SULTAN — The state came down hard on city officials Wednesday night for overspending.

The city spent about $300,000 in 2001 and $1.5 million in 2002 beyond the budget the City Council had approved, according to the two-year state audit discussed at a Wednesday night City Council meeting attended by about 35 people.

To make ends meet, the city borrowed $300,000 in 2002 and 2003 from its utility fund, the audit shows. The city’s general fund now is about $300,000 in debt, according to Mayor Ben Tolson.

Despite the problems, at least a few city officials said they were glad it wasn’t worse.

"Basically, we have some problems that we can identify and address, and it wasn’t that bad for the city," Police Chief Fred Walser said, adding that he was relieved no city funds had been embezzled.

Councilman Robert Criswell was glad that the audit was debated in public.

"Hopefully, that will settle a lot of people’s worries about what’s going on in town," he said.

Walser said the city’s financial situation is tight, but the audit problems mainly come from fiscal mismanagement.

"These are all fixable things," he said.

The fiscal turmoil started in 2000 when the city spent $210,000 more than it took in.

In the last four years, the city substantially cut spending to meet declining revenues. Compared with 1999, the city got about $329,000 less in revenue and spent about $306,000 less in 2003.

The cutbacks required the city to lose eight employees — five of them at the police station, city officials said.

Now all city expenditures of more than $100 require the mayor’s permission, and all departments cannot spend more than 8 percent of their annual budget each month, city officials said.

The city’s revenues — especially in sales taxes and building permits — have been dwindling because of the sluggish economy.

But city officials said their biggest losses came from Initiative 695. Voters in 1999 approved the measure, which cut motor vehicle license tab fees to a flat $30.

Courts struck down the measure, but state leaders repealed the tax anyway, and those dollars haven’t been replaced. The state had allocated parts of the tax to help small cities such as Sultan, whose sales tax revenues are lower than in larger cities.

Reporter Yoshiaki Nohara: 425-339-3029 or ynohara@heraldnet.com.