The City Council indicated Wednesday during an hour-long discussion of its priorities for the 2011-12 budget that its emphasis will be placed on core services such as police, courts, road maintenance, utility infrastructure, and a commitment to the community’s human services needs.

The status quo approach reflects a deficit between expenditures and revenue that likely won’t improve anytime soon. Without any reserve funds, the city has been forced during the last 18 months to borrow from its water fund in order to pay bills.

Meanwhile, many of the city’s neglected roads and underground sewer/water pipes are in desperate need of repair or being replaced. Mayor Bob Scales said ideally $800,000 to $1.2 million should be made available annually to help preserve roads.

The need for contingency funds may become even more critical if the council decides to transfer the water utility this year to Kitsap Public Utility District, which is nearly done with a requested due diligence report on the possible transfer. The city likely won’t move its sewer (for now) and storm water utilities, but shedding the water utility would probably lead to some staff layoffs. The issue is complicated by the fact the city has begun the collective bargaining process with its employees’ union, which has requested a one-year rollover of its current contract.

Interim City Manager Brenda Bauer has had preliminary discussions with Kitsap County about sharing services, but the county is also in a financial crises so its options are limited.

All of which means the city will have some tough decisions to make this year. But at least the council is facing reality head on.