Island County is facing a $1.4 million deficit next year, according to county Budget Director Elaine Marlow.

Like most jurisdictions in the state, the recession has hit the county hard. County commissioners were forced to undergo two rounds of budget pairing over the last year, cutting $4 million and laying off dozens of employees.

And the pain isn’t over yet for county officials.

Marlow discussed options with county commissioners during recent budget meetings. The good news is that the county has healthy reserves. The contingency reserve, which is set at 10 percent of the $22 million current expense fund, remains intact; commissioners have said they have no plans to touch the money, which is earmarked for emergencies.

In addition, the county has $881,000 of unreserved fund balance, which is the money that should be left over from this year’s budget. The county could spend the money to help balance the budget, but it would be a one-time fix.

Marlow said the county is looking at changing health insurance for employees. Moving non-represented employees to a lower-cost plan would save $175,000 a year. Marlow said officials are negotiating with the unions to also move represented employees to a different plan. If the largest union agrees, it would save the county an additional $215,000 a year.

The commissioners are also looking at a small tax increase. Marlow said the estimated $1.4 million deficit assumes that commissioners will increase the county’s portion of the property tax levy by 1 percent, the maximum allowed by law.

But in addition, the county has “banked” taxing capacity that commissioners set aside years ago. If the commissioners decide to use the banking capacity, it would increase property tax collections by $65,000 next year.

The projected deficit is based on conservative earnings estimates. Marlow predicts that sales tax revenues will remain nearly flat at about $4.3 million in 2010; about $4.2 million will be collected this year. In 2007, by comparison, the county received nearly $5.6 million in sales tax revenue.

Island County Treasurer Linda Riffe said she estimates that investment interest will continue to decrease next year because rates are so incredibly low.

The decline in investment interest has been dramatic. In 2007, the county earned $2.4 million in interest. Next year, Riffe predicts the investments will earn just $550,000.

“I think 2010 is going to be a very difficult year, but after that it will gradually get better,” she said.

Riffe said the jobless rate will continue as a drag on the economy. The Washington State Employment Security Department reports that the September unemployment rate in the county was 8.2 percent.

“I’m praying we get through next year without any more staff cuts,” she said. “We can’t cut more people and meet our statutory obligations.”