The preliminary Friday Harbor town budget released Sept. 29 wasn’t pretty: It showed seven of 14 town funds spending more than they would take in in 2010.

Three funds — the Current Fund, the Refuse Fund and the Street Fund — were projected to finish 2010 in the red; the others would be balanced with money carried over from 2009.

Today in a special budget work session, the Town Council reviews a budget that is balanced, but still not much prettier.

Two retiring employees will not be replaced. Five other employees, including the town administrator, will have reduced hours. Eleven programs or projects will be eliminated.

“While it is balanced, it took a herculean effort by the staff to do so,” Mayor David Jones wrote in his budget letter to the council.

“For the first time we must consider a reduction of staffing in order to help our expenditures keep in line with our projected revenues. While I am hopeful that this may be a temporary situation, the reality is that it may become the norm in the immediate future.”

Overall, the town budget projects $9.45 million in revenue and $9.97 million in expenses. The latest preliminary budget shows all 14 funds finishing 2010 with money in the bank — ­the Refuse Fund barely, with $5,610 left over.

All told, the town will begin 2010 with a total of $12 million in its 14 funds — $10 million of that is in Capital Reserve — and finishing 2010 with $11 million, with $9.9 million in Capital Reserve.

The Town Council meets today at 5:30 p.m., and again Thursday at noon and 5:30 p.m., in the Town Hall Council Chambers. The meetings are open to the public.

Today’s meeting is a continuation of an earlier meeting, in which the Town Council discussed ways to cut personnel expenses 20 percent in order to help balance the 2010 budget. Cuts to programs and projects are also proposed.

Among the highlights:
— Sewer rates will go up 11.1 percent, stormwater rates will go up 8.18 percent, and water rates will go up 5 percent in 2010, as recommended in a June 2008 rate study.

There will be no increase in refuse rates in 2010.

The rate study recommends a series of rate increases over several years to fund capital improvements. The water rate increase will pump an additional $100,000 into savings for capital improvements; the most immediate project is replacing the main transmission line that carries water to town from the water treatment plant on Wold Road.

Sewer rates will pay for debt for improvements to the system, among them the replacement of the underwater sewer line in the harbor area.

— Eliminated: Support for the Chamber of Commerce from the 2 percent lodging tax collected for tourism facilities; funding for maintenance of the Mullis Community Senior Center power generator, funding for the litter control program, all street projects except an overlay on Spruce Street and Spring Street, and all equipment for the fire department.

— The town expects to receive $900,000 in sales tax revenue, the same as in 2009.

— The budget includes a 2.5 percent wage increase for union employees, and a wage increase of less than 1 percent for non-union employees.

— The town projects a 5 percent increase in its contribution to health insurance premiums, and a 15 percent increase in liability and property insurance costs.

— The Town Council is considering cutting personnel costs 20 percent in order to help balance the budget. Here’s what’s proposed: Jerry Gates of the Street Department would not be replaced when he retires in February after 36 years of service. Neither would Warren Jones, retiring in January as zoning coordinator. Hours for Systems Administrator Steve Dubail, Fire Training Officer Frank Chaffee and Town Administrator King Fitch would be reduced from full-time to 4/5. Historical Preservation Officer Sandy Strehlou and Permit Technician Roxanna Zalmanek would be reduced from 4/5 to 3/5.

Fitch is discussing with the employees union the alternative of employee-wide furloughs, which would be scheduled around the holidays; for example, instead of a three-day weekend, an employee would get a four-day weekend with one of the days unpaid.