The strength of Deschutes County’s economy and the strength of its budget go hand in hand.

Between 2007 and 2012, as businesses closed and layoffs mounted, annual revenue into the county dropped by 22 percent, budget documents from past years show.

Over that same timespan, the private-sector workforce in the county shrank 16 percent, according to state employment figures.

But a modest job recovery, a rebounding construction market and the hottest tourism season on record last year have county officials painting the rosiest financial picture since before the real estate crash.

With one month before Deschutes County releases the first draft of its 2014-15 budget — the fiscal year starting July 1 — the expectation is for new tax revenue and other funding sources to come in at the highest levels in at least seven years.

In any given month last year, 2,800 more Deschutes County residents were employed in private-sector jobs than in 2012, the state data show. Median home prices increased throughout the year as well.

“Property valuations continue to increase, which means a higher level of property tax revenue,” Deschutes County Administrator Tom Anderson said Friday. “That allows us to look at expanding certain programs and more easily plugging (budget) holes.”

But how will those funds be used? The answers won’t be known until late May at the earliest.

The administrators of the county’s public safety, health services and other departments have submitted budget proposals for the next year. Those proposals are based on each department’s projected needs. County commissioners and a citizen budget committee will have the final say.

The budget committee is scheduled to meet the last week of May, county Finance Director Wayne Lowry said.

County commissioners and administrators Friday discussed two different strategies for budgeting in an improving economy: Use any surplus funds to restore programs and jobs cut over the past five years, or build up the county’s reserve fund.

The county’s reserves fell from 7.5 percent of the total budget in 2011, to 4.8 percent of the budget this year, as officials tapped them to help struggling areas such as the Community Development Department, which processes building permits.

The county probably will look for some combination of new services and larger reserves, County Commissioner Tammy Baney said.

“Local government isn’t meant to be sitting on a large reserve, but I do believe local government needs to be responsible about investing in programs they can maintain,” Baney said. In other words, she said, the county shouldn’t overreach by setting up new programs without ensuring enough funds to keep them afloat longer than a year or two.

Anderson agreed.

“The temptation is to build up programs” when more funds come in, he said. “But by being prudent and building up reserves, we’re able to react much more efficiently to changing circumstances.”

Baney is the longest-tenured of the three commissioners, sitting on the board since 2007. At that time, she said, the pressure was on commissioners to control spending as foreclosures mounted and the economic picture grew gloomier.

But tapping into the county’s reserves — built up when the economy was booming — helped avoid large-scale layoffs and kept many services intact.

The 2014-15 budget could offer more flexibility than any in the recent past, Commissioner Alan Unger said. As Baney and Anderson, he said county leaders will have to balance any new initiatives with a long-term push to build up reserves.

“The reserves we had helped us for a few years during the recession,” Unger said. “Because we provided that support, we’re in good shape. It looks like it’s going to be an easier year to budget.”

— Reporter: 541-617-7820, eglucklich@bendbulletin.com