.

“We already get private donations to supplement us, but I don’t know if the public could step up to replace that amount (the city gives us),” said Carl Florea, executive director of Housing Resources Board, which gets about $100,000 from the city annually. “I would love to think that. I don’t if that is a realistic expectation.”

Amended contracts for service organizations will be a topic of debate at next week’s council meeting. But there been talk of changing contract terms so the city is not obligated for a year of spending on community organizations.

“The whole purpose of this is to have a profound review of our finances,” council member Barry Peters said. “It would not be prudent to commit to a 12 -month expenditure plan, when we are asking ourselves if we can afford to do that.”

Peters suggested using short-term contracts for periods between three and six months. Those contracts would be tied to the city’s month-to-month cash flow.

But the delay on cutting checks has left service organizations nervous. Usually contracts are approved in January, and many organizations have already set spending levels based on the city’s original 2009 budget.

“The trouble, of course, is all the agencies are working and acting as if there is a budget in place that was approved in December,” said Zon Eastes, director of Bainbridge Island Arts and Humanities Council. “That makes any further reductions that much harder to adapt to.”

Still some believe service organizations should be treated like the rest of the city.

“The way I look at these organizations, they have the same rights and the same risk that anything else in the city budget has,” council chair Kjell Stoknes said. “Those risks include decreasing or eliminating, whatever the city has to do to have a year-end cash balance.”

Difficulties in funding service organizations is coupled with the revelation that the city did not meet its expenditures target for January.

The city targeted $1.3 million in revenue and about $2 million in expenditures for the month.

It is too early to know how much over that target the city spent in January, but most of those expenses are due to carry over year-end payments, Konkel said.

The continued high-mark for expenditures increases the likelihood that further layoffs at the city level may be in the works.

“I could only say half our budget is hours and benefits,” Konkel said. “Savings could potentially come from additional staff reductions and some will have to come from other services.”

A new round of cost-cutting for March was announced in January after the council approved a $2.3 million spending reduction package and lowered 2009 revenue assumptions by $1.8 million.

The administration has said that the public should be a part of the next round of cuts.

“At some point we’ve cut back so much that the next cut requires input by the community,” Dombroski said.

A finance committee meeting scheduled for March 3 is expected to be the first of two open-meeting style discussions on city-wide reductions.