Facing a steep drop in tax revenues, the Poulsbo Fire Department will consider measures such as reducing service levels and possible layoffs in coming years.

“If the picture continues down the path we are on then it’s an inevitable reality,” Chief Daniel Olson said Thursday.

The department, which is separate from city government, has also struggled with its station in the Surf Rest area, keeping it staffed intermittently to keep down overtime costs.

Originally the department planned to hire six firefighters to keep the station staffed, but since then it has had to post firefighters there when possible.

Based on revenue projections completed in 2007, the department expects to lose $354,000 in 2010 and $1.07 million in 2011 for an expected deficit of $274,000 in 2011.

Olson said the department has a balanced budget for 2010, but the widening budget gap expected for 2011 may require deeper cuts.

And that is on top of cuts already implemented Olson described as “to the bone.”

“Now we have to start to look at how do we maintain sustainable service levels,” Olson said.

North Kitsap Fire and Rescue is also preparing for a drop in tax revenue.

NKFR Chief Dan Smith said assessed home values in the district will drop by 8.8 percent. The department expects to lose a combined $46,464 from its EMS and fire levies.

Property taxes account for about 85 percent of the department’s budget. In response, the department has cut back on optional spending and has hired two firefighters to reduce money spent on overtime.

Herald reporter Andrew Binion contributed to this article.