Kelso may need to tap $600,000 from its reserve fund to make ends meet this year, but the City Council decided Tuesday against more spending cuts for now.

At a council workshop Tuesday, Finance Director Brian Butterfield said the city began 2009 with $1.6 million in reserves, but the amount could drop to $1 million by the end of December.

Revenues are falling short of expectations, Butterfield said. For the first half of 2009, sales taxes were down about $100,000, or 5 percent, from projections. Gambling taxes will be down at least $75,000 for the year because the council agreed to reduce the tax paid by the city’s only casino, which pled financial hardship.

Also, the city anticipated collecting $285,000 for building permits and fees but has taken in only $53,019 through June 30, partly because plans fell through for Fairway Vistas, a townhouse development by the Three Rivers Golf Course. The city could make up most of the deficit if Segale Properties of Tukwila, Wash., builds a commercial center at the Interstate 5 and State Route 432 interchange this year. The project was slated to begin this summer, but the city has yet to receive plans.

Despite Butterfield’s revenue report, council members said they don’t want to resort to layoffs or unpaid furloughs.

Instead, council members said the city should use its “rainy day fund” to balance the budget, especially because they said they are confident Segale’s project will come through soon.

“We haven’t ever had to really dip into it for a crisis like this, and that’s what (its) for,” Councilman Todd McDaniel said. “We don’t want to cut people. We’re trying to move ahead.”

Last fall, the council cut services and adopted a $29.3 million budget for 2009 and a $28.2 million budget for 2010. The general fund, which covers most city operations, is $7.3 million for 2009 and $7.4 million for 2010.

Council members said the city probably will have to make more cuts if voters in November pass Initiative 1033, which would tie government revenue growth to the rate of inflation and population growth. Any taxes collected above a cap would be used to lower property taxes. Cities couldn’t exceed the cap without voter approval.

If the initiative passed and the city’s revenue collections remain the same, the reserve fund will fall to $400,000 by the end of 2010, Butterfield said.

The council said it will review the 2010 budget after the election.